November 3, 2009

Price of Crude Oil to Stay Put?

The price of NYMEX crude oil futures is just about at the $80 mark, and within the past month, the price of oil has risen nearly $10 (see oil chart below). It’s no surprise that the price of oil is climbing. In early summer, many oil experts predicted the price to settle in the $70s during the Fall season.

How will this affect airlines? Obviously, more expensive oil means higher fuel costs for airlines. Yet, as the IATA predicts, passenger demand will likely rise within the next year, likely allowing airlines’s capacity number to settle. After all, airlines have not cut this many seats since 1942 – an upswing is in the future.

As for predicting future oil prices – I’m certainly not an expert in the field. Yet on forums, I’ve seen predictions around $110 – $120 for 2010. On the bright side, we’re almost out of a recession. All of the indicators look good, except the unemployment rate.

 

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From wtrg.com

 

 

 

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October 28, 2009

It’s Official: Continental Airlines Joins Star Alliance

Continental Airlines, based in Houston, TX, officially switched from the SkyTeam alliance to Star Alliance. The move isn’t a surprise, as Continental’s intentions to switch were announced over a year ago.

Star Alliance is the world’s first and largest airline alliance, consisting of founding members: Air Canada, Lufthansa, SAS, Thai Airways, and United Airlines. A day following failed merger talks with United, Continental CEO Larry Kellner received a call from United’s Glenn Tilton, asking for Continental to leave SkyTeam and join the Star Alliance.

On Continental’s relationship with SkyTeam, Continental President Jeff Smisek said, it “worked for us when there were three equal airlines.” Prior to the merger of Delta Air Lines and Northwest Airlines, SkyTeam consisted of a level playing field – all three airlines were relatively similar in size. Following the combination of Delta and Northwest, Smisek said, “it relegated us, in effect, to junior-partner status.”

Continental’s a good fit for Star – but why? For starters, Continental does not share a hub city with any other Star Alliance members. The Newark hub will boost Star’s status in the New York City region – a needed key city on Star’s combined route map.

United is known for their pacific international destinations, while Continental boasts an extensive European route map. Then there is US Airways, who compliments Star’s network with hubs at Philadelphia, Charlotte, and Phoenix.

Customers that fly United will be able to earn miles on Continental flights – and vice-versa. It’ll be easier to find alliance members gates, as Continental is shifting gates at 11 airports to neighbor Star Alliance members.

The move adds yet another airline to the Star Alliance collection. Already, Star consists of 25 full members, serving 1,071 destination airports in 171 countries.

Quotations: AP

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October 27, 2009

IATA Reports Airline CFOs More Confident

As airlines struggled this past third quarter, good news came from the International Air Transport Association (IATA). After surveying airline chief financial officers, the industry trade group reported an increase in market confidence from airline CFOs, with over 73 percent of them expecting profitability to improve over the next twelve months. How will airlines stack up with this prediction?

It’s not too difficult for airlines to improve – it seems as though they’re at their worst. Profitability weakened throughout the third quarter, and weak demand attributed to low yields.

Economically, the markets are making a comeback – an indication that we’re heading out of a recession. Unfortunately, the unemployment rate is still high, but on a broad-based scale, companies are improving financially. Once firms have more money to spend, the number business travelers should increase, as well as leisure travelers.

The outlook for passenger traffic, says the IATA, is expected to improve within the next twelve months – 60 percent of airline CFOs said they expect increases over that period. Nearly half of airline CFOs also indicated that they expect an increase in yields for passenger service (46.7 percent), and 69.6 percent expect an increase in cargo.

Half of airline CFOs said they expect to reduce headcount over the next twelve months. As for employment, the IATA stated:

“Employment trends tend to lag the cycle in air traffic and airline profits, as airline need to restructure after recessions to reduce losses. While there are early indications of an upturn in traffic volumes, the downward movement in employment levels reported in July has continued during the last quarter.”

The IATA says the survey results are consistent with their forecast for $11 billion of net losses this year for airlines. Overall, it looks as though airlines will soon see increases in passenger numbers, as well as yields.

