Archive for February, 2010
The days of airline alliances offering little more than code-sharing agreements are gone. Instead, alliances may well be the new mergers.
In an era when airlines are losing billions of dollars amid volatile fuel prices and a pullback in spending, every carrier is looking to cut costs and increase scale.
Limited by restrictions on mergers with foreign airlines and waiting for someone else to make the move within the United States, US airlines are now seeking to expand their alliances and trying to extend synergies within current partnerships.
The three major alliances — Star, SkyTeam and oneworld — are global networks of carriers that allow members to streamline costs while sharing revenue.
“I think we are seeing an evolution, seeing these alliances become tighter-knit partnerships,” AMR chief financial officer Tom Horton said at the Reuters Travel and Leisure Summit earlier this week. AMR is the parent of American Airlines.
“They started as loose marketing agreements, for code-sharing, frequent linkages, emergence of global alliance groupings,” he said. “We are now seeing those groupings forming tight economic relationships.”
American is part of the oneworld alliance, along with 11 other members that include British Airways, Cathay Pacific and Australian carrier Qantas.
GETTING COMPETITIVE
Evidencing the importance of alliances, American recently ended a fierce battle to keep Japan Airlines in oneworld as Delta Air Lines tried to lure it to SkyTeam.
The months-long fight included offers of a billion dollars by each side and intense campaigning in Tokyo and Washington.
JAL, despite being in bankruptcy, is valuable because it offers access to the world’s second-largest economy and an extensive network in Asia. SkyTeam, which lost out on JAL, has 10 airlines, including Delta, Air France-KLM and China Southern Airlines.
Horton also said that American was in advanced talks with China Eastern Airlines to bring it into the oneworld alliance. The Chinese carrier responded by saying it was in discussions with all three alliances, in a sign of the competition involved in luring airlines into such networks.
Alliances are now pushing to expand their network, fully aware that the most diverse route map and the biggest presence in the busiest markets will make the strongest alliance.
The chief financial officer of United Airlines, Kathryn Mikells, said the carrier was seeking alliances in South America and Brazil.
United is a founding member of Star Alliance, which has 26 carriers including Continental Airlines, US Airways, Lufthansa and Singapore Airlines.
FOCUS SHIFTS TO COST
Alliance members are now trying to shift the focus from sharing revenue to cutting costs.
“We are now focusing more on the cost side, by co-locating at airports, sharing IT systems, doing joint investments in information technology,” United’s Mikells said.
Still, saving costs through alliances has its challenges. “We try to work really hard with our alliance to try to save costs, but it’s really hard because you have different types of airlines in different countries,” US Airways chief financial officer Derek Kerr said at the summit.
The airline industry, which has lost USD$50 billion in the past 10 years, including USD$11 billion in 2009 alone, is seeking ways to become profitable again.
US airlines are open to mergers, but those are difficult because the integration of technology is expensive and combining the workforces is complicated. Additionally, both processes take years to accomplish.
Also, US law restricts foreign ownership of an airline to 25 percent of voting stock, preventing global consolidation and forcing US carriers to eke more out of alliances instead.
“What you will see United and other industry participants doing, is basically within the regulatory framework that we have today, trying to get some merger-like benefits without merging,” United’s Mikells said.
United, Continental and Japanese carrier ANA in December asked the US government for approval to jointly price, market and schedule international flights without antitrust prosecution.
Earlier this month, American Airlines and British Airways won tentative approval from the US government for similar immunity. And last week, AMR and JAL filed a joint application for similar antitrust immunity.
But alliances will not serve as ideal substitutes for mergers, all airline executives said at the summit.
“If we focus more, we could probably have some more cost-savings from alliances,” US Airways’ Kerr said. “But the domestic US industry needs a merger.”
“If we focus more, we could probably have some more cost-savings from alliances, but the domestic US industry needs a merger,” — Derek Kerr, US Airways CFO.(Reuters)
February 27, 2010
A record-breaking winter storm hit New York and much of the US Northeast on Friday, forcing businesses, schools and transportation systems to shut down as nearly two feet (60 cm) of snow fell in the city.
Commuters struggled in the absence of suburban train and bus services into New York City, where the National Weather Service said more than 20 inches (50 cm) of snow had fallen so far with the storm set to become the third heaviest on record.
The heaviest storm to hit New York was in February 2006 when 26.9 inches (68 cm) blanketed the city. The latest storm took New York City’s total snowfall for February to more than 36 inches (91 cm), making it the snowiest month on record.
“Enough is enough — I am tired of shovelling,” said retired Ron Rigo, 62, as he tried to dig out his car in a Manhattan street. “It’s the worst winter in recent years.”
The slow-moving wintry blast, which began on Thursday and was predicted to last until Saturday with several more inches of snow forecast for New York City, was the third heavy storm to hit the region in a month.
