News for Monday, September 08, 2008

@... Continental has become the third "legacy carrier" to end its practice of awarding a minimum of 500 frequent-flier miles per flight. Now, the carrier will award the actual distance of the flight, even if that's less than 500 miles. Continental announced the move on its website, saying that the move will apply to travel beginning Jan. 1 on tickets bought on or after Nov. 15. "This affects base miles and Elite Qualifying Miles on flights operated by Continental and most OnePass airline partners," the airline says. Continental notes that all tickets bought prior to Nov. 15 will receive the 500-mile minimum, regardless of the date of travel. The airline also will adjust how it awards bonus miles to its elite customers. The airline says: "We will continue to award Elite mileage bonuses, but will be making changes to the bonuses awarded to Silver and Platinum members. Effective for travel on or after Mar. 1, 2009, Platinum Elite members will earn a 100% mileage bonus (instead of 125%) and Silver Elite members will earn 25% (instead of 50%)." And in one last change, Continental says it will begin charging a $15 fee for customers checking one bag, according to The Associated Press. The airline already costs $25 to check a second bag on Continental. The Cleveland Plain Dealer notes the bag fees "won't apply to EliteAccess customers, including people seated in First or BusinessFirst, OnePass Elite and SkyTeam Elite members. There also will be no first-bag fee for customers traveling on full-fare economy (Y) class tickets or military personnel or their families traveling on official orders." With the move, Delta is now the last remaining of the six legacy carriers to allow passengers one free piece of checked luggage. The others -– American, Continental, Northwest, United and US Airways -– all now charge for a first checked bag. Predictably, the changes have become a hot topic at the boards on frequent-flier website FlyerTalk.com. Most readers there expressed disappointment with the changes. "Ugh, not good news, but these days, I guess it's what we've come to expect. This just moves OnePass closer in line with (United’s) Mileage Plus," writes FlyerTalk member ssullivan.

@...Less than a week into its international debut, Kingfisher Airlines Ltd has decided to cut the frequencies of some of its proposed non-stop flights to the US, as it struggles to limit potential losses from high jet fuel costs. The full-service airline, which started international operations on 3 September with daily non-stop flights between Bangalore and London-Heathrow, will still fly non-stop to US cities when it starts on the route in November, but not daily. Fuel pinch: A Kingfisher Airlines’ A330 aircraft at London’s Heathrow Airport on 3 September. The company, which started international operations on the same day, says it will still fly non-stop to US cities, such as San Francisco, when it starts on the route in November—but not daily as it planned earlier. (Photo: AP) Fuel pinch: A Kingfisher Airlines’ A330 aircraft at London’s Heathrow Airport on 3 September. The company, which started international operations on the same day, says it will still fly non-stop to US cities, such as San Francisco, when it starts on the route in November—but not daily as it planned earlier. (Photo: AP) “We had originally planned to start daily (non-stop) flights connecting Bangalore to San Francisco,” said a senior executive at Kingfisher Airlines. “Now we will restrict that to three or four flights a week for the time being.” The Mumbai-based airline was also considering flying to San Francisco from Bangalore with a halt at another international city, so it could combine routes and fill jet fuel in other countries where it is less expensive. “Stopping at Dubai or Singapore will help us fill jet fuel at 30% cheaper rates compared with India. But there is no going back from the promise of offering non-stop flights to the US,” said the same executive, who didn’t want to be identified. Jet fuel prices have increased 60% globally since January as crude oil prices rose to more than $147 (Rs6,526.8) a barrel in July, before declining recently to less than $110. Kingfisher had placed orders for five wide-body A340-500 planes, used on long-haul international routes, in early 2006, when crude oil prices were about $60 a barrel. “Kingfisher cannot do away with non-stop flights because A340-500s are specially designed for non-stop operations, so it will be detrimental to engine life if the carrier flies one-stop,” said a Mumbai-based analyst at a domestic brokerage. He didn’t want to be named. A long-haul international flight needs at least 18 months to become profitable, according to analyst estimates, but this is becoming tougher to achieve because of the rise in fuel prices. Kingfisher Airlines is now selling two of the five A340-500 planes it ordered even before taking delivery from aircraft maker Airbus SAS, according to another Kingfisher executive who’s familiar with the development. Airbus itself is brokering the deal and several airlines from Europe and Africa are interested in buying the planes, he added, but did not disclose further details. “The dynamics of the aviation market has changed and we are re-evaluating our international plans with ATF (aviation turbine fuel) prices going through the roof,” this person said. “But that does not mean we will cut down the size of our operations. Kingfisher Airlines has secured approval to fly to 13 destinations and we will connect all these points by the end of this year.” The carrier has got the nod to fly to 13 global destinations and plans to connect all the points by year-end Apart from the five A340-500, Kingfisher had placed firm orders for five A380s, the largest civilian planes ever built, five A330s and five A350s for use on long-range international routes. The Financial Times had on 25 August quoted Vijay Mallya, founder and chairman of Kingfisher Airlines, as saying the carrier has negotiated with Airbus to defer the deliveries of 32 A320 short-haul jets from 2008-09 to 2010-12. The report quoted Mallya as saying that because of intense competition in the Indian aviation market, Kingfisher was scaling back its planned capacity growth and deferring some orders. Hitesh Patel, executive vice-president of Kingfisher Airlines, said the airline wouldn’t need too many mid-size planes to operate in the Indian skies as it had acquired low-fare carrier Deccan Aviation Ltd. “We are re-evaluating our international and domestic operations with oil prices shooting up,” Patel said. “But nothing will take us behind in the international focus. We are getting tremendous response for our first international Bangalore-London flights.”

