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Airlines in Trouble - Part II
In last month's issue of the AIT eNewsletter, our feature article, "Airlines in Trouble," cited how the five premiere U.S. flag carriers reported a combined loss of $5.777 billion. By the time the article was posted on our web site, however, several media outlets seemed to contradict the gloom and doom trend. While Nippon Airways of Japan reported a 10% profit increase, Swiss Airlines reported a 10.9% income increase and British Airways reported a 2.8% revenue increase with $69 million in profit.
Evidently, not all airlines are in trouble!
So now we are left to question the trend line (if there is one) of profitability for the global airline industry. Hong Kong based stalwart Cathay Pacific reported a loss of $84.9 million for the first half of 2008 on a revenue increase of 22.6% over the prior year. Seoul based mega cargo carrier Korean Airlines reported a net loss of $279 million in one quarter, for three consecutive losing quarters.
Even more recently, the death knell tolled for yet another all cargo carrier; Gemini Air Cargo announced this month that it could not make it out of bankruptcy and consequently is folding.
What other "tea leaves" are out there to reference? KLM is adding a new freighter from Chicago to its Amsterdam base Schiphol, Lufthansa is adding a freighter from Toronto to Frankfurt, and Great Wall Airlines from Shanghai is increasing capacity up to six flights per week to Seoul, Seattle and Chicago.
In considering these service enhancements, a couple of questions spring to mind: if the industry is in such bad shape, then why are these carriers adding more flights? Or, perhaps the better question is this: if these carriers are adding more flights, then why are others losing money, some to the point of bankruptcy?
In the final analysis, there is no simple or absolute answer. Some clues can be found in the statistics and he/she who manipulates and analyzes them, or to those who own the airlines. Whether they are passenger/freight combinations or all-cargo carriers, in the end, the only true barometer dictating these trends is profit.
The articles below reflect the up and down trends experienced in the industry in August:
ANA post 10% increase in operating profit
Japan's second-largest airline, All Nippon Airways (ANA), reported a 10 percent rise in quarterly operating profit, Reuter's reports.
Despite the recent crisis in the aviation industry, a result of soaring oil prices, ANA said its profit lifted due to demand for US and European routes.
For the three months ended June 30, ANA booked an operating income of $135.9 million, up from $132.9 million a year earlier.
Source: Cargo News Asia - August 1, 2008
Swiss Airlines income up 10.9%
Swiss International Airlines has generated a total income of $2.4 billion, a 10.9 percent year-on-year increase.
However, high fuel prices cut into the company's earnings before interest and taxes, which amounted to $250 million, compared to $297 for the same period last year.
The company's CEO said they see storm clouds on the horizon, with an ever-worsening industry environment.
Swiss World Cargo maintained its high cargo load factor, due in part to transporting goods in high-value niche markets.
Source: Cargo News Asia - August 1, 2008
BA posts operating profit of $69m in first half
British Airways (BA) has announced revenue up by 2.8 percent for the first half of 2008, with an operating profit of $69 million.
BA's cargo business had a 4.1 percent increase in volume year-on-year, and a 21.9 percent increase in revenue to $351.8 million
The company noted that fuel costs doubled in the past year.
Despite a hedging program to mitigate fuel costs, BA expects their fuel bill to top $5.9 billion for the year.
BA's chief executive stated that between oil prices, economic slowdown and weaker consumer confidence, the airline industry is in the worst trading environment it has yet had to face.
The company has ordered six Boeing 777-300ER aircraft, which are 23 percent more fuel efficient than their current fleet, for delivery in 2010.
Source: Cargo News Asia - August 1, 2008
Cathay Pacific Loses on Fuel
Cathay Pacific Airways lost $84.9 million in the first half of 2008. In the first half of 2007, the Hong Kong-based airline earned a profit of $330.7 million. The company said the big change in its financial performance was entirely due to the relentless rise in the cost of jet fuel in recent months.
Group revenue increased 22.6 percent to $5.4 billion, with a significant increase in both passenger and cargo revenue. Fuel costs, though, jumped 60 percent to $132 per barrel, for a total fuel bill that rose 83 percent from $1.4 billion to $2.5 billion.
The fuel surcharges approved by the Hong Kong Civil Aviation Department in the first half were less than half of the increased fuel bill.
