Are airlines' financial difficulties leading more and more to passengers stranding aboard aircraft?

The US government on Tuesday imposed its first-ever punishment against airlines for stranding passengers aboard aircraft, fining three carriers a total of USD$175,000 for a six-hour ordeal in Minnesota.


Continental Airlines and its ExpressJet Airlines affiliate were fined USD$100,000, while Mesaba Airlines, a unit of Delta Air Lines, was fined USD$75,000, the Transportation Department said.

Continental, ExpressJet and Mesaba all reached settlements with the government's Aviation Enforcement Office.

The action served as a sharp reminder to carriers about service just as the busy Thanksgiving Day travel period gets under way.

Regulators found all three airlines violated a law prohibiting unfair and deceptive practices for their roles in the August 8 incident in Rochester, Minnesota.

Forty-seven passengers were stranded overnight aboard a Continental Express plane en route from Houston to Minneapolis that diverted to Rochester due to bad weather.

ExpressJet operated Flight 2816 for Continental while Mesaba was the only airline staffing the Rochester airport at the time. Mesaba refused to let passengers exit the plane and enter the terminal because there were no federal security personnel on duty at the time.

Government officials concluded that passengers could have entered the terminal so long as they remained in the secure area.

Source: Airwise

Singapour Airlines named best international carrier

Passengers and travel agents have voted Singapore Airlines this year's best international carrier in a Zagat survey that also showed how the economic downturn had grounded the travel industry.

The 2009 Airline Survey by the travel and entertainment guide covered 73 international airlines and 16 domestic US carriers, rating premium and economy classes on a 30-point scale covering factors such as comfort, food, in-flight entertainment and luggage policies.

Singapore Airlines, the flag carrier of the Southeast Asian nation and which regularly wins passenger choice awards, scored top marks for its service in both classes.

Hong Kong's Cathay Pacific tied with Dubai's Emirates for the 2nd slot in the premium-class category while Emirates also scored second-best for its economy class service.

Virgin Atlantic and Air New Zealand were voted as having the third best premium class service and there was a three-way tie for the third ranking in economy class between Japan's All Nippon Airways, Air New Zealand and Thai Airways.

Among the US airlines, Continental got the best score -- a 15 -- which Tim Zagat, CEO of Zagat Survey, said was an achievement despite lagging behind the others.

"The newer airlines continue to do well in the survey. Being less expensive to operate, they can therefore afford to provide better service," Zagat said in a statement.

Continental was also named the best value carrier for international routes. The survey polled 5,895 frequent fliers and travel professionals who collectively took 97,600 flights in the past year.

Source: Airwise

ANALYSIS: Constraints to adjustment and the consequences

The industry may well have experienced a structural fall in revenues as a result of this downturn. Chris Tarry reminds that such a fall necessitates a resizing in the productive capacity of the industry if investable returns are to be made. The industry faces a number of constraints on this adjustment process.

Despite the announcement by many airlines of cost reduction programmes, fuel is the major swing factor on the cost side of the equation and at the time of writing the price was back to levels last seen a year ago but this time it is on the way up and twelve months ago the trend was down. For most airlines their ability to reduce unit costs is a function of growth which enables costs to be “grown down” as fixed costs are spread over more ASKs and ATKs.

New aircraft may well be received by airlines that can grow structurally but as the result of taking traffic from competitors. The near and medium term effect will be less revenue to share around and this will persist until there is at least a partial withdrawal, and even then the capacity is likely to remain somewhere in the system.

An inevitable part of the adjustment to a downturn is an increase in the number of parked aircraft and unsurprisingly, compared with our reference point of September 2007, the number of aircraft defined by Ascend as parked has risen by some 750 aircraft to just over 2600 in September 2009.

Less visible to the outside observer has been the change in daily utilisation. Looking at data which measures change in hours used per day for aircraft in airline service it appears that there has been a fall of some 4.5% for short haul aircraft and some 5.5% for long haul. This will put upward pressure on unit costs.

The re-entry of existing capacity too soon is only one area of concern on the capacity side of the equation. The most recent statements from the manufacturers suggest that for the time being at least they intend to maintain production rates in the single aisle segment at or close to current rates.

The risk remains that the adjustment in the productive capacity of the industry that would appear to be necessary will be largely absent due to the supply of new aircraft into the system. This suggests that even fewer airlines will be able to achieve investable returns in the next upswing.

Source: Chris Tarry, CTAIRA

IATA's Airline Industry Financial Forecast

IATA latest forecast suggest that "losses from commercial airline operations worldwide in 2009 are expected to reach $11 billion. Our first look into 2010 suggests that losses will begin to shrink to a lower level of $3.8 billion".

The outlook for 2010 is for more widespread, but still relatively weak, economic growth. This is not expected to be strong enough to eliminate excess capacity nor to bring about much recovery in demand for premium seats; so yields will remain weak. Losses will diminish but a recovery to net profit looks unlikely until 2011.

The first impact of stabilizing economies was seen in air freight volumes which were flat during the first quarter and then started to rise in the second. Passenger markets were slower to reach a bottom as rising unemployment and weak income growth discouraged travel. But unless major economies go into a further down-leg of recession it looks as though that floor was reached in the second quarter.