@...AirAsia, the region's biggest budget carrier, is making a risky bet. Malaysia AirAsia AP Photo An AirAsia crew stands at the airline's booth during the Matta Travel Fair in Kuala Lumpur, Malaysia, Saturday, Sept. 6, 2008. AirAsia, the region's biggest budget carrier, is making a risky bet. As soaring fuel prices have forced other airlines to cut back, shed jobs and ground planes, AirAsia is doing the opposite: increasing flights, adding routes and boosting capital investment. Malaysia AirAsia As soaring fuel prices have forced other airlines to cut back, shed jobs and ground planes, AirAsia is doing the opposite: increasing flights, adding routes and boosting capital investment. Last month, it even gave away a million free seats (although passengers still had to pay taxes and fuel surcharges). The seven-year-old company is aiming to fill the vacuum as other airlines reduce capacity, betting that more travelers will opt for budget flights amid a global economic downturn. Analysts say that if it survives the industry slump, AirAsia could come out a winner with increased customer loyalty and a strong route network to catch the growth wave when good times return. "They are reasonably well positioned for the long run but there's always a trade-off. It's a long term decision, which will cause some short-term pain," said Damien Horth, Asia transport analyst at UBS AG in Hong Kong. Of course, the strategy could also backfire badly. Advertisement Computer Slowing Down? What to Do About It The Secrets to Successful eBay Selling The Secret to Getting Highly Discounted Cruise Tickets Already there are signs of trouble. Last month, AirAsia reported a 95 percent plunge in its net profit for April-June quarter to 9.42 million ringgit ($2.9 million). But the company chalked that up mostly to a 77 million ringgit ($23 million) foreign exchange loss from a weakened Malaysian ringgit, not weakness in its underlying business. Average load factor - the percentage of seats taken up in an airplane - dipped to a still relatively strong 76 percent, from 80 percent in 2007. Chief Executive Tony Fernandes remains undaunted. "We are focused and happy with our strategy. We won't sacrifice long-term (growth) for short-term profits," he told The Associated Press. There are doubts, however, on whether AirAsia can fund its expansion. It has a cash reserve of about 1 billion ringgit ($303 million) but outstanding debts stand at 5.4 billion ringgit ($1.6 billion), giving it a net debt position of 4.4 billion ringgit ($1.3 billion). Debts are set to grow as it receives new planes. The carrier has firm orders for 175 Airbus A320 planes, to be delivered gradually up to 2014, as part of fleet replacement and expansion. Chris Eng, analyst with OSK Securities in Malaysia, said AirAsia's growth prospects may be curbed while its joint-ventures in Thailand and Indonesia are expected to remain in the red. "It will be challenging but we believe AirAsia can survive," Eng said, citing its efficient regional network and good cost control. As it expands, AirAsia also faces a challenge in filling up capacity as consumer spending slows and competition increases from flag carrier Malaysia Airlines, which recently offered zero fares on surplus seats, analysts say. "Everybody is now having to dig deeper into the well of consumer demand and the more they compete, the more fares go down," said Peter Harbison, executive chairman of the Center for Asia-Pacific Aviation in Sydney. The International Air Transport Association has forecast a $5.2 billion loss this year for the global airline industry. It said crude oil price, currently averaging $113 a barrel, is still 55 percent higher than the 2007 average price while passenger demand growth is slowing even in Asia-Pacific. At least two dozen airlines worldwide have closed down this year. Many low-cost airlines are also struggling despite escaping the worst of the downturn. Europe's Ryanair and Southwest Airlines in the U.S.- two of the most resilient budget carriers - have cut capacity this year. Ryanair, which reported a second quarter loss, said it may face its first full-year losses in 2008. UBS's Horth warned AirAsia may also plunge into the red for the first time this year with losses stretching into 2009, as its rapid expansion and aggressive pricing policy bite into revenue. "Assuming oil prices remain around current levels, its certainly going to be tough. The management is taking a long term approach but investors may get scared," he said. Fuel prices account for half of AirAsia's cost. AirAsia's stock has plunged by half from a year ago to around 1 ringgit (30 cents), but has risen from an all-time low of 0.765 ringgit (23 cents) in June.