Source: IATA (Q3: Airline Business Confidence Survey)

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October 21, 2009

Allegiant Air Continues Profitability Streak

The nation’s cheapest, ancillary revenue friendly airline, Allegiant Air, reported a profit of $13.8 million this past quarter, making them the nation’s most profitable airline for this quarter. In a period of weak demand for air travel, Allegiant successfully boasts higher profit margins than any other carrier in the United States.

What are they doing right? (see post) Nothing’s changed drastically. The Las Vegas based company continues to make money from food, beverage, and souvenir sales. More importantly, the carrier makes money off of vacation packages, hotels, and car rentals. “We’ve taken a focused approach on selling something more than air travel,” CFO Andrew Levy told USA Today.

The competition – there virtually isn’t any. Allegiant serves 70+ cities, and only faces competition on five of their 140+ routes. The airline doesn’t fly to/from big airports, rather they are known for going ‘nowhere to nowhere,’ as most of Allegiant’s route map consists of small airports – many border major cities.

Smaller airports pay off for Allegiant, as small typically means cheaper to operate out of. Additionally, smaller airports generally have fewer delays. However, some airport managers have complained that Allegiant is too ancillary revenue based – in some situations, the carrier discontinued routes, despite high load factors, if flights were not making enough on hotel / rental car / vacation bookings.

Allegiant has orders for 16 (early 2009 data) McDonnell Douglas MD-83s, expanding its fleet (as of April 2009) of 43 aircraft. While most airlines are dumping MD-80 series aircraft due to fuel consumption costs, Allegiant is buying them. The airline owns a majority of their aircraft, reducing costs, as the carrier does not need to pay off leases. The planes cost roughly $4 million, a tiny fraction of what most airlines pay for aircraft.

They’ve found a niche, and it’s paying off well. Quarter after quarter, the airline continues to be profitable. No, you may not see their commercials, but they might be in your hometown. As long as the airline continues to wisely and skillfully manage its routes, Allegiant will continue to grow and build on its success.

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October 17, 2009

U.S. House Passes Airline Safety Bill

In an effort to increase the amount of experience required for airline pilots, the U.S. House of Representatives passed H.R. 3371, the “Airline Safety and Pilot Training Improvement Act of 2009.” Many organizations, including the Coalition of Airline Pilots Associations (CAPA), applauded the bill’s passing by the House, but not everyone is happy.

The primary element of the bill requires all pilots to hold an FAA Airline Transport Pilot (ATP) license and have a minimum of 1,500 hours of flight time to pilot part 121 commercial aircraft (most commercial airplanes). Legislators, including Transportation Committee Chairman Jim Oberstar (D-MN) and ranking GOP members, are happy to see the bill pass, as they say it will make the skies safer.

Yet the new bill puts a challenge on student pilots who wish to pilot airliners in the future. Some students at Embry-Riddle Aeronautical University expressed concerns about the bill, as most graduating seniors have not fulfilled the ATP 1,500 hour requisite. Approximately 25 percent of commercial airline pilots have graduated from Embry-Riddle.

The new bill could potentially force student pilots to get their flight instructor ratings, which many students hope to get, to reach the 1,500-hour mark.

Although countless pilots are frequently furloughed, there is a shortage looming on the horizon. FAA statistics have shown that the number of issued pilot’s licenses is decreasing. Experts predict, based on FAA statistics, there will be a heavy demand for pilots in the forthcoming decades. The new bill would add yet another hurdle to the dilemma of becoming an airline pilot, likely lowering the number even further.

Most of today’s pilots fly because they really want to. Already, airline pilots have seen pension plans decrease a significant amount, pay fall to unbelievably low ($16,000 p/year for some), and an increase in the number of flights they fly.

Will the new bill be as safe as legislators make it out to be? A pilot could easily rack up hours through “pattern-work”, or practicing takeoffs and landings over-and-over, in a Cessna 172 to get their ATP. Although hours usually means experience, would the new bill make pilots any safer?

This bill is thought to be the result of Colgan Air flight 3407, the flight that crashed in Buffalo, NY, after an NTSB report showed that both pilots had little experience.

