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Old June 14th, 2008, 05:51 AM   #1
hkskyline
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MISC | American Carriers Ponder Survival Amidst Fuel Price Spike

US airline catastrophe looms under record oil prices: study
13 June 2008
Agence France Presse



The US airline industry is set to crash as record oil prices threaten to push several carriers into bankruptcy, threatening "our American way of life," an industry study said Friday.

"As a consequence of the skyrocketing price of oil, the US commercial aviation industry is in full-blown crisis and heading toward a catastrophe," said a study issued by AirlineForecasts and the Business Travel Coalition.

At current oil prices near 130 dollars a barrel, several large and small US airlines will default on their obligations to creditors, beginning at end-2008 and early 2009, the study said.

The grim industry snapshot comes as US airlines cut fleets, jobs and capacity and add fees as they struggle with spiraling jet fuel costs and a weak domestic economy.

On Thursday, United Airlines and US Airways announced they would start charging 15 dollars for the first checked bag. Both carriers this month became the latest to try downsizing to survive the fuel crisis.

The study shows that oil at 130 dollars will increase yearly airline costs by 30 billion dollars, while airlines will be able to generate only four billion dollars in fare increases and incremental fees.

Recently introduced bag-checking charges and other fees would only yield 1.0-1.5 billion dollars at the industry level.

"The implication is that several large and small airlines will ultimately end up in bankruptcy, and of those, some will be forced to liquidate," the study said.

"Stabilizing this ailing industry must become a national policy priority," the study said, calling on the White House, Congress, federal regulators and state officials to take action.

Every 10 dollar increase in the price of oil results in four billion dollars in additional costs for the 40 passenger-only airlines, according to the study, "Oil Prices and the Looming US Aviation Industry Catastrophe: A Hole In The Transport Grid."

The airlines are on track to spend 30 billion dollars more on jet fuel in 2008 versus 2007, it found, with the top 10 carriers accounting for almost 25 billion dollars.

The study found that with oil prices in the 135 dollar range, the airline industry "could be forced to park upwards of 1,000 aircraft and shed over 80,000 employees, and still not return to health.

"The consequences will be devastating to US jobs, families, businesses, communities and our American way of life."

Oil spiked to a record 139 dollars a barrel a week ago, nearly double last year's 72 dollar average, and settled above 134 dollars Friday.

The surge in oil prices is showing no sign of abating amid strong demand, particularly from developing powerhouses China, India and Brazil, and tight supply.

Some analysts are predicting oil will hit 200 dollars a barrel in the coming months, after crossing 100 dollars for the first time in early January.

To cover oil prices at 130 to 140 dollars, fares would have to go up by 21-24 percent and airline seat capacity reduced by 18-20 percent, the study said.

"Were oil to climb toward 200 dollars, as some analysts predict, the damage escalates and the airline industry could be forced to shrink 35 percent or more," it said.

"Absent direct policy intervention, the likelihood is several airlines will fail."

The Business Travel Coalition said it plans to put forward specific proposals to President George W. Bush's administration and Congress to help alleviate the crisis.

"We urgently need a new energy policy that will give the airlines a fighting chance to survive and recover," the study said.
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Old June 14th, 2008, 05:55 AM   #2
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US Airways cuts fleet, jobs to fight record fuel prices
12 June 2008
Agence France Presse

US Airways said Thursday it is cutting its fleet and workforce, further reducing domestic capacity, and adding passenger fees to fight soaring jet fuel prices threatening the US airline sector.

The airline said that in response to the "sustained surge in record high fuel prices," it would reduce its fourth-quarter domestic capacity by six to eight percent, on a year-over-year basis.

The Tempe, Arizona-based carrier had previously planned a two to four percent decrease for the period.

For all of 2009, domestic capacity will be cut by seven to nine percent from 2008 levels, it said in a statement.

"Our industry is profoundly challenged by the dramatic increase in fuel prices, and we must write a new playbook for running a profitable airline in this new and challenging environment," US Airways chairman and chief executive Doug Parker said.

US Airways said it plans to return 10 aircraft in 2008 and 2009 to leasing firms, cancel the leases of two Airbus 330 aircraft that were scheduled for delivery in 2009, and make additional fleet cutbacks in 2009 and 2010.

As a result of the reduced flying, approximately 1,700 jobs will be eliminated.

To generate more revenue to offset rising fuel prices, the carrier announced a new fee of 15 dollars for the first bag checked, becoming the latest carrier to charge for checking a bag. United Airlines announced a similar move Thursday, and American Airlines did the same in mid-May.

