# MISC | American Carriers Ponder Survival Amidst Fuel Price Spike



## hkskyline

*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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## hkskyline

*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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## hkskyline

*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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## hkskyline

*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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## hkskyline

*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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## Alex Von Königsberg

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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## FM 2258

^^

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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## Alex Von Königsberg

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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## hkskyline

*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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## jefferson2

*Ticket Prices Increasing*

http://www.nytimes.com/2008/06/20/business/20air.html?_r=2&oref=slogin&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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## hkskyline

*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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## FM 2258

Alex Von Königsberg said:


> 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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## urbanfan89

^^ It's probably the hardening Euro shielding them from some of the inflation.


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## hkskyline

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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## killerk

hkskyline said:


> 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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## Paddington

DTW has done OK during this. They haven't lost many flights, unlike most other airports.


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## hoosier

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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## [email protected]

FM 2258 said:


> ^^
> 
> 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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## stevo89

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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## Iain1974

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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## hkskyline

*U.S. Airlines Defy the World *
15 September 2008
Traffic World

Air cargo shipping may be falling off a cliff across much of the world, but you wouldn't know that by the reports from U.S. airlines.

The American carriers defied broad industry trends in July, showing 2.9 percent expansion in cargo business that included sharp growth in regions where non-U.S. airlines are seeing sharp declines in freight demand.

The increase reported by the Air Transport Association was led by a 5.3 percent gain in international traffic, including a 6.8 percent boost in trans-Atlantic trade and 3.4 percent expansion in the larger trans-Pacific market.

Even the domestic air cargo market showed what could be called a small recovery in light of the sharp downturn in the U.S. expedited air business this year. Domestic shipping was flat in July compared to the same month last year after two straight months of steep declines, including June's 8.6 percent slide.

Domestic traffic remains down 0.9 percent for the first seven months of 2008 compared to the January-July period a year ago.

But the growth in international cargo, coming as U.S. passenger carriers scale back domestic capacity and add international service, stands in sharp contrast to reports from carriers in other regions.

European airlines saw their cargo business fall 1.2 percent in July, the first decline in Europe since March 2007 and the fourth straight month of progressively weaker air freight business.

The European airlines' North Atlantic freight traffic fell 4.7 percent, suggesting U.S. carriers were gaining market share with their added capacity. And air trade with the Far East, by far the largest single air shipping region for Europe's airlines, was down 0.2 percent in July and has been virtually flat since February.

Asia's airlines, meantime, are pulling down air capacity at an accelerating pace as traffic there weakens.

Cargo traffic for Asia-Pacific airlines fell for the second straight month in July, dropping 5.5 percent from the same month last year, according to the Association of Asia-Pacific Airlines.

The drop was the worst for Asian carriers in any month since the September 11 terror attacks, and it marked the sixth straight month of accelerating declines in the region's air freight trade.

Asia's airlines cut capacity 5.9 percent compared to July 2007. Air cargo capacity in Asia has declined for four straight months and was flat for several months before that.


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## hkskyline

Here's an interesting experiment :

*Air NZ flies in to new era for fuel saving *
15 September 2008
New Zealand Herald

Air New Zealand's chief pilot, Dave Morgan, thinks a lot about fuel.

He's recently had the painful duty of signing off the airline's fuel purchases, and this year it's been hitting $5 million a day at times.

Like other airlines, Air New Zealand's bottom line has been damaged, turning what would have been a record year into just a solid one after a 76 per cent slump in profit over the second six months.

"Fuel was always an issue, but the cost of it was not so significant," Morgan said. "An airline's ability to manage fuel costs will determine its viability."

Already, 26 airlines in the United States and Europe have failed in the last 12 months, and another 20 are at risk of going under over the subsequent six months, according to some estimates.

Morgan, who is the airline's general manager of operations, was speaking during a test run dubbed the "perfect flight" of a Boeing 777-200 from Auckland to San Francisco to test what fuel savings can be achieved by minimising air traffic control restraints and maximising existing fuel conservation measures.

The flight used 4600 litres - or 4 per cent less fuel than it normally would, saving the airline about $7000.

Dubbed Aspire 1, it was the first in the world to have gate-to-gate air traffic constraints removed.

The flight was run in partnership with Airways NZ, the US Federal Aviation Administration and Airservices Australia.

The Asia South Pacific Initiative to Reduce Emissions touches every aspect of the flight from the time a plane spends taxiing on the ground to how quickly it climbs, its route, and gliding into landing using minimal power.

Among fuel-saving measures before takeoff was greater use of Auckland Airport's electricity to power the plane's lights and airconditioning while sitting at the gate instead of using its own auxiliary engine located in the tail of the aircraft.

Final refuelling of the plane finished just 20 minutes prior to departure. The system of "just in time" fuelling allows the most accurate weight of aircraft to be calculated allowing for no-shows or passengers offloaded.

Some pilots in the United States and in Asia have complained airlines are cutting it too fine with the amount of fuel loaded. Morgan says Air New Zealand pilots, who make the final call on refuelling, are not under the same pressure.

"We fly a long way and as a consequence we don't scrimp on fuel. While some pressure has been put on flight crew in other airlines, that's not the case in Air New Zealand."

Every saving has been calculated by Air New Zealand - using the airport's power saves around 210 litres of fuel, last-minute fuelling about 240 litres, plus savings from not carrying the extra weight.

On take off the aircraft turned sharply at just 150m over the airport to track east - rather than at a higher altitude after being given priority to use the airspace.

Two route changes along the way to take advantage of tail winds also saved fuel and time. San Francisco has been running a tailored arrivals system for nearly a year which allows controllers to look over an aircraft's flight path and tailor it to avoid conditions that might slow it down.

The smooth continuous descent rather than the stepped down approach saves time and fuel - around 700 litres in Aspire 1's case.

The flight made two "step climbs" of 300m each en route following a safety decree covering 777s powered by Rolls Royce engines. British safety authorities in a preliminary report found a similar British Airways plane crash-landed short of Heathrow airport because of icing in its fuel system, and pilots now put more power through the engines for short spurts at regular intervals.

Morgan said the climbs were built into the flight plan and were done at full thrust to minimise any any impact on fuel use as it is more efficient to get to higher altitudes more quickly.

He said at a press conference at San Francisco Airport cost savings through such measures would allow the airline to stem the flow of fare rises rather than cut them.

He said the lead-in fares for economy passengers flying to London did not cover the cost of fuel at present.

The trial flight would set a benchmark for further Air New Zealand services and those of other carriers.

The relatively uncrowded Pacific Ocean air space was the ideal testing ground, and Morgan along with air traffic authorities acknowledge difficulties implementing it in Europe and Asia in particular, where there are sovereignty issues and problems fitting into defence requirements.

If the scheme was extended to the 156 flights a week between Australia, New Zealand and the United States and Canada, potential annual savings would be in excess of 37 million litres of fuel, or reduced CO2 emissions of more than 100,000 tonnes.

Airways chief executive Ashley Smout said more efficient controls have already saved airlines about $20 million a year in reduced fuel bills.

Besides the Aspire programme, Air New Zealand has put in place 41 projects help the environment over the past four years.

Among them is a $2.5 billion commitment to buy more fuel-efficient planes and a biofuel project using a nutty plant, jatropha, which is being refined in the United States into aviation fuel.

Morgan said the little things count as well. He's calculated that every kilogram of extra weight carried by a plane in regular use adds about $450 to the fuel bill a year.

His 98 planes naturally pack on the kilos during the year as aircraft interiors absorb moisture, and dust is tramped into carpets so anything so the airline is looking at everything possible to trim down.

But stripping back cabin amenities has to be balanced with passenger comfort and expectations.

Grant Bradley travelled to San Francisco courtesy of Air New Zealand.