Capt. Chesley “Sully” Sullenberger, the pilot that landed US Airways flight 1549 on the Hudson River, argued that the bill is necessary. In his book, “Highest Duty,” Sullenberger concludes that more hours make a safer pilot – which most pilots will agree with.

What do you think? Will the new bill make pilots safer, or is it just another hurdle?

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October 12, 2009

Lufthansa Brings Back Wi-Fi, Phone Service

Germany’s largest airline, Lufthansa, announced plans to bring back WiFi and phone services. Within forthcoming months, the carrier said they would bring back the service, beginning with flights between the United States and Europe. The service will likely be fleet-wide by mid 2010.

You might recall Lufthansa offering WiFi three years, however the airline removed the service citing weak demand. The price of WiFi used to be $10 per hour, or $27 for the entire flight; in-flight calls tended to be a costly $3 a minute. Yet this time, more carriers have adopted WiFi, making the public more aware of the service, and the cost of the service will likely be much cheaper.

Additionally, the carrier aims to allow passengers on international flights to make calls, and use their high-speed internet. The carrier wants to gain a competitive advantage by being the first carrier to offer high-speed connections for multiple devices.

The new system will utilize Panasonic’s FlyNet, a satellite-based technology, on-board the carrier’s aircraft.  With this, Lufthansa will not only be on the carriers-that-offer-WiFi list, but this will likely bring in a good amount of revenue for the airline.

Based off of USA Today and WSJ

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October 9, 2009

Airlines and Social Media: Interview with American Airlines

Online social networking quickly became the primary way we communicate and stay-in-touch with others. Through status updates, “tweets”, or blogs, we’re readily updated on friends, family, co-workers, and now… airlines too are on-board with social media.

In the past few years, many airlines launched blogs, Twitter accounts, and Facebook fan pages aimed at keeping consumers in-the-loop of airline news, sales, and general day-to-day flying information.

Just recently, I spoke with Mr. Christopher Vary, a vice president at Weber Shandwick – the world’s largest public relations firm. Mr. Vary, along with other Weber Shandwick employees, work together with American Airlines’s corporate communications team on social media development and content for the airline.

The airline’s social media efforts are paying off. On April 13, 2009, Mr. Vary’s team launched American’s use of social media to new heights, with the debut of American’s Twitter and YouTube accounts. Just six months since the account’s inception, the Twitter account has over 15 thousand followers, and Facebook boasts 30 thousand. Through social media, American can “improve to support the brand and connect with new customers like never before,” said Mr. Vary.

Whether there is a weather delay, fare sale, or new aircraft in the fleet, the social media team posts / tweets it. “The whole goal is to really provide customers and consumers with the first touch point of information,” said Vary. Travelers are truly getting “one-to-one” information about the company, as well as day-to-day information directly related to travelers.

Just months ago, during the closing of New York’s LaGuardia airport due to a bomb scare, the airline’s Twitter account provided minute-to-minute tweets, updating passengers on the status of the airport. As social media is at the fingertips of many travelers, tweets helped passengers get information quicker than ever before.

Through online social media and networking tools, airline information flows faster and more directly to consumers. Fare sales and free trials for on-board Wi-Fi use have appeared on American Airlines’s social media platforms. According to Mr. Vary, promotions and offers draw in millions of impressions and thousands of “re-tweets” for the airline.

Social media platforms are always evolving and improving, and as consumers evolve with them, airlines will follow. Mr. Vary says American Airlines is exploring new fields of social media and is evaluating all the technologies available.  “We’ve only scratched the surface.”

Links:

American Airlines: Twitter, Facebook, and YouTube.

Images from stock.xchng

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October 6, 2009

United’s Traffic Falls, Debt Offering

Chicago based United Airlines said traffic for the month of September fell by 1.1 percent, primarily due to the declining number of passengers in North America. Additionally, United priced $659 million worth of debt, most of which will be used to pay off remaining debt from 2001.

For the month of September, paying customers flew 9.25 billion miles, down from 9.35 billion miles in Septbember 2008. The carrier reported that North American traffic fell 6.1 percent to 4.48 billion RPMs (revenue passenger miles). International traffic increases slightly by 0.4 percent to 3.61 billion RPMs. Load factor for the carrier rose 2.1 percentage points to 81.2 percent – not shocking, as fewer flights usually attributes to higher load factor.

