Archive for April, 2008
April 28, 2008
The parent of United Airlines, which held unsuccessful merger talks with Continental Airlines, said it would pursue all options to ensure a sustainable future.
“Ensuring you have the right partner is everything,” UAL said in a statement. “We will pursue all options to ensure a strong, sustainable future for our airline and will not shy away from the tough choices necessary to create value for our shareholders.”
Earlier on Sunday, Continental said it had decided against merging with any other airline, but will explore alliances with other carriers.
Continental had called off talks with United due to the other carrier’s weak financial condition, and “the increasing cost of oil increases the risk of doing an airline merger,” a source briefed on the matter said.
(Reuters)
April 28, 2008
Continental Airlines has called off talks with United Airlines because of the other carrier’s weak financial condition, and “the increasing cost of oil increases the risk of doing an airline merger,” a source briefed on that matter said.
The source also said Continental Airlines is in “advanced talks” with British Airways and American Airlines about a potential alliance, with plans to seek antitrust immunity.
Separately, Continental said in a letter to its employees it has chosen not to merge with any other airline at this time but will continue to consider an alliance with other carriers.
“We have significant cultural, operational and financial strengths compared to the rest of the industry, and we want to protect and enhance those strengths — which we believe would be placed at risk in a merger with another carrier in today’s environment,” Continental Chief Executive Larry Kellner and Vice President Jeff Smisek said in the letter.
Several details had been agreed upon in the merger talks between Continental and United, including Kellner being chief executive of the combined company and Smisek being president, the source said. United CEO Glenn Tilton was to get a seat on the board of the combined company.
But talks broke off this weekend, with Continental now focusing on an alliance with British and American.
Such alliances allow partners to streamline their costs while sharing revenues. Without antitrust immunity, the data and revenue shared on the routes would normally be considered collusive.
Earlier this month, the US Department of Transportation granted tentative antitrust immunity to the SkyTeam alliance involving Delta Air Lines, Northwest Airlines, Air France-KLM, Alitalia and CSA Czech Airlines.
This approval came just before the announcement of a merger between Delta and Northwest that would create the world’s largest airline.
“Every US carrier, including Continental, is under enormous pressure from record high fuel prices, a slowing US economy and a weak dollar,” the two executives said in the letter.
Continental, which has a marketing alliance with SkyTeam but was not part of the group that received antitrust immunity, will review its participation in that alliance.
American Airlines is part of the 10 member oneworld alliance, which includes British Airways, Cathay Pacific, Finnair, Iberia and Japan Airlines. But Continental’s talks, for now, would focus on grouping with only British and American.
(Reuters)
April 26, 2008
Latin America’s major airlines are still going strong despite rising fuel prices, buoyed by growing passenger traffic as the region’s economies expand at a healthy rate.
From Chile to Mexico, air travel is surging as economic gains trickle down to the masses, allowing millions to fly for the first time. Thanks to the jump in demand, fierce cost-cutting and often steep fares, Latin America’s top carriers are either making money or moving closer to profitability while the rest of the industry is bleeding losses.
In Brazil, where two deadly plane crashes and an air traffic control crisis in the last year and a half have done little to cool the aviation market, foreign carriers and new players are lining up to get a piece of the pie.
In recent months, Germany’s Lufthansa, LAN Peru and TAP Portugal have all signed code-share agreements with TAM Linhas Aereas, Brazil’s leading airline. KLM Royal Dutch Airlines and Air France, teaming up with TAM’s rival, Gol Linhas Aereas.
And last month, JetBlue Airways founder David Neeleman unveiled plans to start a new low-cost, discount carrier in Brazil that will take to the skies in 2009.
“Brazil is Latin America’s most important aviation market, and if it did not have attractive long-term fundamentals, I don’t see why these international airlines would be hammering down the door to get in,” said Stephen Trent, an aerospace analyst at Citicorp in New York.
Still, Brazil is not immune to the woes plaguing the industry in the United States, where airlines are under pressure to merge as a way to cut costs and boost revenue.
Last November, local carrier BRA collapsed after it couldn’t come up with the revenue to cover rising costs. This month, OceanAir suspended flights to Mexico, and Virago — the debt-ridden carrier Gol bought last year — canceled all routes to Europe and Mexico. Both blamed soaring fuel costs.
TAM and Gol, which command more than 90 percent of Brazil’s aviation market, have also seen their earnings shrink in recent quarters. But both remain profitable despite the jump in fuel prices, with TAM earning USD$264.5 million in 2007 and Gol pocketing USD$52.6 million.