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## hkskyline

*Why airline fees are here to stay --- Oil is cheaper, yes but a la carte pricing is boon for carriers *
17 September 2008
The Wall Street Journal Asia

When oil was at $140 a barrel, Delta Air Lines Inc. slapped a "fuel surcharge" on frequent-flier reward tickets. American, United and US Airways began charging to check a single bag when oil was more than $130 a barrel, each blaming fuel costs.

And now that the price of oil -- the biggest expense in operating an airline flight -- has fallen to less than $100 a barrel, will airline passengers see any fee relief?

Not likely. In fact, on Monday, UAL Corp.'s United Airlines boldly doubled its fee to check a second bag to $50 one-way.

While some airlines have reduced the fuel surcharges they place on cargo shipments, passengers have yet to see any relief. Airlines say fuel prices are volatile and still remain significantly higher than just a year ago.

But a bigger change is at work in the airline industry. Airlines have long hoped they could find ways to extract more revenue out of customers than just fares, and this year's fuel crisis prompted them to ratchet up the push toward charging for different services a la carte.

So far, baggage fees and other charges are significantly improving the usually dismal finances of the industry. Passengers are paying them, if begrudgingly, and aren't shifting in large numbers to the few airlines that don't charge fees like Southwest Airlines Co. Continental Airlines Inc. joined the fee fray last week with a $15 charge to check a first piece of luggage, and United was emboldened this week to raise its fees, even as oil prices fall. Continental said it will generate $100 million annually from that fee alone. United said all of its add-on fees could total $700 million next year.

"The concept of charging for what people use or don't use is something that will probably continue," said a spokesman for AMR Corp.'s American Airlines when asked about fees and surcharges. Says a spokesman for US Airways Group Inc.: "We have no plans to change any of these."

Just as free hot meals in coach will likely never fly again on most U.S. airlines, free baggage may indeed be a relic of a bygone era. J.P. Morgan estimates that the new fee structure and other charges airlines have imposed, from selling pillows and bottled water to charging for "free" frequent-flier awards, will add $3 billion a year to U.S. industry revenue. That's a lot for an industry that has never earned more than $5.3 billion in a year.

"It was only the reality of $140 oil that gave the U.S. industry the courage to pursue a strategy they wanted to pursue," said J.P. Morgan airline analyst Jamie Baker. "You hold on to it as long as you can until competitive pressures force you to back off."

US Airways says the pay-for-what-you-use approach amounts to a "business model transformation." Instead of spreading the cost of baggage handling over all passengers, including those who don't check bags, the airline thinks it's fairer to charge bag checkers for the service. Similarly, US Airways charges $2 for coffee, soda or bottled water, $50 to "process" a frequent-flier travel award to Hawaii and $35 just to buy a ticket in person at the airport.

No matter the price of fuel, President Scott Kirby sees the change as permanent. "The industry is evolving to a more a la carte model," he said. "Airlines can't continue to operate as they did."

To be sure, airlines might have to roll back fees if a couple of competitors have a change of heart. Historically, fare increases have sometimes failed to stick when a big airline holds out. But so far, Southwest has been the lone large carrier to refrain from the extra fees, and it hasn't been rewarded by an uptick in traffic.

The fees remain a major source of frustration for travelers. "I think it's stupid," said Issa Isaac of Ypsilanti, Mich., who had to pay $50 last week in Dallas to check a second bag with Delta even though he is a platinum-level frequent flier with Delta merger partner Northwest Airlines Corp.

Linda Hartzell of Grants Pass, Ore., flew to Dallas to join hurricane-relief efforts for the American Red Cross and got hit with $40 in fees to check two bags of Red Cross equipment. "It's confusing with all the different fees," she said. "But I think it's going to be a forever thing. What has to be has to be."

Air France, a unit of Air France-KLM SA, and Singapore Airlines Ltd. have both cut fuel surcharges on international tickets, and Northwest and Deutsche Lufthansa AG, among others, have reduced the fuel surcharge they place on cargo shipments.

With international airfares, fuel surcharges are added on to base fares much like taxes and security fees. Since they are broken out -- allowing travelers to see exactly how much the fee is costing them -- airlines may face more pressure to reduce them if fuel prices continue to drop. But domestic U.S. fares, by government rule, don't have separate fuel surcharges for customers to see -- it's all baked into the basic fare. So for domestic fares, there may be less pressure to drop prices because of fuel.

Like other airlines, Delta says it can't talk about future pricing moves. "Delta's fares and fees will continue to remain competitive with the rest of the industry," a spokeswoman said.

Most airlines will still report big losses this year, and the industry is still paying fuel costs more than 50% higher than last year. Fuel makes up about 40% of the cost of flying for commercial airlines.

"The airlines are still behind the curve," says Standard & Poor's credit analyst Philip Baggaley. He notes that the slowing economies around the world -- a major reason oil prices have fallen -- are bad for airlines, since international business travel, which has been a bright spot for airlines in the past, could decline.

"The golden goose may be getting a little sick," he said.

The sharp drop in oil prices over the past few weeks has dramatically changed the financial outlook for airlines. The difference between buying jet fuel when crude oil is $147 a barrel versus $100 a barrel is $15 billion a year -- a staggering saving for airlines.

Airline analyst Gary Chase at Lehman Brothers estimates that even with a recession, the U.S. industry can break even with oil prices in a range of $100 to $105 a barrel.

"The outlook for the industry is in dramatically better shape than it was," he said.

Still, airlines now believe they need more cushion on their balance sheets because of oil-price volatility, so they are trying to build cash reserves. This fall, sizable cuts in flight schedules are expected to cut airline expenses and drive up ticket prices.

"Fares," said Mr. Chase, "are going to go way up."


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## hkskyline

*Bag-check fees lead to stuffed bins overhead 
Passengers try to cram more on board *
16 September 2008
USA Today

Checked-bag fees recently imposed by airlines to increase revenue are squeezing business travelers out of their most precious real estate: the overhead bins.

Frequent business traveler Jeff Brown was boarding his US Airways flight at Hartford, Conn., when he was told that the overhead bins were full, just after passing the first-class cabin.

About 20% of the passengers were still in line to get on board, says Brown, a machinery manufacturing company executive from Kansas City, Mo. "Around 20 bags had to be gate-checked. It was so packed, there were people sitting in their seats holding small to medium- sized bags because they couldn't go either way in the aisles."

Airline officials, flight attendants and frequent travelers say Brown's case is hardly unique. Passengers are bringing more carry- ons, and finding enough space to put them away properly is becoming increasingly difficult, they say. The situation is more acute on routes that are favored by leisure travelers, such as flights to Florida or Las Vegas.

Even before the new fees were introduced, overhead bin space was already stretched thin. Planes are flying with some of the historically highest "load factors," or the percentage of occupied seats, as demand remains relatively robust, despite the weakening economy. Airlines are also flying smaller planes, with more regional jets mixed into the fleets, to serve small and midsize cities.

"Flight attendants are seeing more bags in the cabin, and we have to work harder to make sure they fit," says Candace Kolander, coordinator of air safety, health and security for the Association of Flight Attendants (AFA). "It could also be a safety hazard. In the very unlikely event of a crash, there is the possibility that the bin door could open and bags will fall out."

Airlines aren't required to reveal the number of checked bags. But American Airlines, the nation's largest carrier, says the average number of bags checked per passenger has dropped since it began imposing fees ($15 for the first bag, $25 for the second) earlier this year. Prior to introducing the fees, an average of 1.2 bags were checked per passenger. Now, it's slightly below one, spokesman Tim Smith says. "The biggest percentage drop is in the second bag (checked). It was more noticeable."

United Airlines, which said Monday that it will raise the fee on the second checked bag to $50 from $25, has also seen a decline in the average number of bags checked per person since February, spokeswoman Robin Urbanski says.

Still, checked-bag fees have been a sizable revenue stream since they were introduced in the spring. Continental Airlines said last week that its new bag-check fee will result in about $100 million in revenue.