More than one million homes and businesses across the Northeastern United States had suffered blackouts in the past day and about 700,000 were still without power on Friday.
The effects of the bad winter weather could be felt throughout a US economy struggling to emerge from recession.
“The issue… has been the unusual weather this quarter, said Subodh Kumar, chief investment strategist at Subodh Kumar & Associates, in Toronto.
FLIGHTS CANCELLED, SCHOOLS CLOSED
Hundreds of flights were cancelled at Newark Airport, while delays were reported at John F. Kennedy Airport and flights cancelled at Philadelphia’s airport, authorities said.
Amtrak cancelled regional trains in upstate New York, and commuter bus service was suspended in northern New Jersey.
At the United Nations, the Palestinian Authority’s permanent observer Riyad Mansour told the 192-nation General Assembly that the storm was to blame for 56 countries failing to show up for a vote on a resolution demanding credible Israeli and Palestinian investigations into UN allegations of war crimes during last year’s conflict in the Gaza Strip.
In New York City, subway service was slowed and buses struggled to navigate snow-covered streets.
Strong winds, gusting up to 60 miles per hour (97 kph) in eastern Long Island, posed danger to those venturing outside, the National Weather Service said. In Philadelphia, winds gusted up to 50 miles per hour (80 kph) and the city declared a snow emergency, its fourth of the winter.
Schools were closed in New York City, Philadelphia and elsewhere in the Northeastern states.
“I like the snow. I am from Russia. For me it’s nothing,” said Nadia Asanova, 31, as she sipped on a cup of coffee. “I don’t think it’s a big deal.”
(Reuters)
Computerworld — The Electronic Privacy Information Center and consumer advocate Ralph Nader are urging President Obama to review the administration’s plans to install whole body scanners at U.S. airports.
In a joint letter, Marc Rotenberg, the president of EPIC, and Nader asked the president to suspend deployment of the devices until a “comprehensive evaluation” of the effectiveness of the technology and potential health hazards, is completed.
The letter pointed to an event hosted last week by EPIC and Nader’s Center for the Study of Responsive Law (CSRL) at which aviation security and radiation experts discussed the potential impact of whole body scanners. Conference participants also included members of the Muslim community and air travelers who have been placed on watch lists and are subject to secondary screenings, according to EPIC.
Based on the discussions at the event, it is evident that body scanners can be easily defeated by concealing explosive materials in body cavities, the letter says. There is also little information on the health risks posed by the use of such scanners, according to the letter. The fact that the systems can be configured at any time to record and store images of travelers also raises privacy questions, the letter says.
“The public does not currently understand the inability of these devices to detect the types of explosive materials that could be used or the possible risks to privacy and health,” Rotenberg and Nader wrote. “The Department of Homeland Security has made significant mistakes with similar programs in the past,” they added, citing as an example the agency’s discontinued effort to equip airports with so-called explosive trace portals (ETP), which are designed to detect traces of explosives on travelers’ clothing.
Speaking with Computerworld today, Rotenberg said the goal is to try to persuade the administration to conduct a review of whole body scanners similar to the three-month review underway in the European Union.
“Obviously there are groups that favor canceling the program entirely,” Rotenberg said. “All we have said is that there needs to be an independent review that could be similar to what the EU required back in January,” Rotenberg said. I think there are also some issues that need to be discussed from a security standpoint,” he said.
Whole body imagers, or advanced imaging technology (AIT) scanners as the government calls them, are designed to detect non-metallic weapons and explosives concealed under a passenger’s clothing, such as the explosive PETN powder that the would-be Christmas Day bomber concealed in his underwear.
The scan creates an image of an individual’s body. Privacy advocates have blasted the plan to install such devices, saying they enable virtual strip-searching of passengers at U.S. airports. However, polls taken in the wake of the attempted bombing attempt appear to show growing public support for use of the technology.
The U.S. Transportation Security Administration (TSA) plans to deploy about 200 AIT scanners at airports around the country by the end of this year. By 2014, close to 900 of the machines are expected to be installed at a cost of $130,000 to $170,000 per scanner. The current TSA budget asks for close to $450 million for 500 scanners.
The concerns expressed in this week’s letter from EPIC and the CSRL are similar to those mentioned in a report released by the Government Accountability Office last month.
Like EPIC and the CSRL, the GAO called for a thorough vetting of the scanners and highlighted the TSA’s botched attempt to deploy ETPs at airport checkpoints as an example of what can go wrong with technologies that are not properly vetted. The TSA procured more than 200 ETPs in 2006 and deployed over 100 of them at 36 airports even though tests on earlier models showed them to be unreliable, the GAO noted.