That contrasts sharply with the United States, where Delta Air Lines and Northwest Airlines just posted a combined USD$10.5 billion in losses for the first quarter because of record-high fuel costs.
Chile’s LAN Airlines and Panama’s Copa Airlines are also making money, and lots of it. LAN’s net profit surged 28 percent last year to USD$308.3 million while Copa Holdings, the parent company of Copa and Colombian carrier Aero Republica, made a record USD$160.4 million.
LAN, whose cargo business helps it offset downswings in passenger traffic, has stimulated demand by reducing short-haul fares and kept a lid on costs by adopting more fuel-efficient planes and cutting out frills such as free meals and newspapers.
It has also cushioned the impact of rising oil prices by passing on a fuel surcharge to cargo customers.
In Mexico, the aviation market is more crowded. About a dozen airlines operate, half of them low-cost carriers born in the last two years, and most would likely already be profitable if it were not for steep fuel costs and a saturated market.
Traditionally, Mexico’s skies were dominated by Aeromexico and Mexicana, formerly government-owned airlines that were privatized in recent years. They are still the top two airlines but others like Volaris and Alma are hot on their heels.
Like their Brazilian counterparts, Mexican carriers are benefiting from surging passenger traffic as more people fly instead of traveling by bus. Passenger traffic is growing in double digits, both at home and between Mexico and the United States, boosted by new travelers and a tourism boom.
“Mexico is a model country with the low-cost carriers and the two legacy carriers all expanding the market and growing their traffic with new travelers,” said Bob Booth, an aviation specialist and chairman of Miami-based AvGroup.
An indication of the growing market is the fast pace that Mexican airlines are adding routes.
Mexicana will add flights from Monterey to New York in May and from Mexico City to Edmonton, Canada, in June. Aeromexico is launching service to China next year and the low-cost carriers are adding domestic routes and flights to the United States.
But the crowded market also means that consolidation may be on the horizon.
“We will see some form of consolidation taking place, with mergers and or acquisitions,” said Booth.
(Reuters)
April 26, 2008
American Airlines has had early-stage merger talks with US Airways and is in advanced talks for an alliance with Continental Airlines, sources briefed on the situation said on Friday.
News of the talks comes after Delta Air Lines and Northwest Airlines announced nearly two weeks ago they planned to merge to become the world’s largest airline, seeking to counter rising fuel prices, a weak economy and a growing competitive threat from European carriers as trade barriers fall on trans-Atlantic travel.
American Airlines’ talks with Continental are focused on forming an alliance that could share passengers, much like the SkyTeam partnership that includes Air France-KLM, Alitalia, CSA Czech Airlines, Delta and Northwest Airlines, the people said.
Alliances have flourished in the industry because they generate profits through marketing programs and flight code-sharing without the headaches of combining operations.
But Continental is also in advanced talks with United Airlines for a full merger, the sources said. Continental will choose either the merger or the alliance, not both, sources said.
Meanwhile, United Airlines is also in serious merger talks with US Airways, and will choose to merge with either Continental or US Airways soon, the people said.
American’s talks with US Airways were not serious at this point, one person said.
Aviation consultant Bob Mann said a US Airways-American Airlines merger would not be a marquee matchup and would give American, currently the largest US carrier, little extra depth overseas.
“It doesn’t match Northwest-Delta and it would not match the global presence of a Continental-United, if that were going to happen,” Mann said. “But I think if Delta-Northwest does happen and Continental (and United) does happen, about the only thing left on the board is US Airways.”
All of the airlines declined to comment.
Continental, which has said it would prefer to remain independent unless the competitive landscape changes, had laid most of the groundwork for a merger with United even before Delta and Northwest announced their deal, the sources said.
Under the terms being negotiated, Continental Chief Executive Larry Kellner would be CEO of the combined airline and UAL CEO Glenn Tilton could be chairman, the people said. Other details are still being negotiated in what would be another all-stock deal.
Combining United with Continental would create a company with a combined USD$35 billion in revenue and nearly 100,000 employees, surpassing the Delta-Northwest combination.
But that merger may not happen. United Airlines, whose shares plunged 40 percent when it reported a quarterly loss earlier this week, is also talking to US Airways.
Analysts have said a merger of United and US Airways would be less complex than a United/Continental combination.
JP Morgan analyst Jamie Baker said earlier this week a deal between United and US Airways could be easier when it comes to aligning pilot pay, combining fleets and cutting flights and seats.
Baker also said the merger would be easier because United and US Airways already have code-share agreements and are part of the Star Alliance.