The amount of cargo carried by Cathay Pacific and Dragonair grew by 6.8 percent to 828,399 tons. The cargo load factor rose by 1.1 percentage points to 66.4 percent against a capacity increase of 6.9 percent. Yield fell 1.8 percent to HK$1.60 due to pricing pressures, the company said in its interim statement.
The Cathay Pacific Group in May took delivery of the first of six Boeing 747-400ERF Extended Range Freighters which benefit from higher fuel efficiency. The Group also has 10 new-generation Boeing 747-8F freighters on order and at the same time has begun a program to retire the older, more inefficient Boeing 747-200/300F "Classic" freighters in its fleet. Two have already left - one from Cathay Pacific and one from Dragonair.
Shippers can expect to pay more on Cathay Pacific in the coming year as the company attempts to raise prices to cover additional fuel costs. While demand remains robust, the airline said it would not withdraw from any destination it now serves.
Source: Traffic World Online
August 7, 2008
Thomas L. Gallagher
Web Editor
Biggest failure since Kitty Hawk, Gemini confirms closure
US carrier Gemini Air Cargo has failed to find a way out of Chapter 11 bankruptcy protection and is closing down.
The airline said in a statement on its web site: "Gemini is in the process of permanently winding down its business. After Aug. 29, 2008, Gemini will no longer be receiving or responding to any inquiries via telephone contact."
The shutdown is the largest among US-based air cargo carriers since Kitty Hawk Air Cargo ceased operations in late 2007.
Gemini operated four MD-11 freighters for other carriers under "wet lease" contracts, leaving Gemini to cover the aircraft, crew, maintenance and insurance costs. Gemini customers included Lufthansa, FedEx, British Airways and Finnair.
Source: Air Cargo Asia Pacific
August 22, 2008
Korean makes it three red quarters in a row
Korea's Korean Air Lines, which claims to be the world's largest international air cargo carrier, has posted a net loss of 289 billion won ($279 million) for the three months ended June 30, its third straight quarterly loss.
Sales were up 18 percent, but fuel expenses increased 79.4 percent and were exacerbated by weakness in the South Korean won against the US dollar.
Conversely, the weak currency boosted cargo revenue by 28.4 percent as Korean exporters shipped more products overseas.
Source: Jack Handley
Air Cargo Asia Pacific
August 15, 2008
Costly fuel brings dozens of airlines to their knees
PARIS: From Aloha in Hawaii to Alpi Eagles in Italy, from promising upstarts like Silverjet to legends like Aeropostal of Venezuela, more than two dozen airlines have fallen off the international radar screen this year.
Some filed for bankruptcy-law protection. Others have sharply reduced operations or limp along as charters. While each struggled with its own set of circumstances, the toll of 25 airlines - three to four times the number that the International Air Transport Association normally registers in a year - has mounted as oil price shocks roiled the industry. Among them, 17 have ceased operations altogether.
Read the entire article here:
http://www.iht.com/articles/2008/08/06/business/airlines.php
Source: International Herald Tribune
By Caroline Brothers
Wednesday, August 6, 2008
BA closes in on American alliance
British Airways says it is hopeful of agreeing a tie-up with its largest US rival American Airlines within weeks.
The talks are taking place alongside negotiations between BA and the Spanish airline Iberia about a possible merger.
With aviation fuel prices at record levels and spending on air travel slowing, airlines are looking for ways to cut costs.
BA suffered an 88% drop in profits between April and June and said the industry faced its worst ever period.
It also said it would cut 3% of flights this winter to reduce overheads.
British Airways and American Airlines already work together as partners in the One World alliance which lets member airlines share flight capacity and airport facilities.
But it is understood that, if agreed, a new deal would see them work much more closely to try to cut costs in areas such as technology, ticketing and administration.
According to the BBC's business reporter Joe Lynam, British Airways is also hoping to secure its status as a global airline well into the future.
Any deal between BA and AA would be subject to regulatory scrutiny.
The two airlines have failed in the past to gain immunity from US competition laws for a tie-up, but British Airways believes that relaxations in regulations under the Open Skies agreement may make this more likely.
Rival Virgin Atlantic has said it would oppose any joint venture between the two transatlantic carriers, saying it would create "a dominant mega-power" on routes between Europe and the United States.
Story from BBC NEWS: http://news.bbc.co.uk/go/pr/fr/-/2/hi/business/7539554.stm
Published: 2008/08/03
EU approves Delta-Northwest merger
U.S. decision still pending
Delta Air Lines and Northwest Airlines have received approval from the European Union for their proposed merger.