@...One year into Richard Anderson's tenure at the helm of Delta Air Lines, the company is on the brink of becoming the world's largest carrier through its purchase of Northwest Airlines. But some of the biggest challenges may be yet to come. Delta and other carriers are flying through a turbulent period in the airline business, including high fuel costs and a weak economy. And Delta still has a number of hurdles to overcome to complete its merger. Fortunately for Anderson, he isn't entirely new to airline mergers. As a junior attorney in his first airline-industry job, Anderson was at Continental Airlines when executives pulled off a merger combining Continental with People Express, Frontier Airlines and New York Air in 1987. "At Continental, I saw it firsthand," Anderson said. Now, just more that 20 years later, he's overseeing a merger of his own. Even before he officially stepped into the chief executive position at Delta on Sept. 1, 2007, speculation was rampant that he would move to acquire Northwest, based in Eagan, Minn., where he was chief executive three years earlier. In April, the two carriers announced their deal. Shareholders are scheduled to finish voting on the deal at shareholder meetings Sept. 25. For the U.S. Justice Department review of the merger, Anderson said Delta has submitted about 10 million pages of documentation and expects a ruling by the end of the year. Once the two carriers combine, Anderson said, the Atlanta headquarters will be larger, though the company will retain executive offices, reservation centers, a data center and flight- training facility in Minnesota, and some employees from Atlanta may move there. Anderson, a native of Galveston, Texas, comes off as friendly and has a down-home tone, and he often talks about the importance of retaining Delta's culture in the merger. The airline's familylike environment has evolved over decades. But Anderson's policies and descriptions from some who work closely with him paint a picture of a leader with a different style - - one who closely oversees operations, takes more of a no-nonsense approach and isn't afraid to make unpopular decisions. When Anderson summarizes accomplishments during his first year at Delta, he mentions the announcement of the merger and then ticks off a laundry list of statistics and details on everything from customer service rankings to unit revenues. He has some regrets, saying he wishes Delta had hedged more of its fuel cost and reacted more quickly to adjust to high fuel prices and a weak economy. "Richard is incredibly hands-on, very operational, and that is a change," compared with previous Delta chief executives, said Delta President and Chief Financial Officer Ed Bastian. In a document called "Rules of the Road," one of the first papers Anderson distributed at Delta after he arrived, Anderson writes: "We run a meritocracy. ... No 'new jobs' for nonperformers." He also instructs: "Always be collegial, even in tough conversations." One of those tough conversations came when Delta moved to terminate Delta Connection contracts, including with Mesa Air Group's Freedom Airlines. Mesa sued Delta, and a judge ruled the airline must resume the flights pending a trial. Anderson will also face scrutiny from others watching to see how the airline lives up to its promise to not cut any frontline workers as a result of the merger or eliminate any of the combined carrier hubs. Delta is already shrinking its hub in Cincinnati by 22 percent this fall, compared with a year earlier, among other cuts. "I think the jury's still out on what kind of leader he'll be for Delta," said Cathy Cone, head of a group of retired Delta employees. "It's going to be a real challenge to merge the two companies." Integrating two airlines whose operations sprawl across the world is a monumental task, involving the combination of everything from fleets to flight schedules, work forces and information-technology systems. "We want to get the merger done and get it successfully integrated," Anderson said. But that's not his only major challenge. "The issue that we face perennially in this business is this unbelievable cyclicality," Anderson said. Historically, the health of the airline industry tends to mirror the economy: When the economy is weak, the airline industry suffers, and when the economy is strong the industry benefits. In the second quarter of this year, Delta lost $1 billion, after recording $1.2 billion in special charges for write-downs, severance and closing some facilities at airports. Excluding the special items, Delta reported a $137 million profit. A year earlier, Delta had a $274 million profit, excluding special items. Anderson said Delta must grow revenues 8 to 12 percent a year while improving cost efficiency by 5 percent a year -- even when it's cutting back flight capacity. Delta can accomplish that, he said, through the Northwest acquisition and through growth of other businesses such as cargo and maintenance. He hopes Delta will be consistently profitable by 2010.