The TSA, meanwhile, maintains that the scanners are vital to bolstering security at airport checkpoints. The agency has also played down privacy concerns related to the technology and pointed to the controls it has in place for ensuring passenger privacy rights. As an example, the TSA said that all full-body scanners are delivered to airports without the capability to store, print or transmit images. It said each image is automatically deleted after it is cleared by the officer looking at the images. Faces are also blurred and the agent checking the images is located in a separate room away from the scanners, the TSA has said.
Cows have done it, dogs do it routinely and so have jackals, neelgais and monitor lizards. On Friday, it was the turn of a man to roam around the Delhi airport’s runway — stark naked.
In a major security lapse that caused a scare at the high security Indira Gandhi International Airport, a man — reportedly drunk — scaled the airport’s wall and entered the airside around 8 pm on Friday.
As a result, the air traffic control (ATC) forced a domestic flight arriving from Hyderabad to abort landing at the last moment on runway 29. The ATC also asked the planes lined up for landing to change their position and land on the main runway 28 instead.The man was spotted roaming around at taxiway Z, near runway 29, by an airport jeep.
The air traffic control and Central Industrial Security Force (CISF), which is in charge of airport security, was immediately informed.The man was apprehended by CISF personnel at 8.10 pm.
“The man, identified as Arun Rai, a resident of Begusarai in Bihar, was spotted by a ‘follow me’ jeep. He has been detained and we are investigating the case,” said a CISF spokesman. Sources at the airport said that the man had entered the airside from Bijwasan side of the airport, where construction of the new terminal T3 is on.
Source HindustanTimes
February 25, 2010
Bombardier said on Thursday it has signed a highly anticipated USD$3.06 billion deal to sell 40 of its new C-Series planes to Republic Airways, and that it looks forward to more deals as the commercial aerospace market stabilises.
Bombardier, the world’s No. 3 civil aircraft maker, said the agreement includes options for an additional 40 aircraft. If those options are exercised, the value of the deal would be about USD$6.34 billion.
With the recession forcing many airlines to put off buying new planes, Bombardier had not had an order for its C-Series aircraft, the company’s first foray in the narrow body 100-150 seat market, since last March. That’s when it won C-Series orders from Lufthansa and Lease Corporation International Group.
“They obviously are expecting orders for the planes, but we haven’t seen one for quite a while and I think there was probably a bit of angst in the marketplace, waiting for additional orders, so this should alleviate some of that,” said Cameron Doerksen, an analyst at Versant Partners in Montreal.
Ben Boehm, vice-president of Bombardier’s commercial aircraft programmes, said the company is in active discussions with more than 65 potential customers worldwide and that he is confident more orders are on the way.
“I think the airlines are in a much better shape this year than they were last year and they’re getting very confident and are starting to look forward as to what do they need to be looking out for for the next 10 years,” Boehm said in an interview.
Bombardier has now recorded firm orders for a total of 90 C-Series aircraft and has booked options for an another 90. The new plane is set to start flying in 2013.
“Positive momentum for the aircraft programme is likely to help Bombardier’s discussions with other airlines that are taking a close look at the C-Series for replacement or growth of their regional fleets,” said Rama Bondada, an analyst at Macquarie Securities in New York.
He added that the scale of the order is also positive for Bombardier’s engine supplier, Pratt & Whitney.
Indianapolis, Indiana-based Republic, said in December that it was evaluating the C-Series planes as it looked to fleet replacement for its low-cost carrier Frontier Airlines.
Republic, which also owns Chautauqua Airlines, Lynx Aviation, Midwest Airlines, Republic Airlines and Shuttle America, said at the time it was also in discussions with Airbus and Boeing.
It said part of what made the Bombardier offer attractive, beyond the C-Series’ 15 percent-plus lower fuel burn, was that it may be able to tap into some “very attractive” export financing through Export Development Canada, a government agency.
The company had purchasing commitments for four Airbus aircraft in 2011 and another four in 2012, that it inherited when it bought Frontier, but said it was not obliged to follow through on the orders.
The C-Series aircraft are scheduled to be delivered to Republic in the second quarter of 2015.
(Reuters)
February 25, 2010
Major US airlines are taking a more cautious, though varied, approach to fuel hedging this year, after incurring blistering losses from hedges in 2008 when oil prices spiked then tumbled.
In 2008, many airlines, wary of rapidly rising oil prices, locked in their fuel prices at relatively high levels just before crude prices began to fall as the economic recession took hold and sent energy markets into freefall.
Losses for some airlines ran into the hundreds of millions of dollars on a quarterly basis, prompting a rethink in fuel hedging strategies, with some pulling back on positions.
“We know what can happen when market conditions change or market sentiments change. We still cast a very cautious eye on oil prices,” Tom Horton, chief financial officer of American Airlines parent AMR, told the Reuters Travel and Leisure Summit this week.