However airlines are still facing exceptionally weak yields on both passenger and freight markets. Rising load factors have helped to stabilze yields but this has been partly achieved by cutting aircraft utilization. Spreading fixed aircraft costs over fewer hours in the air means that, even if higher load factors enable a firming in fares, unit costs will have risen.

The futures market and consensus forecasts now project average oil prices of $61/b this year (was $56/b) and $72/b in 2010. As a result the fuel bill will be higher than previously expected this year and will rise into 2010, further squeezing airline operating cash flows.

Major airlines raised over $15 billion of cash on capital markets so far this year, boosting security against continued weak yields and rising fuel prices. However, with banks still not lending freely and ownership restrictions limiting equity finance, many of the smaller and medium-sized airlines remain in a much more fragile financial condition.

Source: IATA

Ryanair threatens Boeing to cease talks on aircraft deal

Ryanair will wait until the end of November or very early in December to reach a deal with Boeing on a fresh batch of aircraft orders, Ryanair chief executive Michael O'Leary said on Thursday.

If no preliminary agreement is reached around the end of the month, allowing time to sign a formal deal by the end of 2009, Ryanair will end its long-running relationship with the aircraft maker, O'Leary said in the latest of his threats in the bargaining process with Boeing.

O'Leary, renowned in the industry for driving hard bargains, already warned earlier this month that talks on ordering 200 aircraft for 2013-16 delivery had not progressed much and that he could slow down Ryanair's rapid growth from 2013.

"I am not wasting another Christmas holiday trying to talk to guys in Seattle," O'Leary said, referring to Boeing's home base, adding he saw a deal highly unlikely.

O'Leary also reiterated he could break with his policy of not paying any dividends, adding that mid- to late 2011 could be the time to start returning cash to shareholders as Ryanair's current capital investment programme would be tailing off by then.

"Around mid- to end-2011 we'll be looking at very substantial senior management bonuses and distributions to shareholders, in that order," O'Leary said. "I think I'm worth it."

Source: AirWise

Ethiopian invests big to match growth

Ethiopian Airlines is making huge investments to double its fleet in an effort to match its strong growth, despite the aviation industry continuing to lose billions of dollars in the wake of the global economic downturn.

Ethiopian, which pocketed an all time record net profit of over 1.3 billion birr last year, registering a staggering 165 percent increase from the previous year, is enjoying consistent growth in traffic and also in operating revenues, which rose by nearly 33 percent last year.

The airline is currently operating 36 aircraft, but already has another 35 new planes on order direct from the manufacturers, including the latest orders of five Boeing 777s.

Late last week, Ethiopian CEO Girma Wake inked a contract for the purchase of 12 Airbus A350-XWBs aircraft, sealing an agreement reached back in July, which marked an end to the airline exclusively operating Boeings.

"We are committed to investing in industry leading technology to maintain our unrivalled reputation in Africa whilst continuing to grow," Girma said in a statement released when he signed the contract at Dubai Air show last week.

Source: Airline Industry Today

A330 Certified for ETOPS beyond 180 minutes

"The European Aviation Safety Agency (EASA) has approved all Airbus A330 models for ETOPS (Extended-Range Operations for two-engined aircraft) “beyond 180 minutes”. This award makes the A330 the first aircraft type to receive such approval, either from EASA or the FAA. The new capability will be available as a customer-selectable option which extends the diversion distance potentially up to 1,700 nm. This distance corresponds to a maximum ETOPS diversion time for the A330 of approximately 240 minutes (at one-engine-inoperative speed under standard conditions).

Operators with two-engined aircraft who choose this option will now be able to serve new routes which are presently not flown within the existing ETOPS rules (i.e. up to 180 minutes diversion time). For the A330, examples include new routes over South Atlantic Ocean, Mid- and South Pacific Ocean, and Mid-Indian Ocean. Operators flying on existing routes will benefit from the new regulation, since it will allow them to fly more directly and eco-efficiently. Some estimates show a fuel saving potential of up to 10 percent for some long range routes (with consequent reductions in CO2 emissions).

The granting of this latest ETOPS extension, to around 1,700nm and 240 minutes, has been made possible in part due to the proven reliability and robust systems of the aircraft and its engines, as demonstrated over 14 million A330 flight hours and 3.5 million flights."

Source: Air Transport News

Ryanair believes the irish government failed Aer Lingus

"Ryanair welcomed the inevitable merger of BA and Iberia to form a 60 million (annual passenger) mega airline, as Europe moves inexorably towards four large airline groups led by Air France, BA, Lufthansa and Ryanair.

In recent years Lufthansa has acquired Swiss, Austrian, SN Brussels Airline and British Midland, as well as a large stake in SAS. Air France has acquired KLM and a large stake in Alitalia. This morning British Airways announced that it will merge with Iberia to form a third big, high fare, fuel surcharging EU airline. While all of these consolidations and mergers are proceeding, Aer Lingus, Ireland’s high fare, loss making, former flag carrier continues to be loss making, and isolated as it is bypassed by the trend of consolidation among high fare European airlines.