@...Middle Eastern carrier Emirates has yet to clarify the nature of an electrical matter which is keeping its first Airbus A380 from returning to service while it undergoes engineering work. The Dubai-based airline is not expecting to return the aircraft to flight operations until at least 12 September. Engineers are working on an "electrical issue", says a spokesperson for the carrier, which was "noticed at the end of a training mission when the aircraft was parked in front of the hangars". The aircraft remains parked in Dubai. The A380, delivered to Emirates at the end of July, has been used for training purposes in between twice-weekly flights on the Dubai-New York JFK route. First Airbus A380 (A6-EDA) for Emirates Emirates admitted last week that it had suspended A380 services, initially stating simply that planned engineering work had overrun. The airline says its next scheduled commercial flight with the 489-seat aircraft is 12 September. In the interim period it is using Boeing 777-300ER twin-jets twice-daily on the JFK route. The carrier states that it is working to minimise any inconvenience to passengers. Emirates is acquiring 58 A380s in total but delivery of its second, due this month, has been delayed - although there is no indication that this is linked to the engineering work on the first aircraft.

@...Poland's national airline LOT may not exercise its option to buy six Boeing 787 planes from Boeing as it battles financial woes, newspaper Dziennik reported on Friday giving no sources. LOT has an option to buy six long-haul Dreamliners between 2012 and 2019 and could save up to USD$180 million by selling it, the daily said. The Polish carrier, which last month warned it needed immediate restructuring to avoid a possible cash crunch, will stick to another USD$1.6 billion contract to buy eight 787s due for delivery in 2009-2011, the newspaper said. A LOT spokesman declined to comment.

@...Midwest Airlines has received USD$60 million in additional financing, including commitments from TPG Capital and Republic Airways Holdings, as it looks for stability amid high fuel prices. Midwest said on Wednesday it also has reached an agreement in principle with Boeing Capital on renegotiated leases for its Boeing 717s. Milwaukee-based Midwest Air Group was taken private this year by an affiliate of TPG Group after a bitter takeover dispute with AirTran Holdings, hopes to stay off the growing list of smaller airlines to either close or file for bankruptcy protection. The list includes ATA Airlines, which closed in April and Frontier Airlines, which entered Chapter 11 in April. Midwest said in July it would cut its work force by 1,200 employees, or 40 percent. The airline industry has been battered severely by high fuel prices this year and many carriers have responded with sweeping capacity cuts. Midwest flies to the East and West Coasts and to destinations in between from Milwaukee and Kansas City.

@...Alitalia's adviser will soon present details of the airline's rescue plan to British Airways, considered by Italy as a possible foreign partner for the bankrupt airline, an executive told a newspaper. "Soon we will present the plan to British Airways as well," an executive at Intesa Sanpaolo, the Italian bank behind the plan, said in an interview published in business daily Il Sole 24 Ore on Saturday. Gaetano Micciche, who heads the bank's corporate and investment banking division, has already presented the plan to Air France-KLM and Lufthansa, and he said he had got a positive response from both airlines. An industry source last month said British Airways would not consider a partnership with Alitalia.