More roller bags rolling on board

According to data released by the Department of Transportation Monday, the U.S. airlines industry collected $183 million in excess- baggage fees in the second quarter of 2008, up from $122 million in the first quarter and $113 million in the second quarter of 2007. The DOT defines excess baggage as any bag that requires payment for checking.

Typically, airlines allow two carry-ons -- one bag no heavier than 40 pounds and no more than 45 inches in length, width and height combined, as well as a personal item small enough to fit under the seat.

But now with the new fees, cabin crews are seeing more roller bags brought on board, and not all are within the size limit, says AFA's Kolander. "(Passengers) who may have checked their roller bags before are now bringing them on board. They're going to fill the bins faster than handbags."

Frequent traveler Judith Briles, a consultant based in Aurora, Colo., says she's noticed more travelers putting their luggage in the first overhead space available, instead of trying to place them near their assigned seats.

"There have been several non-pleasant verbal exchanges when they are told to remove them by passengers who are clued in and in their seats," she says. "I've seen two large rollies come on per person."

Traveler Tim Riemenschneider, a sales executive based in Hudson, Wis., thinks clearing security checkpoints has also been slowed because of more carry-ons. He tries to board as quickly as possible to find enough overhead bin space, but he finds others are onto a similar strategy.

"I'm sure the bag fee is generating additional dollars for the airlines. However, I wonder if anyone will review the costs associated with the delays," he says.

Airlines say flight attendants and gate agents are trained to flag carry-ons that are larger than the limit and gate-check them on the jet bridge or tag them for moving down to cargo.

But AFA's Kolander says employees' ability to police passengers' luggage has been hampered by dramatic staffing reductions in the last several years. In June, the airline industry employed 415,000 full-time equivalent employees, or 6% fewer than four years earlier.

Most airlines no longer staff additional flight attendants beyond the federal requirement of one for every 50 passengers, and it's not unusual to have one agent working at each gate during boarding.

At least one airline is looking for ways to enforce the carry-on- size limit.

American has eliminated the standard silver metal crate used to measure them because they are ineffective, Smith says, and is considering several new designs for a luggage-sizer that could handle different shapes.

American and United are also staffing employees at the security checkpoints of some airports to alert customers who are attempting to pass through with bags that are larger than the allowed limit.

"At every point of contact, (employees) are looking to see if people are out of line," Smith says.

TEXT OF INFO BOX BEGINS HERE

U.S. airlines find money in bags

Excess-baggage fees collected by major U.S. airlines bring in more revenue in 2008 (in millions):

Q2 2007 Q2 2008

American $30.0 $37.1

Delta $22.4 $42.5

Continental $11.0 $16.4

US Airways $7.5 $17.9

Northwest $9.0 $15.7

United $13.4 $19.7

JetBlue $4.0 $7.3

Alaska $4.0 $6.1

Southwest $5.5 $6.6

Source: Department of Transportation


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## hkskyline

*United Airlines faces possible $544 million 3Q fuel hedging loss and probably is not alone *
17 September 2008

MINNEAPOLIS (AP) - Airline bets that oil prices would rise looked like a no-brainer this summer. But with oil prices falling, those hedges against rising fuel costs are getting expensive.

United Airlines said on Wednesday it is on track to lose $544 million on fuel hedges this quarter. That included $72 million in realized losses and another $472 million in unrealized losses. Those positions forced United to put $400 million into restricted cash for the parties on the other side of its oil price bets.

Other airlines have not disclosed their hedging losses or gains for the third quarter, but it is likely that United was not alone in underestimating oil's dramatic fall. Oil settled at $97.16 a barrel on the Nymex Wednesday, down from a July peak of $147.

Northwest Airlines Corp. said in July that its hedges require it to pay if crude falls below $108. Its hedge for 10 percent of its fuel for next year requires it to pay if crude falls below $112.

Of course, rallying oil prices could make those hedges look smart again. And -- importantly -- even if United loses money on fuel hedges, it will save money because the fuel itself is cheaper. JPMorgan analyst Jamie Baker wrote in a note that oil's fall over the space of just one week will save airlines $3 billion. Fuel has become the biggest expense at the big airlines. United's 2007 fuel bill was $5 billion, which was reduced slightly by an $83 million hedging gain.

"Yes, hedgers are under water on their hedges but they are seeing some relief on the cash market side. That's how it should work," said Jonathan Leak, a senior vice president for risk management at World Fuel Services, which puts together fuel-hedging programs for airlines.

However, fuel prices have not fallen as much as crude in the short run because refiners are at capacity. Hurricane Ike made that worse because 12 of the 14 jet fuel refineries in its path are still shut down because the power is out, Leak said. Those 14 refineries make 19 percent of the nation's jet fuel.

Also, airline fuel hedges are more often really bets on the movement of crude oil or heating oil, not the kerosene the jets really burn. Most of the time that works fine because they all move up or down together. But when the refineries are down because of a hurricane, crude can fall faster than jet fuel -- meaning airlines risk losing money on hedges, with smaller savings than they would have hoped on their fuel bill.

Airlines have reported hedging losses before, including Delta Air Lines Inc. with a $108 million loss in 2006, Continental Airlines Inc. with a hedging loss of $18 million in early 2007. Southwest Airlines Co., the king of fuel hedging, has saved $3.5 billion on its fuel bill since 1999.

Airline consultant Robert Mann said that in the early 1990s airlines assumed they could pass along fuel price increases by raising fares. He said in 1993 he suggested to some U.S. carriers that they should get serious about hedging their fuel bills.

"They all looked at me like I had two heads. One of them suggested it was the dumbest idea they'd ever heard of," he said. "By the mid-1990s they were all doing it."

And predicting future prices in, say, heating oil is not easy for the pros, either, which is why there is someone willing to take the other side of the bet that fuel prices will rise. Mann said that in June, the forward market for heating oil suggested January 2009 prices of around $4.09 a gallon. Now that market says the same heating oil will sell for $2.80 a gallon in January.

United also said it expects third-quarter passenger revenue to increase 4.5 percent to 5.5 percent per mile. It said it is reducing overall capacity by around 3.6 percent.

Baker wrote that United's guidance suggests it will lose $2.30 per share for the quarter. Analysts surveyed by Thomson Reuters were predicting a loss of $1.08 per share.

United shares fell $1.49, or 10.6 percent, to end at $12.53.


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## hkskyline

*Northwest Airlines expects $60 million to $100 million in pretax profit for the third quarter *
18 September 2008

MINNEAPOLIS (AP) - Northwest Airlines says it could make a pretax profit of $60 million to $100 million in the quarter.

The estimate came from Chief Financial Officer Dave Davis, who was speaking at an airline investor conference in New York on Thursday. The profit prediction did not count potential hedging gains or losses, and the company did not give an earnings-per-share figure.

Northwest said it had $3.3 billion in unrestricted cash as of this week. Northwest is being bought out by Delta Air Lines Inc.; the two have said they expect to have about $6 billion in cash after the deal closes.

Davis said new fees for checked baggage brought in $370,000 on Aug. 31 alone, and the company expects $150 million to $200 million per year in new revenue from those fees.

Northwest has a hub in Memphis, Tenn.


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## hkskyline

*United Airlines expects $700 million in additional fee revenue in 2009 *
18 September 2008

MINNEAPOLIS (AP) - United Airlines said Thursday it expects to bring in an additional $700 million in revenue from charging for second items such as checked baggage and from a program that allows frequent fliers to earn miles faster by paying a fee.

On Monday United doubled its fee for a second checked bag to $50.

One new program allowing travelers to pay extra to earn double or triple award miles on a flight is on track to bring in an extra $1.5 million in revenue in its first month after sales to about 20,000 people, said Kathryn Mikells, the company's chief of investor relations. That program alone should be worth tens of millions of dollars per year, she said.