The two carriers are still awaiting a decision from the U.S. Department of Justice on the deal.
Delta chief executive Richard Anderson said in a written statement: "We continue to work closely with the U.S. Department of Justice and remain confident that we will be able to finalize the merger by the end of the year."
The merger also must receive approval of shareholders, who are scheduled to meet Sept. 25. Atlanta-based Delta and Eagan, Minn.-based Northwest announced their proposed merger in April.
According to the European Commission, the EU's antitrust authority, the airlines' passenger services on transatlantic routes are "mainly complementary as they have hubs in different U.S. cities."
Its review of passenger service took into account the fact that Delta and Northwest are partners through the SkyTeam airline alliance and already cooperate on transatlantic routes with European SkyTeam members, including Air France, KLM, CSA Czech Airlines and Alitalia.
The commission also said the deal would have "only a limited impact" on transatlantic cargo transport because of the airlines' limited presence in the market.
By KELLY YAMANOUCHI
The Atlanta Journal-Constitution
Published on: 08/06/08
Delta, Northwest pilots approve joint labor contract
Delta and Northwest pilots have approved a joint labor contract that will take effect when the two airlines' proposed merger closes. In voting that ended Monday, about 61.7 percent of Delta pilots voted in favor of the agreement, according to the Delta pilots union. About 86.8 percent of Northwest pilots voted in favor of the agreement, the pilots union said.
Of 6,231 eligible Delta pilots, 5,120 voted, the union said. Of those that voted, 3,161 were in favor of the agreement. Of 4,371 eligible Northwest pilots, 3,535 voted. Of those that voted, 3,067 voted in favor.
"This historic milestone marks the first time that a labor agreement has been reached in advance of the close of an airline merger," said Delta's pilots union chairman Lee Moak in a written statement.
The Delta and Northwest pilots groups are represented by separate units of the Air Line Pilots Association.
"This momentous vote broke the traditional merger paradigm," Northwest's pilots union chairman Dave Stevens said in a written statement.
The pilots agreement is a key element of the two carriers' merger plan. It brings Northwest pilots' pay up to the level of Delta pilots and includes a 5 percent pay raise in 2009 followed by 4 percent annual raises from 2010 through 2012. It also includes 3.5 percent in equity in the combined company for Delta pilots and 2.38 percent for Northwest pilots. The deal covers Delta's 7,000 pilots and Northwest's 4,500 pilots.
The labor agreement does not settle the issue of seniority integration, which governs how the two groups would be merged for purposes of aircraft assignments and other work issues.
The pilot groups have agreed to submit to binding arbitration if they can't come to terms on seniority integration through negotiations. A three-member arbitration panel has already been chosen.
Delta and Northwest's proposed merger is expected to close by the end of the year, pending regulatory and shareholder approval. The U.S. Department of Justice is reviewing the proposed deal. Delta and Northwest shareholders meetings are scheduled for Sept. 25.
In a memo to Delta pilots Friday, Moak said ratifying the contract would give pilots "the opportunity to secure our future in an increasingly difficult industrial and economic environment."
By KELLY YAMANOUCHI
The Atlanta Journal-Constitution
Published on: 08/11/08
With no congressional reviews, Delta merger 'on track'
Washington - As summer winds down, Congress is lining up its autumn hearings. But airline mergers, the subject of four hearings this spring, are not among the hot-button issues scheduled for attention.
With no more congressional reviews planned, conventional wisdom now holds that the proposed merger of Delta Air Lines and Northwest Airlines will be completed this year without any major new political objections.
Further hearings are unnecessary because "we believe that Congress saw that antitrust (violations) would not be a significant concern with this deal," Delta spokeswoman Chris Kelly said.
Politics is not supposed to play a role as attorneys at the Justice Department review a merger for possible antitrust violations. That department alone has the power to block a deal if it threatens competition in an industry.
But elected lawmakers can play an indirect role in the review process by whipping up popular sentiment to pressure Justice. The House and Senate hearings held in April and May, shortly after the deal was announced, failed to create a firestorm of protests, leaving the Delta-Northwest merger seemingly cleared for takeoff in coming months.
"We are pleased with the progress that has been made and believe we are on track for completion by the end of the year," Kelly said.