“United was interested in America West in 1998, US Air in 2000. Today, both are available under one roof,” Baker said. America West and US Airways merged in 2005.
After racking up USD$35 billion in losses and finally emerging from a five year slump in 2006, US airlines are hoping mergers could give them greater market power to reduce flights and raise fares.
The airlines also face a renewed sense of urgency to cut costs as jet fuel prices have more than doubled since the start of last year.
The carriers will be forced to make decisions in the coming weeks as they would like to have any mergers approved under the administration of President George W. Bush, which is considered more merger-friendly but ends in January.
All talks have been ongoing since January this year, after people heard that talks between Delta and Northwest had become serious. Delta and Northwest announced their merger April 14 in an all-stock deal then valued at just above USD$3 billion.
The Justice Department has said it would, if necessary, weigh multiple merger proposals in the airline industry and try to complete any reviews before the Bush administration leaves office.
While there is broad industry belief that the Northwest/Delta combination stands a good chance of being approved, some competition experts believe a follow-on deal could face a tougher challenge due to a further narrowing of competition that could lead to higher fares and fewer choices for travelers.
(Reuters)
The International Air Transport Association has signed a historic commitment to tackle climate change.
IATA Director General and CEO Giovanni Bisignani was joined by the industry’s other top leaders in a signing ceremony at the 3rd Aviation and Environment Summit in Geneva, Switzerland. Read the rest of this entry »
April 23, 2008
Aircraft makers, airlines, airports and air traffic controllers pledged on Tuesday to work towards “carbon-neutral growth” and reduce their industry’s contribution to global warming.
The declaration committed commercial players including Embraer, Bombardier, Boeing and Airbus to support cleaner fuels, improve fuel efficiency, better manage air routes, and work “to achieve greenhouse gas reductions wherever they are cost-effective.”
“We are committed to a pathway to carbon-neutral growth and aspire to a carbon-free future,” the signatories said.
They also urged governments to develop a global emissions trading scheme for the aviation sector.
Willie Walsh, chief executive of British Airways, said the stakes were high for a European Union proposal to make all airlines flying into and out of the bloc buy pollution permits, and to gradually buy emissions certificates at auction.
“It is hard to exaggerate the importance of emissions trading,” Walsh told hundreds of industry representatives at a conference near Geneva airport.
He said that an emissions trading scheme, in line with what Brussels has proposed, would give airlines room to grow their businesses while not fanning climate change. This was preferable to taxes that can be too blunt an instrument, Walsh said.
“The goal must be to reduce global emissions at the least cost to the global economy. I believe carbon trading can achieve this,” he said.
The UN Intergovernmental Panel on Climate Change said in a report last year that the aviation industry made up 3 percent of mankind’s total contribution to global warming in 2005. That proportion is expected to rise to 5 percent by 2050.
Airbus CEO Tom Enders said that new technology and other innovations, particularly in fuel, were the key to making air travel more sustainable over the long term.
“If our growth is restricted, so are the benefits. So are the benefits aviation can bring to the world,” Enders said, noting Airbus was experimenting with fuel cells as a way to decrease overall emissions.
Boeing Commercial Airplanes CEO Scott Carson said his firm was looking at algae-based products as an alternative to biofuels that are part of the food system. Prices for dietary staples including corn and wheat have shot up in past months, partly due to demands on crops for use as alternatives to oil and natural gas.
Philippe Rochat, executive director of the Air Transport Action Group, said the climate change declaration should help draw the industry together around a common goal, as has already been done in safety standards and e-ticketing initiatives.
“We are devoting the same energy, investment and sheer determination to ensure the industry has a sustainable future,” he said.
(Reuters)
April 22, 2008
A bomb scare involving an Air Europa passenger jet in Venezuela was a false alarm, authorities said on Monday, after explosives experts searched the plane.
The privately owned Air Europa plane flew out of the main airport just outside the capital of Caracas and headed for Madrid after the all-clear, Venezuela’s airline association said.
Late on Sunday, as the plane stood on the tarmac set for takeoff, anonymous telephone callers warned a bomb was aboard, prompting airport security officials to bring the passengers off the aircraft and search it and the luggage for a bomb.
Flight disruptions due to bomb threats are relatively rare in Venezuela. In the last major incident, the main airport on the country’s Caribbean tourist island of Margarita was shut down and cordoned off for a few hours last year after a bomb threat that also turned out to be a false alarm.
(Reuters)
April 19, 2008
A potential merger between Delta Air Lines and Northwest Airlines could hurt US airports, Moody’s said on Friday.