Mikells, who will be United's chief financial officer after November, spoke at an airlines investor conference in New York.

Airlines have been aggressively "unbundling," or charging for items that used to be free but were not used by all passengers, such as checked baggage and meals.

Skyrocketing fuel prices prompted that trend, but on Thursday there was already one sign that competition may push it back: Air Canada said it would stop charging for a second checked bag. It had not added a fee for the first checked bag.

Shares in United parent UAL Corp. fell 53 cents, or 4.2 percent, to $12 in midday trading.


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## Magellan

hkskyline said:


> *United Airlines expects $700 million in additional fee revenue in 2009 *
> 18 September 2008
> 
> MINNEAPOLIS (AP) - United Airlines said Thursday it expects to bring in an additional $700 million in revenue from charging for second items such as checked baggage and from a program that allows frequent fliers to earn miles faster by paying a fee.
> 
> On Monday United doubled its fee for a second checked bag to $50.
> 
> One new program allowing travelers to pay extra to earn double or triple award miles on a flight is on track to bring in an extra $1.5 million in revenue in its first month after sales to about 20,000 people, said Kathryn Mikells, the company's chief of investor relations. That program alone should be worth tens of millions of dollars per year, she said.
> 
> Mikells, who will be United's chief financial officer after November, spoke at an airlines investor conference in New York.
> 
> Airlines have been aggressively "unbundling," or charging for items that used to be free but were not used by all passengers, such as checked baggage and meals.
> 
> Skyrocketing fuel prices prompted that trend, but on Thursday there was already one sign that competition may push it back: Air Canada said it would stop charging for a second checked bag. It had not added a fee for the first checked bag.
> 
> Shares in United parent UAL Corp. fell 53 cents, or 4.2 percent, to $12 in midday trading.


I am surprised that Consumer Associations have not objected to these extra charges; can a $50 charge be justified for a second item? It may be a way of generating extra revenue, but it does not seem very transparent. It may not be illegal, but it seems to be breaking the spirit of the law.


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## hkskyline

*As fares and fees rise, passengers want service *
20 September 2008

FORT WORTH, Texas (AP) - On a recent rainy day at Dallas-Fort Worth International Airport, a suitcase bound for Colorado Springs, Colo., lay on the ground outside a terminal under a maze of American Airlines conveyor belts that ferry bags to and from nearby planes.

A field representative for the airline who was showing a reporter the long, circuitous route checked bags take put the suitcase on a belt where it was supposed to be. He said it likely fell off a belt or a baggage handler's vehicle. He didn't know how long it had been off its path.

The airlines have been imposing new fees, raising fares, reducing flights and, in some cases, cutting out free snacks in coach. But several big and small airlines alike have struggled relative to the industry in terms of baggage handling, on-time performance and other customer service metrics. An annual University of Michigan survey released in May found customers giving airlines the worst grades since 2001.

With the slow travel season now upon them, airlines face the dual challenges of increasing revenue to cover heavy fuel costs while also improving their product to give air travelers a return on their added investment.

"We realize that in order for us to regain that brand recognition and the customer loyalty that we used to own in the '80s and '90s, we ought to do something very dramatic and different," said Mark Mitchell, American's managing director of customer experience.

Delta Air Lines Inc.'s regional subsidiary Comair had the worst on-time performance in July among airlines surveyed by the Department of Transportation. From January through July, American Airlines' on-time arrival rate was the lowest among U.S. carriers, while UAL Corp.'s United Airlines' was second-lowest. Comair had the highest mishandled baggage rate in July, while the highest number of consumer complaints received by the DOT that month were about Delta. Comair's on-time performance from January through July ranked 17th out of 19 airlines, while Delta's ranked eighth.

The fourth-highest number of consumer complaints received by the DOT in July were about Tempe, Ariz.-based US Airways, which said in a Sept. 3 memo to employees that they would not be receiving a $50 bonus for the month because the airline's on-time performance did not place in the top three among the 10 largest U.S. carriers.

Executives blame weather, congestion in the Northeast and air traffic control issues for some of the problems, but they also acknowledge company specific problems. They say there have been improvements since the latest DOT figures were released.

American, a unit of Fort Worth-based AMR Corp., is keeping planes on the ground longer in some cities before turning them for their next flight so that if something goes wrong, there is extra time to board passengers and baggage. It plans to block a limited number of seats from being sold on flights in key markets this Thanksgiving to give it flexibility in re-accommodating customers on planes that would otherwise be full.

The carrier also is refurbishing the interiors of its Boeing 757s, upgrading business class seats on international flights, adding leather headrests to coach seats on MD-80s and testing Wi-Fi service on some aircraft.

And to make it easier and quicker to locate mishandled bags, American is equipping personnel with automated handheld bag tag scanners.

"There are huge costs when you have inconvenienced your customers," said Dan Garton, American's executive vice president of marketing.

Dorothy Boydston, a 48-year-old electrician from Hawaii, knows what Garton means.

On a recent trip from Santa Barbara, Calif., to Denver to see her daughter, Boydston had to spend a night at a Phoenix hotel at her own expense because she missed her US Airways connecting flight after, she said, an airline employee wrote the wrong gate number on her ticket. That came after she had to pay $15 to check a bag she tried to carry on the plane to Phoenix, when the airline told her there was no room in the overhead bins.

The next morning, she was still at Phoenix Sky Harbor International Airport, on standby for another flight to Denver.

"I could have rented a car for what it's costing me," she said.

Asked if passengers should get better customer service in light of the higher fares and fees they are paying compared to a year ago, Boydston said, "What customer service? There's no customer service anymore."

But Aaron Trompeter, 37, an English teacher who lives in Winchester, Va., said he still finds value in the price of an airline ticket these days, even if he has to deal with more hassles, pay to check bags and no longer gets free snacks on some flights.

"It's so much better than a stagecoach or a car," Trompeter said at Minneapolis-St. Paul International Airport after getting off a United flight from Washington. "So the lack of service, or the perceived lack of service, is still very much worth it."

Airline executives are unapologetic about the need to raise more revenue through fee and fare increases to cover their hefty fuel bills. They also say that certain offerings that were free to everyone before are still free for premium passengers like elite frequent-fliers and those people who travel in first class or business class.

"Food is the easiest one for me to defend," Garton said of American's decision to charge $3 for a cookie or a can of potato chips in coach. "When you open your minibar at the hotel tonight, it's not going to be free. When you go to the movie theater, the popcorn is going to cost you more than the ticket. Giving away food for free is an unusual thing the airlines started 70 years ago, but I would argue it was all first-class service 70 years ago."

Delta, the only one of the six legacy carriers not charging a fee for a first checked bag, is using technology and infrastructure upgrades to improve its baggage handling. It is about halfway through a $100 million capital project at its Atlanta hub that includes upgrading conveyor belts and sorting systems. It also has invested $10 million this year to roll out more wireless bag scanners so it can keep better track of where bags are in the transfer process.

Lee Macenczak, Delta's executive vice president of sales and marketing, said the airline holds itself to a high standard when it comes to speed and convenience.

"To the degree we don't deliver on that, it certainly does impact our brand," he said. "We are not satisfied where we are. We have a lot of work to do."

Stephen Gorman, Delta's executive vice president of operations, said weather issues can skew the on-time data. He said the carrier is working hard to improve what it can control.

"The foundation is on-time, clean, with bags, and friendly customer service," Gorman said. "Those are the fundamentals we know we have to do right."

Southwest Airlines Co., which has not faced the same threat from fuel prices as other carriers because of its aggressive fuel hedging program, boasts in recent TV commercials of still allowing all its passengers to check two bags for free. Its on-time arrival rate in July, third-highest among U.S. carriers, was nearly 20 percentage points above Comair's.