At the beginning of this year, American Airlines had hedged 24 percent of its full-year fuel requirements, down from 35 percent at the same time last year for the whole of 2009. Currently for 2011 only a small percentage is hedged.
Oil prices fell from a record USD$147 a barrel in mid-2008 to around USD$40 by the end of the year, hitting the coffers of many airlines that had fuel hedging programmes.
NYMEX futures prices have since rebounded to around USD$80 a barrel, and despite a recent fall in volatility, airlines, with 2008 still fresh in their memory, are taking a more cautious approach.
Oil price volatility cost United Airlines parent company UAL USD$370 million in cash losses on fuel hedges that settled in the fourth quarter of 2008, which helped change its attitude toward hedging.
“In 2008, the hedge positions that we had were 100 percent at-risk positions. As crude prices turned around from USD$147, because we had a portfolio with all at-risk positions we really took it on the chin,” Kathryn Mikells, chief financial officer of UAL, told the summit this week.
“We no longer use 100 percent collars. Buying some straight call options in our portfolio allows us to participate in the upside opportunity should prices fall,” Mikells said.
For the first quarter of 2010, the company has hedged 70 percent of its fuel consumption at a crude equivalent price of USD$75 a barrel. So far for 2011, 5 percent is hedged.
While all airlines recognise the dangers of crude price volatility, there is no consensus strategy to avoid losses from future price crashes.
“As an industry we are highly fragmented. Everybody has taken a different position,” said Mikells.
US Airways, which also took a hit in 2008, has not hedged at all since August 2008, and has no immediate plans to return to fuel hedging.
“This is not a prudent use of our shareholders’ money right now… The volatility has been so great over the last year,” US Airways CFO Derek Kerr said.
Even airlines whose bets paid off in 2008 are now treading more carefully. Southwest Airlines, which saved about USD$1.3 billion from its hedging programme in 2008, has tempered its involvement since then.
“Oil prices will continue to be volatile and they will continue to live through a lot of market swings as we have seen over the last year and a half,” said Laura Wright, Southwest CFO.
“We lessened our hedging primarily because we felt energy prices were going to be under downward pressure between 2010 and 2011,” she said, adding that longer term prices will likely rise with a recovering economy.
In 2010’s first quarter, Southwest is hedged about 60 percent up to USD$100 a barrel, 27 percent for USD$100-USD$120 a barrel and about 47 percent above USD$120, Wright said.
(Reuters)
Boeing pilots were forced to cut short a test flight for the new 787 after an engine lost its thrust.
Officials at the aircraft manufacturer confirmed the unexpected landing at a central Washington airport after the 787 experienced an “uncommanded loss of thrust” in one of its two engines.
Although the plane is capable of flying with one engine, Boeing spokesperson Jim Proulx was quoted in the media as stating the company had followed normal procedure to land when there’s an engine problem.
New parts were delivered to the airport over the weekend, and the plane returned to Seattle on Sunday.
A French air-traffic controllers’ strike led to the cancellation today of 50 percent of flights at Paris Orly airport and 15 percent at Charles de Gaulle.
Airlines have been ordered to reduce services at the two Paris airports during the walkout scheduled to run until tomorrow, said Eric Heraud, a spokesman for the French civil aviation authority.
The third day of a four-day strike has forced Air France- KLM Group, Europe’s biggest carrier, and discount airline EasyJet Plc to slash flights as controllers protest plans to combine air-traffic centers across Europe. Air France has maintained long-haul flights while paring domestic and European operations by the required levels.
French controllers want to block European Union plans for a “single European sky” network that would merge some control centers and close others. France, Germany, Belgium, Luxembourg, the Netherlands and Switzerland are scheduled to sign a treaty later this year in the first stage of the reorganization.
Source Bloomberg
Grenada is currently experiencing many developments that are expected to positively affect the country’s tourism industry in 2010 and beyond. Delta will begin nonstop weekly service to Grenada this summer from John F. Kennedy International Airport in New York to the Maurice Bishop International Airport in St. George’s starting from June 5. The non-stop, twice a week service departs JFK at 12:50 a.m. and arrives in Grenada at 5:40 a.m. with the return flight scheduled to depart at 6:40 a.m. and arriving in New York at midday.
Air Jamaica’s “Escape the Chill” Sale gives travelers from Baltimore and Orlando a chance to take advantage of special savings, while New York travelers have until Feb. 28 to purchase their tickets. All fares are roundtrip and government taxes and fees are additional.
Conditions regarding cancellations, black-out periods and other charges apply. Sample roundtrip fares between Jamaica and the following cities include: Orlando and Montego Bay, $138; Baltimore and Montego Bay, $238; and New York and Kingston, $238. Travel from Baltimore and New York is valid now through May 28. Travel from Orlando must be completed by March 8.