A combined company would likely cut costs by reducing some flights, which would result in “significant route restructuring and a reduction in available seats.” That, in turn, could hurt revenue growth at US airports, Moody’s Investors Service’s Assistant Vice President Kurt Krummenacker said in a statement.
Most at risk for substantial service declines would be the secondary hub airports of each of the two carriers. Also affected would be airports at which both carriers have a significant presence, or those at which neither airline is dominant, Moody’s said.
Furthermore, there could be a more severe impact on airports’ credit were the potential Delta-Northwest merger to be followed by further consolidations in the industry, Moody’s said.
“A substantial contraction of the number of carriers could have a negative impact on the credit of airports throughout the US as declining seat capacity would pressure airfares higher, leading to significant passenger level reductions,” Krummenacker said.
Earlier this week, Delta announced it would buy Northwest for more than USD$3 billion in a deal that would create the world’s largest airline. Regulatory approval is pending.
(Reuters)
April 19, 2008
The Bush administration said on Friday it will more closely examine airline safety and assigned a panel of outside experts to gauge the effectiveness of Federal Aviation Administration oversight.
Transportation Secretary Mary Peters told a news conference her agency “must do more” to respond to recent flight disruptions affecting more than 300,000 travelers that were related to aircraft inspection lapses at big airlines.
“While the events of the last few weeks have been challenging, they have raised good questions,” Peters said.
The FAA has been under fire in Congress and from the Transportation Department’s Office of Inspector General for its oversight of Southwest Airlines and other carriers.
Lawmakers and the inspector general, prompted by agency whistle-blowers, have asserted senior FAA inspectors and senior maintenance personnel at Southwest had a cozy relationship that led to lapses in compliance with aircraft inspection orders.
Southwest grounded dozens of older Boeing 737s and canceled flights in March as a result of the controversy. Prompted by problems at Southwest and congressional pressure to respond, the FAA launched an industrywide review of compliance with its safety directives.
That audit led to grounded planes and canceled flights over recent weeks at several airlines. The most severe problems were at American Airlines where 300 MD-80s were grounded and more than 3,000 flights canceled last week.
Peters wants separate reports from American and the FAA, within two weeks on the disruptions.
American twice failed to satisfy FAA requirements for inspecting and installing certain wiring in MD-80s, regulators said. The FAA denied a request by American for an alternative to grounding the planes, company executives have said.
Peters also announced the FAA would more closely examine airline inspection practices, and any alerts about overdue checks would be routed directly to senior officials in Washington. Currently, any notice of lapsed inspections is handled by regional FAA officials.
After missed inspections for fuselage cracks on Southwest jets were revealed in March, the inspector general’s office said the FAA had for years failed to verify whether the carrier was complying with its safety orders.
Although the Transportation Department is cracking down on airlines and the FAA, carriers will still be permitted to self-report compliance with FAA orders.
Peters also said a special committee of outside aviation and safety experts would review FAA oversight and recommend any changes.
US Senator John Rockefeller, chairman of the Senate Commerce Committee’s subcommittee on aviation, said the measures announced by Peters were “long overdue recognition” of gaps in airline compliance and FAA oversight.
“More must be done to get the FAA’s house in order,” Rockefeller said.
(Reuters)
Apr 18, 2008KUALA LUMPUR, Malaysia (eTN) - Ahead of the 2008 Airline Distribution Conference to be held here next week (April 22-24) and organized by UATP, a payment system network provider, airlines worldwide will be greeted by some alarming figures to confirm the economic slowdown in the United States has started to bite into the industry’s revenue.
Latest figures released by the International Air Transport Association (IATA) show that the average global passenger load factor (PLF) fell to 73.3 percent in February 2008, the most “significant” drop in four years.
According to IATA, the February 2008 figure shows traffic has fallen 0.6 percentage point below the passenger load factor (PLF) of February last year. The industry recorded 7.4 percent passenger growth in 2007 worldwide.
“When we adjust for the impact of the leap year, passenger demand increased by 4-5 percent,” said Giovanni Bisignani, CEO of IATA. “Demand is still growing, but it is slowing down.”
Load factors from all four major largest carrier regions indicate a decline, said Bisignani.
The European PLF recorded the largest single drop of 1.6 percent to 71.7 percent, while the North American carriers experienced a 0.5 percent drop to 74 percent.
While the Middle East sector showed a 0.9 percentage point drop, falling to 72.6 percent, the Asian carriers saw their PLF fall by 0.1 percentage points to 75.2 percent.
In the Middle East, passenger traffic has been balanced by the oil business. “It is strong growth even taking into consideration the leap year impact,” added Bisignani.