The Dallas-based airline led the industry in passenger satisfaction in the latest University of Michigan survey.

"We've got to be in the business to make money, but not to sacrifice what our brand and our product offering is," said Daryl Krause, Southwest's senior vice president of customer services.

------

AP Business Writers Chris Kahn in Phoenix and Joshua Freed in Minneapolis contributed to this report.


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## hkskyline

*Airlines tougher on company travel - US-based grps *

WASHINGTON, Sept 23 (Reuters) - Cash-strapped airlines are more aggressively cutting corporate discounts or pulling contracts entirely if businesses fall short of their air travel commitments, business travel executives said on Tuesday.

The disclosure involving mainly U.S. airlines came as corporate travel organizations assessed the impact of the Wall Street meltdown on the global economy and with it, the 2009 forecast for business travel.

A poll by the global Association of Corporate Travel Executives projected less travel from a majority of 131 members surveyed due to economic factors, high energy costs, or internal changes at their companies.

The business travel unit at American Express Co delayed release of its annual outlook on Tuesday in order to get a clearer picture of the most recent economic turmoil that includes the prospect of a U.S. bailout of financial institutions.

Executives said the environment, which includes cutbacks in air service and higher fares and new fees for bags and other extras once covered by the cost of a ticket, will be tougher. But they said there are opportunities for companies to save money and do business on the road even in cautious times.

"Senior leaders have spent more time thinking about travel. Travel has become a boardroom issue," Herve Sedky, vice president and general manager of American Express Business Travel, said in a conference call with reporters. "Increasingly we see travel viewed as an investment."

Among issues corporations must address in planning for 2009 is the more aggressive posture by airlines to hold businesses to their travel agreements, which have not been tightly enforced over the years.

Sedky's group and other travel experts said airlines are pulling discounts and cutting contracts, in some cases, if companies fall short of their promises to deliver a certain number of travelers or a certain amount of revenue.

"These actions have ramifications on our business and the business travel industry," he said.

Kevin Mitchell of the Business Travel Coalition, a group that represents corporate travel managers, agreed with Sedky that carriers, mainly U.S.-based, have gotten tougher as skyrocketing fuel prices drove up costs and losses mounted.

"It has dramatically accelerated," Mitchell said. "If you're at an airline every single manager is under the gun to produce or to go deeper or go further. You can't give discounts that you can't demonstrate to senior management bring in new business or maintain high yields," Mitchell said.

Mitchell said some companies do not manage travel well, but he also noted struggling airlines have overhauled operations this year to save money and capture slivers of new revenue. They have reduced frequencies and added connections, which for some companies may make certain travel once covered by a discount agreement impractical now.

The biggest carriers, including American Airlines, a unit of AMR Corp, and Delta Air Lines Inc, would not discuss their corporate travel agreements. But United Airlines, a unit of UAL Corp, noted a certain vigilance.

"We are being very disciplined with how we manage these accounts to ensure contract (compliance) and that we are getting a return on investment from the discounts and commissions provided," the company said in a statement.


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## hkskyline

*High oil prices will spur airlines to restructure, become profitable, Stifel analyst says *
25 September 2008

NEW YORK (AP) - High fuel prices are helping make airline travel a "mid-priced luxury good" and could help the carriers by prodding them into restructuring, an industry analyst says.

Stifel Nicolaus & Co. analyst Hunter K. Keay said Thursday that many airlines will be profitable in 2009 and all airlines he covers will be profitable the year after, assuming oil prices of $115 per barrel by 2010.

Keay initiated coverage with "buy" ratings on American Airlines parent AMR Corp., Delta Air Lines Inc., Continental Airlines Inc., and United parent UAL Corp.

Keay said Delta would benefit from a growing international network and cost savings from restructuring and its acquisition of Northwest Airlines Corp. He said AMR has enough cash to withstand a slump and high fuel costs.

The analyst gave a "hold" rating to Southwest Airlines Co., saying he doubted the carrier's revenue-raising initiatives would offset high fuel costs and the declining value of hedges that have insulated Southwest from the increase in fuel prices.

Keay said that U.S. airlines prudently responded to high fuel prices by aggressively cutting capacity, dropping marginal routes, and retiring older, fuel-guzzling planes without placing big orders for new ones.

The result, he said, has been better pricing power even though traffic growth as been modest or nonexistent. And there's room for growth in ancillary revenue, he said.

Keay said the recent decline in oil prices -- to about $105 per barrel Thursday after peaking at $147 in July -- has given airlines breathing room on the liquidity front. He also said it's unlikely capacity will return because of a lack of capital to fund new ventures, including startup airlines, and "a newfound discipline of surviving carriers."

"High fuel prices drive unprecedented discipline," he wrote in a note to clients. "We believe airlines are now more likely to pursue sustainable profitability at the expense of market share, unlike they have done in the past."

Shares of AMR rose 6 cents to $10.86; Delta shares gained 3 cents to $8.06; Continental added 38 cents, or 2.2 percent, to $17.61; Southwest picked up 22 cents to $14.96; while UAL shares fell 39 cents, or 3.8 percent, to $9.96.


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## hkskyline

*American Airlines considers a la carte pricing *
6 October 2008

FORT WORTH, Texas (AP) - The idea of paying a single, simple fare to fly on an airliner is becoming as quaint as stewardesses in short skirts.

American Airlines is about to accelerate the trend of breaking the cost of a trip into an airfare plus many smaller fees.

Starting next year, American, which led a stampede by U.S. carriers to charge customers for checking even a single suitcase, plans to imitate the a la carte pricing structure pioneered by Air Canada, airline officials say. There are likely to be a few basic fare plans, and travelers can pick additional services -- for a fee.

Fans of "unbundling," as it is called, say it gives travelers lower base fares with the option of paying for extras that they really want, from beverages to blankets.

Some travelers are wary, however, and suspect the airlines are just trying to chisel them a few dollars at a time.

Phone and cable companies have been using this pricing approach for years to offer extras like premium channels and pay-per-view events. Now airlines see unbundling as a way to boost revenue and defray sky-high prices for jet fuel. In recent months they have added and enlarged charges for fuel, checked baggage, changing flights, upgrading from coach and other services.

There may be no going back to all-inclusive fares, even with the recent decline in fuel prices.

"We as an industry have opted to not just raise (ticket) prices but to raise prices and change the fee structure," said Daniel Garton, American Airlines' executive vice president of marketing. Without fees to offset rising costs, "you're not going to be talking about fees -- you're going to be talking about lost service ... being able to have a flight to San Diego," he said.

UAL Corp.'s United Airlines expects to raise $700 million a year from fees. Northwest Airlines Corp. estimates baggage charges will bring in $150 million to $200 million a year. Continental Airlines Inc. predicts it will generate more than $100 million just from a new $15 fee for checking a single bag -- that doesn't include levies on additional bags.

Airlines have grown more sophisticated at wringing every last dollar out of a flight, partly by lowering and raising fares based on supply and demand. Much of this magic, called "yield management," is invisible to passengers, but it results in people in the same cabin paying wildly different amounts for the same flight.

Executives at Air Canada, which revamped its fare structure and began unbundling five years ago, look down their noses a bit at the actions of their U.S. counterparts, saying a la carte pricing should be about transparency and customer choice, not simply revenue.

Air Canada went through bankruptcy earlier this decade, and when it emerged in 2004 it was losing customers to low-cost rival WestJet Airlines Ltd. Air Canada fought back by creating a bare-bones service to compete with WestJet fares, with extra amenities for picking a fancier plan.

"We did this in the environment of Air Canada losing market share," said Ben Smith, executive vice president at Air Canada. "It was about gaining the confidence back from our customers and offering products we thought they wanted."

On Air Canada's Web site, travelers pick from four fare levels. The top tickets, called Latitude and Executive Class, are fully refundable and come with priority check-in, food and other goodies included.