Andrew B. Steinberg, an aviation attorney and former chief counsel for the Federal Aviation Administration, agreed. "I have not heard there are any problems," he said.
Justice spokeswoman Gina Talamona would say only that the review is "ongoing."
But even though the merger appears on track, some opponents say they will continue to object. Joseph Tiberi, spokesman for the International Association of Machinists and Aerospace Workers, said he is in no mood for surrender.
"We've been opposed to this from Day One and our opposition will continue," said Tiberi, whose union represents Northwest's customer service and reservation agents, clerical workers and equipment service employees. "We will continue meeting with members of Congress and take all steps possible to protect workers, because Delta and Northwest management clearly are not."
He said this year's hearings did nothing to persuade the IAM that the merger would be good for workers. "If anything, we are less comfortable with it," he said, because during their testimony, the airlines' executives pulled back from their initial pledge not to fire front-line workers.
Instead of reaffirming a no-furlough commitment, they told Congress "high fuel prices may make that impossible," he said. "We have seen Delta and Northwest change their stories."
Frank Werner, a Fordham University professor who has been studying the proposed merger, said politics is playing a role in the merger's timing. "They are hustling to get this done before the Bush administration leaves," he said.
The airlines "chose to announce this merger in 2008 in part because of their belief that the Bush administration has been very pro-management," Werner said. "Historically, Democrats have been more critical of mergers," and even a White House under Republican John McCain may be more skeptical of the benefits of a reduced number of major carriers, he said.
Werner said that given how fares have risen and routes reduced this year, "I'm a little bit surprised there hasn't been more outcry from the public," he said.
By MARILYN GEEWAX
The Atlanta Journal-Constitution
Wednesday, August 20, 2008
American Airlines, American Eagle and Susan G. Komen for
the Cure Announce Expanded Partnership,
Unveil Two Pink-Ribbon Aircraft
American Airlines, the world's largest airline, and Susan G. Komen for the Cure(R), the world's largest breast cancer organization, today announced an expanded partnership with the unveiling of two specially co-branded aircraft, an American Airlines 757 and an American Eagle Embraer 145, each incorporating the renowned vivid pink-ribbon motif.
The distinctive pink streamers, which extend the length of the fuselage of the two aircraft, signal a new level of mutual commitment, as American Airlines becomes Komen for the Cure's official airline and first-ever Lifetime Promise Partner. The partnership represents a newly created funding category for Komen -- called Promise Grants -- which are collaborative, inter-disciplinary research projects with the strong potential to discover and deliver the cures for breast cancer more quickly.
Read the full story here
Source: CNN - August 11, 2008
** Editor's Note **
AIT Worldwide Logistics is a flagship sponsor for the American Cancer Society's "Making Strides Against Breast Cancer Walk®" which takes place annually every October during National Breast Cancer Awareness Month, and was designed to heighten awareness, foster camaraderie and raise funds for breast cancer awareness research, patient services, education and advocacy. AIT looks forward to returning as the flagship sponsor at this year's October 19 event.
Book Review: Innovation Nation: How America is Losing its Innovation Edge, Why it Matters, and How We Can Get it Back
Not long ago, Americans could rightfully feel confident in our preeminence in the world economy. The United States set the pace as the world's leading innovator: from the personal computer to the internet, from Wall Street to Hollywood, from the decoding of the genome to the emergence of Web 2.0, we led the way and the future was ours. So how is it, bestselling author and leading expert on innovation John Kao asks, that today Finland is the world's most competitive economy? That U.S. students rank twenty-fourth in the world in math literacy and twenty-sixth in problem-solving ability? That in 2005 and 2006 combined, in a reverse brain drain, 30,000 highly trained professionals left the United States to return to their native India?
Even as the United States has lost standing in the world community because of the war in Iraq, Kao warns, the country is losing its edge in economic leadership as well. The future of our prosperity, and of our national security, is at serious risk. But it doesn't have to be this way. Based on his in-depth experience advising many of the world's leading companies and studying cutting-edge innovation "best practices" in the most dynamic hot spots of innovation both in the United States and around the world, Kao argues that the United States still has the capability not only to regain our competitive edge, but to take a bold step out ahead of the global community and secure a leadership role in the twenty-first century. We must, though, take serious and concerted action fast.
John Kao was a featured speaker at The Chicagoland Chamber of Commerce Annual Meeting of Membership on June 9, 2008, at the Sheraton Chicago Hotel & Towers.