US Airways also unveiled a new in-flight beverage purchase program, amended its frequent-flyer program and increased fees linked to certain discount travel.
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Old June 16th, 2008, 07:00 AM   #3
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ANALYSIS-Shrinking airlines mean higher fares, fewer routes

NEW YORK, June 9 (Reuters) - By the time U.S. airlines are done cutting capacity and shrinking to survive record fuel costs, the U.S. commercial airline network will look a lot leaner and, for some consumers, a lot meaner.

That is because fares, especially on less crowded routes, are rising fast, and some flights may just disappear.

Analysts say that for the airlines, the new pricing power is long overdue -- and consumers will just have to accept that cheaper air fares have disappeared for now.

"The days of affordable flying are over for now, and leisure travel could become a luxury," said Vicki Bryan, a bond analyst at Gimme Credit.

In a note to clients, Bryan said routes to as many as 30 cities across the country have been cut, citing statistics from the Bureau of Transportation.

United Airlines parent UAL Corp said last week it will slash its work force and domestic fleet, following similar cuts by rivals as the industry grapples with a weakening economy and oil prices that have doubled in the past year.

Over this year and next, UAL will reduce its mainline domestic capacity at least 17 percent.

UAL's downsizing is consistent with recent steps taken by rivals.

AMR Corp's American Airlines has said it will cut domestic capacity 11 percent or 12 percent in the fourth quarter and eliminate more than 1,000 jobs.

Delta Air Lines, which plans to merge with Northwest Airlines, has said it will cut 2,000 jobs through voluntary retirement and reduce domestic capacity by 10 percent this year.

"As the airlines cut capacity and drive fares up, some people will be priced right out of the market and the airlines will go more for the business travel than the leisure travel," said Patrick Murphy, principal of aviation consulting firm Gerchick Murphy Associates.

DANGER

Travelers flying between two noncompetitive markets over 1,500 air miles now pay at least $340 round-trip more than they did last December, according to Tom Parsons, chief executive of Bestfares.com, an Internet travel Web site.

Another airline analyst, Ray Neidl of Calyon Securities, said in an interview: "There is the danger that some very small markets may lose their commercial airline service, and that's something the government has to address."

Amid the unprecedented fuel costs, airline experts generally agree that U.S. airlines must cut capacity 20 percent and raise fares 20 percent just to stabilize.

Lehman Brothers analyst Gary Chase said the U.S. airline industry is undertaking a restructuring twice as large as it did in the years following the attacks of Sept. 11, 2001.

In a recent note, Chase wrote that he expects the airline industry will need to raise almost $3 billion in new equity over the next 12 to 18 months to shore up liquidity.

Murphy added that major carriers will now focus on their hubs, international routes and business travelers.

"For them, it's just hunker down and hold on and hope they can hold on to their cash longer than their competitors," said Murphy. "Most of them feel they have enough cash to get through the year but if fuel continues to climb and doesn't let up, even the major carriers at some point could run out of cash."
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Old June 17th, 2008, 09:06 AM   #4
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Airfare Hikes, Capacity Cuts Start To Pinch Las Vegas
16 June 2008
Dow Jones News Service

Soaring fuel prices are starting to hit home in Las Vegas as cash-strapped airlines hike fares and cut capacity at McCarran International Airport -- Sin City's tourism lifeline -- leading to pressure on room rates and lower spending levels by visitors.

US Airways (LCC), Delta Air Lines (DAL) and United Airlines (UAUA) are among the carriers curtailing flights to Vegas, and there are predictions that total capacity could be down by double-digit percentages or more by autumn, following declines of 3% and 6% in the first and second quarters, respectively. At the same time, the average cost of plane tickets jumped more than 10% in March, according to the Bureau of Labor, and that may pinch even more.

US Airways alone will chop its capacity in half starting in September, reducing it by 7,200 seats a day while eliminating its entire night-hub operation based in Las Vegas. Wachovia's Brian McGill estimated that could, taking into account load factors and connecting passengers, reduce capacity by 5%, or 1.9 million people, annually.

That cut was far higher than anticipated, McGill noted, as "previously, we believed that the capacity [cuts] coming out of Las Vegas could be 12% across the entire industry."

But now, "it is quite possible it could eventually be greater than a 15% capacity reduction into Las Vegas."

Rather than capacity cuts, which can be offset by increased loads, more flights by discounters and other factors, Deutsche Bank analyst Bill Lerner wrote in a recent note that "the real issue could be the related inflation in airline ticket prices' impact on spend per visit in the resort corridor."

"In our view, the real risk...appears to be a redistribution of visitors' budgets following airline ticket price increases," he said. "As the cost of transport to Vegas increases, we suspect visitors will continue to come at similar levels as 2007, as we have seen year to date, but simply spend less during their stay or shorten their visit.