The cheapest fare, called Tango, requires extra fees for upgrades such as a food voucher, advance seat selection, flight changes and airport lounge access. Tango passengers can save another $3 by declining frequent-flier miles or not checking a bag.

"Consumers don't understand airline pricing, and they certainly don't understand yield management," said Peter Belobaba, an expert on airline pricing at MIT. "Air Canada is saying, 'We're practicing all those pricing strategies, but at least we're laying it out for you.'"

Smith said simplified fares have helped Air Canada stabilize its domestic market share -- which it needs to feed its profitable international routes -- and increase revenue. Half of Air Canada's passengers pick an option higher than the basic Tango plan, he said.

Air Canada passengers give the airline credit for making fares understandable -- "It's nice to know where I could save money," said Amanda Kruzich, a cosmetics company marketing rep who recently flew on Air Canada from Toronto to Dallas.

Still, Kruzich said she would rather have an all-inclusive fare.

"I feel nickel-and-dimed when I have to pay extra for everything," she said. "Just throw it all in and tell me what the fare is."

Matt Kokidko, who works for a car-rental company in Orlando, Florida, and recently flew to Dallas on American, agreed.

"We're not saving enough on the fares to justify that," Kokidko said of the extra fees charged by American. He had not flown in a while and was stunned that American charged for use of a headset.

Scott Cowley of Dallas, a frequent flier in his job as sales representative for an aerospace parts manufacturer, said he does not want to take time to go through a menu of optional, for-a-fee services.

"It's hard enough to find the flight I want at the time I want," he said.

But experts say travelers should expect fees to become permanent.

George Hobica, founder of airfarewatchdog.com, a discount-travel Web site, expects airlines to start charging extra for carry-on bags, booking a flight online, and picking a seat assignment.

"The fees are here to stay, and there will be more of them," he said. "Honestly, I think it's better for consumers. If I pack light, why should I pay for the guy who packs heavy?"

According to a recent survey of airline executives by consultant IdeaWorks, fees that will spread the fastest will be for Internet, e-mail and mobile phone service during flights and for special seating, such as in exit rows.

Southwest Airlines Co. avoids most of the fees charged by rivals, and brags about that in television ads. Senior vice president of marketing Dave Ridley said the money other carriers make from fees might be offset by passengers booking their next flight on Southwest.

But Southwest will soon survey consumers about charges, and Ridley wouldn't rule out fees in the future.

There are still a few technology speed bumps in the way of true a la carte pricing.

Airlines still sell a large chunk of their tickets through global distribution systems, or GDSs, which were built to display simpler fare structures to travel agents and "have been very slow" to change how they display fares, said Smith of Air Canada.

The largest GDS, Sabre, says it has solved those problems.

Where will airlines draw the line on new fees?

Hobica thinks charging passengers by weight makes perfect sense because they cause the plane to burn more fuel. But he admits a poundage penalty might be hard to sell, and so would charging for oxygen masks.

"I can't see them announcing, 'Put in another quarter for the next three minutes,'" he said.


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## hkskyline

*Holiday travelers see fewer flights 
Thanksgiving season tests airline cutbacks*
20 October 2008
USA Today

Airlines will offer almost 3,000 fewer domestic flights a day during the Thanksgiving season, promising fewer choices, fuller planes and higher fares for millions of Americans.

Compared with last Thanksgiving season, there will be 11% fewer flights -- 2.6 million fewer seats -- on non-stop domestic routes from Nov. 20, the Thursday before Thanksgiving, through Nov. 30, the Sunday afterward.

Hundreds of those routes have lost a quarter or more of the flights they had last Thanksgiving, according to a USA TODAY analysis of flight schedules that airlines filed with OAG-Official Airline Guide. OAG provides trip planning and booking tools for travelers.

Cost cuts airlines made to cover high fuel prices eliminated many routes and flights after Labor Day. Scarce seats got pricier.

The busy Thanksgiving season will be many travelers' first encounter with the slimmed-down schedules. The effect of fewer flights and full planes will make it harder for fliers to recover from delays, missed connections and canceled flights.

On Thanksgiving Day, the cutbacks are startling. US Airways won't operate 40% of the flights it flew Thanksgiving Day last year. Delta Air Lines cut 26% of Thanksgiving Day flights, and United Airlines cut 22%.

"Most of that's coming out in the afternoon, when people are eating turkey," US Airways spokesman Jim Olson says.

On many routes that lost a chunk of service, one or more carriers stopped flying between those cities because the service is no longer profitable.

By Thanksgiving, American and Delta both will have halted non- stop flights between Charlotte and New York's LaGuardia Airport, for example. There will be 45% fewer non-stop flights than last season.

Another non-stop route where travelers could have a tough time is between Dallas' Love Field and Kansas City. It has lost nearly half the flights it had last Thanksgiving. American and discounter Southwest Airlines served it last year. American stopped.

Passengers wanting to fly between Chicago O'Hare and Spokane, Wash., for Thanksgiving can't do it non-stop anymore. United Airlines, which now operates one flight daily each way, will stop on Nov.2. Travelers will have to connect.

In fact, 84% of U.S. airports that had non-stop service during the Thanksgiving season last year to Chicago O'Hare -- one of the USA's busiest airports -- will have fewer flights this holiday.

Bence Boelcskevy gave up trying to book a convenient and affordable flight from Columbus, Ohio, to Reagan Washington airport to visit family.

"The airlines have taken away a lot of flights," he says. "I found flights were disappearing."

Delta, which used to fly that route non-stop along with US Airways, stopped earlier this year.

So the 64-year-old widower is staying in Columbus to deliver turkey dinners to poor families and shut-ins.

JetBlue Airways is bucking the downsizing trend this holiday. It will operate 3% more flights.

Meanwhile, Southwest will add 15 extra flights Nov. 29-30, such as Dallas to Lubbock, Texas, to meet demand.


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## killerk

What happened to the Wright amendment??? Was it repealed?? I was recently checking Southwest's flight schedules and still they fly only to neighboring states and ones that don't accept the ordinance while most of their flights are from Houston's Hobby.


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## hkskyline

*Frequent flyers redeem miles to beat higher fares *
20 October 2008

DALLAS (AP) - Airline customers are cashing in more frequent-flier awards this year, looking to avoid higher fares and believing that miles just aren't worth the same anymore.

With so many new ways to earn miles -- on everything from car rentals to groceries -- savvy travelers fear it'll soon become harder to go where they want, when they want for free.

"The glamour of the frequent-flier award has faded," says Jay Sorensen, who ran the loyalty program at Midwest Airlines and is now an airline consultant. "People are realizing that using miles to go to Hawaii is a difficult objective."

The economy and high fares may also be pushing people to spend their miles.

Randy Petersen, who tracks frequent-flier programs as publisher of InsideFlyer magazine, says recent fare hikes are leading many passengers to burn up miles on humdrum trips instead of vacations to Hawaii or Europe.

"They're going to Boise, Decatur and Bakersfield," Petersen said. "They're spending miles on family emergencies or visiting grandma."

Airlines have been raising mileage requirements and imposing fees to use them in, but plenty of people are still cashing them in.

Continental Airlines reports that through July, customers had cashed in 1.34 million awards this year, up 21 percent from the same period last year.

At Continental, the only major U.S. airline to disclose monthly redemption figures, officials credit changes in their Web site that let customers see available seats on partner airlines, which they can book with miles from Continental's OnePass loyalty program.

American Airlines has the oldest and largest loyalty program in the industry, AAdvantage, with 60 million members who racked up 200 billion miles last year.

Use of awards on American was flat from 2006 to 2007 but is up 10 to 15 percent this year through August, said Rob Friedman, American's president of marketing for AAdvantage.

Like Continental, American credited Web site advances that let customers see at a glance when they can travel a particular route and how many miles it will cost.