Hydrogen Car takes to the sky
with Alitalia Cargo
On July 31, 2008, Alitalia Cargo transported the "Fiat Hydrogen Car" on its MD11SF aircraft, flying from Milan Malpensa to New York JFK on board flight (AZ9104).
On August 11, 2008, the Fiat Hydrogen Car will be unveiled during the inauguration of the first hydrogen refueler in Billerica, Massachusetts.
The Massachusetts station will be the starting point of the "Hydrogen Road Tour", a coast to coast tour that features nine hydrogen powered vehicles across 19 states of USA.
OAGCargo.com
August 5, 2008
JetBlue charging $7 for pillow and blanket
New York - JetBlue Airways Corp. said Monday it is now charging customers for pillows and blankets.
The carrier has done away with the recycled blankets and pillows used on its flights, and has started offering an "eco-friendly" travel blanket and pillow that can be purchased for $7 on flights longer than two hours. The pair comes in a kit with a $5 coupon to home furnishings retailer Bed Bath & Beyond.
The carrier claims the pillow and blanket feature a fabric technology, developed by CleanBrands LLC, that blocks pesky critters like dust mites, mold spores, pollen and pet dander.
JetBlue already offers free "Snooze Kits" on overnight flights from the West that include an eyeshade and ear plugs.
But the blanket and pillow kit is the latest in a string of a la carte items the company says are providing a revenue boost to help offset the soaring price of jet fuel.
A JetBlue spokeswoman declined to predict how much the sale of these kits will bring in, saying that the company only provides revenue details for specific items in its quarterly earnings conference calls.
The carrier said last month it expects to collect about $40 million from customers buying seats with extra leg room this year. Its $15 fee for a second checked bag is expected to translate into about $20 million in additional revenue. A ticket change fee, which doubled to $100 in the second quarter, is part of a "basket of fee changes" expected to produce about $50 million in extra revenue in 2008.
By SAMANTHA BOMKAMP
Associated Press
Published on: 08/04/08
FedEx Express Introduces
Fuel Efficient Boeing 757 To Aircraft Fleet
Flights to Washington, D.C., Will Have Reduced Greenhouse Emissions and Noise Levels, Expanding Company Commitment to Conscientious Growth
MEMPHIS, Tenn.--FedEx Express, a subsidiary of FedEx Corp. (NYSE: FDX) and the world's largest express transportation company, has launched its inaugural revenue flight using a Boeing 757 freighter. The new route provides reliable cargo service between the Memphis International Airport (MEM) and the Ronald Reagan Washington National Airport (DCA) eight times per week.
This FedEx Boeing 757 flight into DCA also serves a new airport for FedEx, further extending the reliability, connectivity and quality of FedEx service throughout the mid-Atlantic region.
"The introduction of the 757 freighter to our fleet of aircraft - one of the largest in the world-is a significant milestone for FedEx," said David J. Bronczek, president and chief executive officer of FedEx Express. "This new service immediately expands our reach and capacity in the mid-Atlantic region and enhances the access our customers have in the global marketplace."
In addition to customer benefits, the introduction of the Boeing 757 to the FedEx fleet continues the company's commitment to growth in an efficient, environmentally-conscious way. The Boeing 757 is known for its improved fuel efficiency and reduced noise levels, and will be phased in over time as the less fuel-efficient Boeing 727 aircraft are retired from service.
"Investment in the Boeing 757 aircraft is a key component in our plan for a reduced carbon footprint," said Jim Parker, senior vice president of Air Operations for FedEx Express. "Our plans to replace the Boeing 727 aircraft with more efficient Boeing 757s allow us to aggressively upgrade our fleet while reducing our overall, long-term energy investment. These fleet initiatives create and sustain long-term stockholder value by reducing our reliance on traditional energy sources and mitigating our exposure to potential price increases and supply shortages."
The introduction of the Boeing 757 model into the company's fleet offers measurable cost benefits for FedEx during a period of unprecedented energy prices. The aircraft has significantly improved fuel-burn efficiencies, cutting greenhouse gas emissions and reducing fuel consumption up to 36 percent while providing 20 percent more capacity per flight, when compared to the Boeing 727 it replaces. FedEx Express plans to introduce an additional 11 Boeing 757s into service over the next year.
Traffic World Online
August 7, 2008
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