Total visitation to Vegas was up 0.4% through March, although revenue on the Strip was down in the mid single digit percentage range.

At Boyd Gaming (BYD), "the bigger issue is the rising airline ticket prices [that are] more likely to impact visitor spending patterns or trip duration," said spokesman Rob Stillwell. "We don't think capacity cuts will have a material impact because there's already excess capacity."

Last week, the Nevada Gaming Control Board reported that April gambling revenues were down 5% statewide to $1 billion, with a 1.3% drop on the Strip to $524.1 million -- but the latter saw a nearly 6% decline in total drop that would have hurt more if hold percentages had not increased 40 basis points.

It was down on both the high and low ends of the market, with Strip slot revenue off 6.7% on a handle decrease of 6.4%. April table win was up 6.7% on a 150 basis point increase in hold that mitigated the 4.2% decrease in table drop. Baccarat win was down 0.5%, also with an increase in its hold overcoming an 8.1% decrease in drop.

Drop is the total amount of money wagered at a casino; hold is what it wins.

The airfare hikes and general economic malaise is having an impact off the casino floor as well, as operators are forced to cut prices on hotel rooms to make up for shortfall in visitor budgets. There are plenty of rooms at mid-tier resorts to be had for under $100 -- and even the luxe end is paring back rates to boost occupancy levels.

That can really start to pinch as most casinos on the Strip now garner at least half, and often more, of their revenue from nongambling spending. Hotel rooms, once essentially given away to encourage people to stay and play, have become an important source of income on both the top and bottom-lines.

"Whenever capacity cuts or increased fares have occurred in the past, they have put price pressure on our hotel rooms," said Alan Feldman, a spokesman for MGM Mirage (MGM). "This current circumstance is no different."

He noted that when the company reported its first-quarter earnings, it said that occupancy was flat with rates down slightly.

"This will likely continue through the end of the year," he said.

According to a J.P. Morgan's Morgan survey, average daily room rates (ADRs) on the Strip in the second quarter were 13% over the same period in 2007, with weekdays off 10% and weekends down 17%. That comes on top of an overall 6% fall in the first three months of the year.

"The results of the survey reflect the impact of a slowing economy on travel to and spend on the Strip," wrote Joe Greff, along with "aggressive pricing/discounting of room rates."

There is no end in sight, he added: "When it stops is tough to forecast with any great precision, though we think this continues through the summer."

As result, shares of the top operators have been reeling over the last few months. While gambling stocks have long been volatile, the downward movement this time has been steady -- and dramatic.

MGM Mirage is down from the low $60s in April to the low $40s this week; Las Vegas Sands (LVS) is off from north of $80 to barely $60 (It was $150 in November); and Wynn Resorts (WYNN) has slipped from $100 to $95 since the start of spring. Boyd has been holding steady in the teens for the last few months but at this time last year, it was over $50.
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Old June 18th, 2008, 07:01 AM   #5
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High fuel costs prompts Continental to suspend Saipan flights
14 June 2008
Agence France Presse

Continental Micronesia said Friday it would suspend the only flights directly linking the US-administered Northern Mariana Islands to the Philippines because of soaring jet fuel costs.

The unit of US-based Continental Airlines said the three times a week return flights would end from July 16 and it plans to lay off hundreds of employees at its Guam hub and around the region.

The airline will also suspend flights from Guam to Hong Kong in July and to Bali from October.

The decision to stop flying between Saipan and Manila will affect thousands of Filipino workers in the Northern Marianas and hurt tourism to the islands, already suffering the effects of Japan Airlines' decision to end scheduled flights from Tokyo to Saipan.

Northern Marianas Governor Benigno R. Fitial said Continental's decision was another major blow to the tourism-dependent islands.

Continental Micronesia chief executive Mark Erwin said the skyrocketing rise in fuel costs had made the suspended routes unviable.

"Each dollar of oil increase has an annual impact to Continental Airlines of 45 million US dollars," he said.

"While these are very difficult decisions to make, the record fuel costs, combined with lower customer demand in these markets, lead to the decision to suspend service," Erwin said in a statement.
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Old June 18th, 2008, 10:21 AM   #6
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If US Airways, Delta and American Airlines cannot fly domestically, then maybe it's time for the US government to let others (KLM, Lufthansa, etc) operate domestically under their own banner in the USA?
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Old June 19th, 2008, 05:07 AM   #7
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Are the European airlines really affected by the high prices? It seems like it's the U.S. airlines that are suffering the most for some reason.
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Old June 19th, 2008, 02:32 PM   #8
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I am not sure why the overseas airlines are not affected as much. However, to prove the point, read on Virgin America that started domestic operations in the USA in 2008. Of course, it must be a US-based airline (i.e. Virgin group owns only 25% of stocks), but still it is Virgin, and it's fleet includes only Airbuses.
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Old June 20th, 2008, 04:22 AM   #9
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Delta to cut more US capacity due to fuel costs
18 June 2008

ATLANTA (AP) - Delta Air Lines Inc. plans to cut domestic capacity by an extra 3 percent in the second half of this year due to record fuel prices.