As the first nine months of the year are complete, it’s time to measure traffic. Traffic has decreased 8.4 percent to 86.74 billion RPMs.

As for the debt offering, United is borrowing against 31 aircraft. The debt offering interest rate is 10.4 percent and will mature November 1, 2016. The carrier said they were refinancing the aircraft side of debt to reduce their debt payment obligations – taking advantage of current market conditions. The proceeds of the debt will go towards repaying the $548 million in existing debt. United said that the funds left over will likely be used for corporate purposes.

United has some work to do, but this is a step forward – financially. United needs to start looking at employee satisfaction and customer satisfaction. United Breaks Guitars, a song by Dave Carroll, drew public awareness of United’s unwillingness to compensate Carroll for damaging his beloved Taylor guitar – creating a PR nightmare for United. On the employee side, it’s not a good sign that employees are happy with you when they start create a website about the chief executive of the airline. This is fixable, but unfortunately most airlines don’t have the cash to launch massive advertising campaigns – but it might be worth it for United.

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October 2, 2009

Mitsubishi Gets 100-Plane Order for MRJ

Japan’s first ever passenger jet, the Mitsubishi Regional Jet (MRJ), received a 100-plane order from U.S. regional airline Trans States. Mitsubishi Heavy Industries, a outsourced supplier for the Boeing 787, is still continuing development on the 70-90 seat airliner. The company declined to say how much the order was worth, but the catalogue price for the order is valued around $2 billion – $4 billion total if the 50 options go through.

In 2008, the MRJ received an order from launch customer ANA (All Nippon Airways) for up to 25 planes. Deliveries for the new airliner are expected to begin in early 2014.

“This is a very proud moment for us. The world has high expectations for the MRJ. This is especially true in the U.S.”

- Hideo Egawa, president of Mitsubishi aircraft division.

Compared to jets in the same seat category, the plane is expected to cut fuel burn by 20-30 percent per hour. Trans States said that fuel costs are “very important.”

The aircraft uses a geared turbofan engine developed by Pratt & Whitney. The new technology is referred to as a fuel sipper, as the engine’s fans can operate at a different speed to the turbine. This same type engine is also used on Bombardier airplanes.

This is only the second Japanese made plane since the end of World War II – the first was the YS-11, but had very limited success.

Mitsubishi plans to build the aircraft at Mitsubishi Heavy’s factory in central Nagoya. They plan on producing 24 aircraft per year initially, but expect to increase the amount of 72.

Mitsubishi recently delayed the delivery date to revamp the design by increasing cabin / cargo space. Additionally, they switched from carbon-fiber to aluminum wings. Mitsubishi is advised by Boeing.

Image: http://www.mrj-japan.com/

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September 30, 2009

Update on Airbus A320 Series Winglets

Airbus has decided to proceed with the winglet program for the A320 family, a move that will improve performance on all models. Additionally, Airbus is expected to decide whether to re-engine the A320 series, as CFM international said they’re ready to advance their schedule for the LEAP-X program for Comac’s C919 (the new Chinese airliner) – opening the door for a possible re-engining of the A320 series, as well as the Boeing 737.

Back to winglets. Winglets for Airbus A320 series aircraft will be offered in 2012 or 2013 as an option to airlines. It is not clear if these will be offered as retrofits, but it is clear that Airbus will concentrate on forward fits. The winglets are expected to reduce fuel burn by 2-4 percent, pending on the model / design.

The first aircraft to be fitted with winglets will be the Airbus A321 – certainly giving those with 757s a chance to switch over, and a better competitor to the 737-900.

Currently, most Airbus A320 series aircraft (with a few exceptions like the early A320s) have wingtip fences. These devices have similar aerodynamic benefits to a winglet, but are not as effective as full-sized blended winglets. Airbus has tested blended winglets before, but previously announced that they were not interested in outfitting aircraft with the technology pioneered by Boeing with the 747 / 737. Yet last December, the aircraft manufacturing shifted their view and re-opened testing.

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