@...Boeing Co's (BA.N: Quote, Profile, Research, Stock Buzz) 27,000-strong machinists union is on strike, halting commercial airplane production, after last-ditch talks failed to agree to a new labor contract by a deadline of midnight Seattle time on Saturday. Boeing says plants will stay open, with workers in other unions and nonunion employees expected to report, but production lines at its massive facilities in Everett and Renton, Washington, will halt assembly. If the fourth Boeing strike in 20 years is prolonged, here are some of the financial losses and problems predicted for the company and an increasingly worldwide supply chain. Economists also anticipate a drag on the Seattle-area and U.S. economies. BOEING -- Boeing could lose up to $3 billion in revenue per month, half the company's expected monthly total, if deliveries of its commercial planes are halted, based on figures from the first half of the year. -- It could lose 30 cents to 40 cents from earnings per share for each month of a strike, according to Wall Street analysts. The company is expected to earn $5.85 per share for the year, on average. AIRLINES -- Delivery delays would inconvenience major airline customers such as AMR Corp's (AMR.N: Quote, Profile, Research, Stock Buzz) American Airlines, Continental Airlines (CAL.N: Quote, Profile, Research, Stock Buzz) and Southwest Airlines Co (LUV.N: Quote, Profile, Research, Stock Buzz). -- Buyers of the new 787 Dreamliner, already angered by production delays, would face an even longer wait. Big customers include Japan's All Nippon Airways (9202.T: Quote, Profile, Research, Stock Buzz), Australia's Qantas Airways (QAN.AX: Quote, Profile, Research, Stock Buzz), Britain's Virgin Atlantic [VA.UL] and Singapore Airlines (SIAL.SI: Quote, Profile, Research, Stock Buzz). -- U.S. plane leasing company, International Lease Finance Corp, a unit of insurer American International Group Inc (AIG.N: Quote, Profile, Research, Stock Buzz), is the biggest 787 customer, with 74 on order. -- A lengthy work stoppage could be an opportunity for rival Airbus, a unit of EADS (EAD.PA: Quote, Profile, Research, Stock Buzz), to pick up some plane orders from uncertain airlines. SUPPLIERS -- If Boeing's plane production lines stop, suppliers will stop or reschedule deliveries, causing inventory pile-ups and possible layoffs. Boeing's major suppliers include: -- General Electric (GE.N: Quote, Profile, Research, Stock Buzz) (engines) GE supplies its own engines for some wide-body models and its CFM International 50-50 joint-venture with France's Safran (SAF.PA: Quote, Profile, Research, Stock Buzz) supplies all the engines on the 737 single-aisle series, Boeing's top-selling model of aircraft. -- Pratt & Whitney, a unit of United Technologies Corp (UTX.N: Quote, Profile, Research, Stock Buzz) (engines) -- Rolls-Royce (RR.L: Quote, Profile, Research, Stock Buzz) (engines) -- Spirit Aerosystems Holdings (SPR.N: Quote, Profile, Research, Stock Buzz) (fuselage, wings) -- Honeywell International (HON.N: Quote, Profile, Research, Stock Buzz) (electronics) -- Rockwell Collins (COL.N: Quote, Profile, Research, Stock Buzz) (avionics) -- Goodrich Corp (GR.N: Quote, Profile, Research, Stock Buzz) (wheels, brakes) -- Alenia Aeronautica, part of Finmeccanica (SIFI.MI: Quote, Profile, Research, Stock Buzz) (fuselage on 787) -- Latecoere (LAEP.PA: Quote, Profile, Research, Stock Buzz) (787 passenger doors) -- Japan's "heavies," which are working on 787 structures: -- Mitsubishi Heavy Industries (7011.T: Quote, Profile, Research, Stock Buzz) -- Kawasaki Heavy Industries (7012.T: Quote, Profile, Research, Stock Buzz) -- Fuji Heavy Industries (7270.T: Quote, Profile, Research, Stock Buzz) LOCAL ECONOMY -- Boeing is the leading private employer in the Puget Sound area around Seattle. There are 13,000 IAM union members at its wide-body plant in Everett, Washington, 5,000 at nearby Renton and more scattered throughout the area. -- A strike would mean no pay for workers, signaling cutbacks in home and leisure spending and a likely increase in defaults on home loans and credit-card debt. -- The IAM offers to pay strikers only $150 per week from the third week of a strike. Normal health-care coverage ends after a month. U.S. ECONOMY -- Striking workers generally cannot claim unemployment benefits, but others whose jobs are affected because of a strike can, which could increase jobless claims nationwide. -- Figures for U.S. companies' inventories would rise. -- If airlines stop making new orders for Boeing's planes, it would drag down closely watched monthly durable goods orders figures. -- If a strike leads to improved terms, other U.S. workers would be more tempted to take action in upcoming contract talks.

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