The Atlanta-based company disclosed its plans in a regulatory filing, and president and chief financial officer Ed Bastian discussed the capacity cuts later Wednesday during the Merrill Lynch Global Transportation Conference in New York that was broadcast on the Internet.

The airline will cut domestic capacity by 13 percent during the second half of the year, an increase from the 10 percent reduction announced in March.

Bastian suggested at the conference that Delta's domestic capacity cuts won't end there.

"We have flexibility to do more, and we will do more," he said.

He said further reductions could be warranted in 2009 on Delta's regional carrier side.

Delta, which plans to acquire Eagan, Minn.-based Northwest Airlines Corp., estimates fuel costs this year will be $4 billion more than last year.

The airline expects to post a profit in the second quarter, excluding one-time items. Delta forecast $3.2 billion in unrestricted liquidity at the end of 2008, down $600 million from the end of 2007. The total amount Delta cited includes a $1 billion undrawn credit line.

Bastian hinted that Delta will be looking at unspecified cash-raising opportunities in the future, but wants to complete the Northwest acquisition first. There has been speculation Delta could sell its regional subsidiary, Comair. Delta has said only that it is considering shedding the unit.

Delta shares fell 28 cents, or 4.9 percent, to close at $5.45 on Wednesday.

Several major carriers have announced plans to cut domestic capacity by double-digit margins as the price of oil soared to more than $134 a barrel, about twice what it was a year ago. Others are adding new fees for passengers and cutting jobs. Delta will shed about 4,000 jobs.

Delta expects its job cuts to result in $200 million in annual cost savings. Bastian said the affected employees will leave Delta as of Oct. 1.

While Delta is cutting domestic capacity, it continues to increase international capacity. The carrier said Wednesday that international capacity will be up 14 percent in the second half of the year, compared with the same period a year ago.

Bastian said Delta hopes to complete its acquisition of Northwest in November or December. The deal, which Delta believes is more important now than ever because of high fuel prices, is subject to shareholder and regulatory approval.

In a separate address to investors at the Merrill Lynch conference on Wednesday, the chief executive of Orlando, Fla.-based AirTran Airways, which has its hub in Atlanta, said his company also plans to cut domestic capacity to deal with high fuel prices.

In April, the discount carrier said it was suspending its expansion plans beginning in September 2008 and extending through 2009. It said the result would be no more than flat capacity growth year-over-year. AirTran now expects a 5 percent reduction in capacity year-over-year.

CEO Robert Fornaro said AirTran's primary goal is to adapt to high fuel prices.

"We've been through adversity before and our culture responds to it, and I assure you we will do it again today," Fornaro said.

AirTran said previously it will put off buying 18 Boeing 737-700 planes for up to five years.

AirTran shares fell 8 cents, or 3.2 percent, to close at $2.45. Earlier in the session they hit a new low of $2.33.
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Old June 20th, 2008, 06:28 PM   #10
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Ticket Prices Increasing

http://www.nytimes.com/2008/06/20/bu...in&oref=slogin

June 20, 2008
High Fuel Costs Are Squeezing Low Air Fares
By MICHELINE MAYNARD
For years, Southwest Airlines and JetBlue operated under self-imposed fare caps, promising travelers that no ticket would cost more than $299 one way.

Those were the days. Want to fly from Boston to Long Beach, Calif.? On JetBlue, it will now cost as much as $599 each way. A one-way ticket on Southwest from Manchester, N.H., to Ontario, Calif., can be $414.

The low-fare airlines aren’t so low anymore. Jet fuel costs — up more than 80 percent over last year — are forcing the airlines to sharply raise some fares, and reinvent themselves to appeal to not just bargain hunters, but also the briefcase crowd that generally pays more for last-minute tickets. No longer does Southwest’s slogan promise, “You are now free to move about the country.”

“The reality is that fares must go up,” said Davis S. Ridley, Southwest’s senior vice president for marketing and revenue management. “The arithmetic doesn’t work if we transport five people across the country at $99 each way.”