"They can look at the calendar and make trade-offs," Friedman said. "They can be flexible and shop around for flights (that require fewer miles), or they may need to redeem more miles for travel on a specific date."

For example, last week American's Web site showed available seats from Dallas to Honolulu on most days around Thanksgiving for 35,000 miles. But if you wanted to travel on a Saturday, it would require 90,000 miles.

That indicates American is more confident of selling out those Saturday flights. Airlines want to fill their planes with paying customers, but they must balance that against the clamoring of frequent fliers who want to redeem their miles for free trips.

About 6 to 8 percent of all passengers fly on award tickets, according to airline documents.

Most U.S. carriers have raised mileage standards and shortened expiration periods in their loyalty programs.

Delta now offers members a guaranteed ability to redeem miles for a free trip but at the cost of many more miles. This month, American began charging $50 -- plus 15,000 miles -- to upgrade from economy coach on a flight within the United States.

"Those decisions are never easy or popular, but in light of fuel costs, they were necessary," American's Friedman said of the new fee.

Those fees and tighter expiration rules might themselves be driving the increase in redemptions.

Shaun Black, a software consultant in Atlanta, burned all his Delta miles on a trip he and his wife will take to Greece next spring. He booked the seats just before Delta began imposing a fuel surcharge on reward tickets in August.

"We weren't even looking to take a trip," Black said. "It was more out of spite -- I wasn't going to pay that fee."

Black said he worries that Delta will soon double the miles needed for free trips because so many people now earn miles by using credit cards, renting cars -- everything but flying.

Only half of miles earned by American's frequent fliers come from flying, with half coming from using a special Citigroup credit card or making purchases from the airline's 1,000 retail partners.

And that is precisely the problem with these programs, said Tom Farmer, who runs a small marketing company in Seattle -- too many miles chasing too few seats. A longtime elite-level flyer, he's had enough.

"There is a crisis in faith with miles -- they're constantly being devalued," he said. "A lot of people, me included, have decided the game has peaked and they're getting out."

Farmer said he spent 450,000 Northwest Airlines miles to book business-class seats for a family vacation next summer to Australia and Tahiti and has only 2,000 miles left. Lately, he's taken several trips on JetBlue, but doesn't plan to redeem the miles before they expire -- the "game" isn't worth it anymore, he said.

Airlines are looking for ways to make loyalty programs more appealing. American and Southwest recently announced they would set up separate check-in lanes at some airports to help program members pass through security faster.

"It's giving our customers greater utility, especially business travelers," said Ryan Green, director of customer loyalty at Southwest. "Our surveys show that frequent-flier programs rank highly with business travelers."

And the programs often serve the purpose for which airlines created them -- to keep their best customers from bolting to another carrier.

Mark Pankow, a sales executive from Wisconsin, used American Airlines miles to get eight business-class seats to Germany last Christmas, six tickets to Orlando in August, and recently booked two trips to Costa Rica.

Other major airlines offer schedules that meet Pankow's needs, but he values his executive platinum status with American.

"It would take a life-changing event for me to switch to United," he said. "I'd have to fly coach for a year just to get back to elite status."


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## hkskyline

*Menendez calls for airlines to ax fuel surcharges *
20 October 2008

NEWARK, N.J. (AP) - Sen. Robert Menendez is calling on airlines to stop imposing ticket surcharges initiated over the summer in response to record fuel prices, which are down 45 percent since July.

The federal lawmaker sent a letter to 11 U.S. airlines Monday requesting they discontinue the surcharges and other fuel-related fees, rather than use them to expand profits.

"It's deceptive to say you still need a fuel surcharge when aviation fuel prices are down $2 per gallon," Menendez said. "It's just wrong."

Spot prices for kerosene-type jet fuel averaged $2.34 a gallon last week, 45 percent less than the $4.33 average in July, according to Menendez. Aviation fuel is refined from crude oil, which fetched $74.25 a barrel on the New York Mercantile Exchange Monday, compared with a record $147.27 in July.

U.S. airlines imposed a slew of new fees in reaction to record fuel prices. They include fuel surcharges on some flights and new fees for baggage, food and beverages.

Beverly Goulet, vice president of AMR Corp., the parent company of American Airlines, estimated the fees generate "several hundreds of millions of dollars" for her employer in a Sept. 17 presentation to stock analysts.

AMR did not respond to a request for comment Monday. Betsy Talton, a spokeswoman for Delta Airlines, also did not return a call requesting comment.

Gerard Arpey, chief executive officer of AMR Corp., said in an Oct. 15 statement that it would be "shortsighted to conclude that fuel prices, which remain volatile, are no longer a challenge."

David Castelveter, a spokesman for the American Transport Association, said the decision on surcharges will be dictated by competition in the marketplace among individual airlines. The group is a trade association that represents the major U.S. airlines.

"The U.S. airline industry continues to operate with uncertainty," Castelveter said. "We're going to lose several billion dollars this year."


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## hkskyline

*Fuel drives big 3Q loss at United Airlines; says extra fees and cost cuts will restore profits *
21 October 2008

MINNEAPOLIS (AP) - United parent UAL reported a $779 million third-quarter loss on Tuesday, by far the biggest airline loss of the season. In the same quarter it suffered from both expensive jet fuel and accounting charges due to falling oil prices.

The nation's second-biggest carrier said capacity cuts and charges for things like checking luggage should help make it profitable again.

Fees for things like luggage are here to stay, said John Tague, United's chief operating officer. He said customers have been frustrated as they get used to that, but the business has to be run in a way to make a profit.

"And if that means the business has to be smaller in order to drive to that outcome, so be it," he said on a conference call. "So I mean, these are just things that are going to be necessary if we're going to be a real industry."

Like other carriers, United has been making moves like dropping underperforming routes, adding fees, and generally cutting capacity. On Tuesday the airline said it has switched its U.S.-to-China flights from 747s to smaller 777s, and that over the winter it would stop flying daily from Washington to Beijing. It is also dropping its service from Los Angeles to Hong Kong and from Denver to Heathrow airport in London.

Some of that capacity will come back on new flights such as Washington-to-Dubai, which begins next week. And it said it would add a flight from Washington to Moscow in March.

United cut distribution costs -- such as payments to sellers of its tickets -- by $30 million during the quarter. Tague said it is aiming to reduce that number more, and recently stopped paying commissions in Japan.

"We simply can't continue to be the only guy sitting in the room that isn't making any money off of people flying, so we're going to have to have more responsible discussions with all of our suppliers throughout the chain and we intend to continue to do that," he said.

Glenn Tilton, chairman, chief executive and president of United parent UAL Corp., said the airline is aiming to return to profitability, although the company didn't predict when.

"It is in this environment of falling oil prices that we at United see opportunity," he said.

The Chicago-based carrier lost $6.13 per share, compared with profit of $334 million, or $2.21 per share, a year ago.

The loss was due to oil's ups and downs during the July-through-September quarter. Oil prices peaked at more than $147 per barrel in July and averaged $118 per barrel during the quarter, United said -- enough to drive its fuel bill higher by $946 million year-over-year. But oil's decline by the end of the quarter forced UAL to record a non-cash charge of $519 million for underwater fuel hedges that will expire in future quarters. Hedges that expired during the quarter brought in a gain of $17 million.

UAL said it would have lost $252 million, or $1.99 per share, if not for the hedges and other accounting charges.

Revenue edged up 0.7 percent to $5.57 billion.

The results beat estimates of analysts surveyed by Thomson Reuters, who expected a loss of $2.48 per share on revenue of $5.54 billion. Shares rose $1.13, or 8.9 percent, to close at $13.80.

United expects costs for each seat flown to rise 2.5 percent to 3.5 percent in the fourth quarter.

JPMorgan analyst Jamie Baker wrote that he had been skeptical that United could contain costs that much as it cut capacity, but he viewed the new guidance as encouraging.