Airlines like Southwest, JetBlue and AirTran have been able to offer cheap fares for years because of their lower operating costs, for reasons that include simpler jet fleets, work rules and less-sprawling route networks. Their low prices and rapid growth forced the largest carriers to cut fares whenever they entered a market.

... ...
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Old July 11th, 2008, 06:05 AM   #11
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US Airways drops films to cut costs
9 July 2008
Reuters News

LOS ANGELES - The Hollywood studios will take a revenue hit when US Airways does away with in-flight movies, but executives don't expect other airlines to follow suit.

Nontheatrical distribution contributes $25 million or more per studio in annual revenue and more than $300 million among all media companies, with film and TV sales to airlines accounting for about 80% of that total. Other sources of nontheatrical sales include the hospitality and institutional markets.

US Airways said Tuesday it would stop offering in-flight movies on domestic flights this fall to cut expenses, citing pressure from rising fuel costs. Although airlines are often prone to copycat moves on pricing and customer services, Hollywood execs in regular contact with airline officials said Wednesday they don't believe other carriers will follow US Airways' lead this time.

"I don't expect that the major national airlines will follow suit," said Julian Levin, Fox's exec vp in charge of nontheatrical sales. "I think they will continue to offer entertainment to their passengers, even in the extremely difficult environment of rising fuel costs."

Others involved in in-flight film sales agreed.

"This is probably not an industry trend, as US Airways is in the most trouble right now," said one studio executive, who asked not to be identified.

Meantime, another disconcerting trend for Hollywood has seen many airlines make big cuts in the number of daily flights they operate. Deals between studios and airlines vary, but fewer flights generally mean lower movie revenue for Hollywood.

More positively, studio execs take heart in airlines' moves to install digital playback systems for in-flight entertainment. Such systems often feature seatback screens, which airlines have used to offer even coach customers the ability to view multiple movies during long domestic and international flights.
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Old July 11th, 2008, 06:50 AM   #12
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Quote:
Originally Posted by Alex Von Königsberg View Post
I am not sure why the overseas airlines are not affected as much. However, to prove the point, read on Virgin America that started domestic operations in the USA in 2008. Of course, it must be a US-based airline (i.e. Virgin group owns only 25% of stocks), but still it is Virgin, and it's fleet includes only Airbuses.
Yeah I don't ever read about Transavia, KLM, Ryanair, British Airways, Lufthansa, Swiss, LTU, Iberia, SAS, Aer Lingus or any other European airline struggling amid high fuel prices. Aren't prices for fuel much higher in Europe than the United States?
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Old July 11th, 2008, 07:09 AM   #13
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It's probably the hardening Euro shielding them from some of the inflation.
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Old July 11th, 2008, 07:13 AM   #14
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But many US carriers fly a lot of very old planes, which are very fuel-inefficient, hence making the problem far worse.
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Old July 11th, 2008, 08:56 PM   #15
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Originally Posted by hkskyline View Post
But many US carriers fly a lot of very old planes, which are very fuel-inefficient, hence making the problem far worse.
Add to that the highly antiquated Aviation laws/policies.....
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Old July 12th, 2008, 06:26 AM   #16
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DTW has done OK during this. They haven't lost many flights, unlike most other airports.
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Old July 14th, 2008, 02:07 AM   #17
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This is why high speed rail is needed more than ever now. Allow HSR to serves as the means of long distance transport (500 miles or less) which will enable the airlines to focus on the more profitable long haul routes between major hubs.
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Old July 14th, 2008, 04:19 AM   #18
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Quote:
Originally Posted by FM 2258 View Post


Are the European airlines really affected by the high prices? It seems like it's the U.S. airlines that are suffering the most for some reason.
Fm2258, the European airlines are hurting too but not to the same extent. With oil priced in US Dollars, the relative strength of the Euro reduces the price increase felt by the European airlines. Indeed both BA and Lufthansa recently reported healthy profits for the last fiscal year.
What they have not done is nickel and dime their customers with petty fees and charges. Most of them add a " fuel cost surcharge" to their tickets and adjust this weekly to cover the rising cost of fuel.
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Old July 14th, 2008, 06:07 AM   #19
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Australian carriers and Air New Zealand have also been effected by fuel prices though no where near as bad as American carriers

Qantas have lowered frequency's to Japan and Los Angeles and some domestic routes

Jetstar have cut some domestic routes and cut some flights to South east Asia

Air New Zealand has lowered frequency's to Japan and Australia
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Old July 14th, 2008, 06:38 AM   #20
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What we need to see is RyanAir/EasyJet and the like enter the US domestic market and embarrass SouthWest and Jet Blue's with real low cost flights.

I'm not sure about the US or European taxes, but I'm certain in the UK jet fuel is tax-free.
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