"While falling slightly short of our 1.5 percent estimate, we are nonetheless impressed (assuming they deliver), considering a mixed track record for expense control," he wrote.

He said United's fourth-quarter guidance suggests it might nearly break even. Analysts on average expect a loss of $1.43 per share.

United ended the quarter with about $2.9 billion in cash. It brought in $300 million by borrowing against its planes in the third quarter, and it isn't done yet. It said it has 43 more planes worth another $3 billion that it currently owns debt-free, although executives did not say how much of the fleet it wants to use as collateral right now.

United said it now expects overall capacity to shrink 8 percent to 9 percent during 2009. That includes cutting domestic capacity 12.5 percent to 13.5 percent and international capacity 7 percent to 8 percent.

For the first nine months of 2008, United lost $4.05 billion, or $32.34 per share, versus profit of $456 million, or $3.10 per share, during the first three quarters of 2007. Revenue rose 3.5 percent to $15.65 billion.


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## hkskyline

*Government says average US airfares jumped 8.1 percent to record high in second quarter *
29 October 2008

DALLAS (AP) - Average U.S. air fares jumped 8.1 percent in the second quarter to their highest level since the government started keeping track 13 years ago. The highest fares were in Cincinnati.

The Transportation Department said Wednesday that the average domestic itinerary fare in the second quarter rose to $352, breaking the record of $348 set in the first quarter of 2001.

Airlines raised fees and fuel surcharges this year as they tried to offset high costs for fuel, which peaked at record levels in the first week of July -- just after the second quarter ended. Even with the increases, however, most major U.S. airlines lost money in the quarter.

In the past two months, many airlines have cut back on the number of flights they operate, which could push fares even higher.

The Transportation Department based its figures on a sample of itineraries from April through June, excluding "abnormally high" fares.

The increase of 8.1 percent over the second quarter of 2007 was the biggest year-to-year increase since early 2006.

Average fares rose 4.6 percent from the first three months of the year, but fares typically rise in the second quarter because of stronger springtime demand -- the last exception was in 2004.

Since hitting bottom at $307 in early 2005, average fares have risen 14.7 percent, and they've jumped nearly 45 percent since 1995, according to the department's Bureau of Transportation Statistics.

For the second straight quarter, the highest fares among the busiest 100 airports were in Cincinnati, where Delta Air Line Inc. has a hub, and the biggest increase -- 21 percent -- was at Greenville/Spartanburg, S.C.

The lowest fares were reported at Dallas Love Field, the home of Southwest Airlines Co., followed by Burbank, Calif., Houston's Hobby Airport, and Chicago's Midway Airport.

Transportation Secretary Mary E. Peters said new figures on fares showed the need for more competition at airports where the number of flights are capped.

Peters said such caps can sometimes reduce delays, but she said fares rose 16 percent at the Newark, N.J., airport after caps were imposed in May. Caps "also eliminate competition, and without competition, airfares rise," she said.

Peters used the new figures to tout the department's proposal to auction takeoff and landing slots at congested New York-area airports. The Federal Aviation Administration delayed auctioning slots at Newark Liberty Airport this summer in the face of opposition to the plan from airlines.

David Castelveter, a spokesman for the Air Transport Association, said Peters was wrong about the cause of higher fares.

"There is no shortage of low-fare competition -- any competition -- in New York," he said. "The meteoric increase in fuel prices, which affected all carriers, drove up the price of airline tickets."

The Transportation Department said a separate measure of fares, called the air travel price index, also hit an all-time high in the second quarter, rising 7.2 percent from the second quarter of 2007. The previous high for the index was set in the first quarter of this year.

The price index measures changes in fares based on identical routes and types of service, while the average-fares figure is a sample of the actual amounts paid by consumers, including taxes and fees.

In calculating average fares, the Transportation Department excluded certain expensive routes, cheap bulk prices and free trips redeemed by frequent fliers. It also excluded Alaska, Hawaii and Puerto Rico flights, although data from those places is available on the department's Web site.

Information from Spirit Airlines was left out because of faulty figures, the department said. That meant fares for Atlantic City, N.J., where Spirit is the dominant carrier, were not included in the national average.


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## hkskyline

*Delta Air Lines adding first bag fee, reducing or eliminating certain other fees*
5 November 2008

ATLANTA (AP) - Delta Air Lines, the world's biggest carrier, says it will impose a $15 fee to check a first bag, becoming the last of the six legacy airlines to impose such a fee.

It also said Wednesday it is cutting certain other fees as it aligns its policies with those of Northwest Airlines, which it acquired last week.

Atlanta-based Delta says that effective immediately, for traffic on or after Dec. 5, customers flying within the U.S. will be charged $15 for the first checked bag and $25 for the second checked bag when traveling domestically, consistent with Northwest's existing policies.

Delta also says it is eliminating SkyMiles and WorldPerks award ticket surcharges, reducing reservation sales direct ticketing charges and eliminating curbside check-in administrative fees.


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## hkskyline

*ANALYSIS-Airlines get sick and well by same bad medicine *

CHICAGO, Nov 5 (Reuters) - U.S. airlines are groping for profits while travel budgets shrink and the global economy has slowed, but recessions bring a built-in consolation prize -- cheaper jet fuel.

The remarkable recent energy price decline -- a byproduct of the overall economic crisis -- is somewhat ironic for the industry, given its years-long steady diet of bad luck and disappointing economic trends.

But for now, at least, one airline demon seems intent upon keeping another at bay.

"We in the industry now have a natural hedge against declining demand, in the sense that if macroeconomic issues cause a decline in demand, they are likely to drive even lower oil prices," said Scott Kirby, president of US Airways Group Inc , on a call with analysts and reporters last month.

Kirby said each $1 decline in the price of a barrel of oil is worth $35 million to US Airways.

For years, the airlines have walked the fine line between stability and collapse due to the fears following the Sept. 11, 2001 terror attacks and low-fare competition. Then, just as airlines began to recover, sky-high fuel prices threatened to undo progress made during years of difficult restructuring.

Early this year, the industry looked poised for consolidation and more bankruptcies when the global economic crisis took hold and travel demand began to dry up.

But the crisis also brought sudden relief to embattled carriers as it dragged oil prices down from a record high. Crude oil <CLc1>, which touched an all-time high of $147.27 a barrel in July, has fallen some 53 percent in four months.

The decline came too late to spare the industry from third-quarter losses. The seven largest U.S. airlines reported net losses of more than $2 billion on higher fuel costs and the diminished value of fuel hedges.

But airline executives were optimistic that less-expensive fuel and massive capacity cuts would offset the negative impact of falling travel demand.

"While the long-term impact to passenger demand from a slowing economy is not yet clear, we continue to believe the magnitude of industry capacity cuts should offset the impact of a weaker economic environment," US Airways' Kirby said in a statement on Wednesday.

Glenn Tilton, chief executive of United Airlines parent UAL Corp , expressed the same optimism in an Oct. 21 message to employees.

"The convergence of falling oil prices with our capacity flexibility, strong improvement on costs and competitive revenue put us in a position to make our margin and return United to profitability," Tilton said.

BOUNCEBACK?

Industry experts generally predict airline profits in 2009 despite ominous signs that economic weakness will further erode travel demand.

Jamie Baker, airline analyst at JP Morgan, said in a research note this week that he was anticipating the third-worst demand environment on record. But the "fast and furious descent" of oil may further bolster profits, he said.

Airline consultant Robert Mann was slightly more cautious in his assessment. He noted the multitude of factors acting on the price of jet fuel, travel demand and airline finances.

The correlation between fuel prices and the economy is tenuous, and airlines should not pin their hopes on circumstances beyond their control, Mann said.

"We've shown that airlines can gain pricing power when capacity discipline is in force," he said. "As for natural hedging potential, it's a bit of a fur ball, really."


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