Ryanair believes that this is because the Irish Government policy has failed Aer Lingus. It is obvious in a Europe, where there is four large airline groups that Aer Lingus needs a strong and stable partner. Since Air France, British Airways and Lufthansa have no interest in the small, peripheral, loss making Aer Lingus, Ryanair believes it is obvious that the future of Aer Lingus can only be secured as part of one strong Irish airline group, led by Ryanair, which is capable of not just competing with Air France, BA and Lufthansa, but of beating them."

Source: Air Transport News

Passengers are not supertitious

"Southwest Airlines confirms that passengers are NOT avoiding travel today, Friday the 13th. Traditional superstitions are cast aside by many travelers looking for a low fare and great Customer Service.

Initial reports indicate that Customers are not avoiding row 13 on The Southwest Airlines fleet today, nor has the date prevented flying altogether. In fact, the bag fees charged by other airlines are proving to be much scarier than Customers' superstitions, driving travelers to find good luck on Southwest Airlines.

In addition to Southwest Airlines' Bags Fly Free policy, the carrier also announced that it will not charge a fee for throwing salt over one's shoulder and will even allow black cats to travel onboard with its new pet fare, as long as they are carried in an appropriate carrier. The airline is recommending that Customers carefully wrap mirrors in bubble wrap to avoid breakage and seven years of bad luck.

Customers feeling particularly lucky today are headed to popular casino destinations. Some report being bold enough to bet on number 13 at the Roulette table."

Source: Air Transport news

19 Eurocontrol member states propose to increase overflight charges

"The International Air Transport Association (IATA) reacted sharply to proposals from 19 of 34 Eurocontrol states to increase overflight route charges in 2010. The proposals by the 19 states will result in a 2.7% net increase in average unit rates in 2010 or US$360 million. These proposals were made in advance of the 25 November meeting of the Eurocontrol Enlarged Committee for Route Charges that will be attended by states representing air navigation service providers (ANSPs) and airlines in the region.

“I applaud the 15 states who plan to reduce or freeze their en route air navigation charges. But the savings they delivered were wiped out by the out-of-control monopolists completely divorced from reality, proposing increases in the middle of an unprecedented industry crisis. The impact of the 2.7% increase in unit rates is equal to adding US$360 million to airline costs. That is not acceptable,” said Giovanni Bisignani, IATA’s Director General and CEO."

Source: Air Transport News

Senegal Airlines in the pipes

"Senegal Government has reportedly developed plans for new national carrier, Senegal Airlines, to be launched in early 2010 (AllAfrica, 23-Nov-2009). The government has reached an agreement with Emirates to assist in the launch of operations, including technical expertise, commercial support, training and aviation-related goods and services.

Fleet: four A320s and two A330s on order;

Ownership: 64% owned by private investors, 16% by the government, 15% by the public sector and 5% by the carrier’s employees;

Start up capital: USD34 million."

Source: Centre for Asia pacific Aviation

Crisis aftermath: Airlines out scapels to cut costs and increase revenues

Airlines "penny pinching" is something we're familliar with. The industry has always been, in those highly contested cutthroat markets, caracterised by either negative bottom lines or relatively low profit margins, say less then 5%, excluded the "norms defying carriers" that are Ryanair and Southwest of course.

The current crisis has severely hit the major airlines, and the latest results published do not smell good at all and they confirm that the industry still has to fight to survive the impact of the recession. Air France-KLM, Lufthansa, American, SAS, BA, JAL.. etc, have all posted net losses for the last three quaters. IATA has recently predicted that airlines could loose up to 12 billion US Dollars this year, which comes after a nearly $16 billion deep hole digged by the financial crisis in carriers' pockets last year. When combined, 2008-2009 results could reach  $28 billion, which would give the industry's its worst biannual performance ever.

Although analysts say the recession is bottoming out and that we've seen the worst of it, airlines are still looking for safe harbors. We were used to measures such as alliances building, layoff, salaries freeze, benefit limitation, fleet simplification, e-booking-checking, Demand/Capacity ratio adaptation, carry-on limits reduction, turnaround times minimization, outsourcing, fuel hedging and so on. This is on the cost side of the equation. They also started to charge checked baggage, even Air france. Air France? Yes you heard it well.  They are charging everything they can and they all seem to head toward no frills or "no free meal" policy. Who is to blame? soring oil prices and weakening demand, mainly in premium passengers segments.

We can understand that can't we? YES WE CAN. These are strategic reasonnable steps a business can be forced to in order to keep running. But, airlines are now coming out with scapels to cut costs and fill their pockets, and they are reaching unprecedented steps.

Read this. An carrier in China has recently required from its passengers that they relieve themselves before boarding, to, they explained, "reduce the cost of powering the flush of toilets" at high altitudes.  You better not eat too much sauerkraut before travelling with that airline. Another airline in the US proposed to suppress videos on its domestic flights, officially to reduce aircraft weight.   How much pounds does a video set weight? I hope they did not expect to lure anybody with that big lie as at the same time, they reveilled figures showing that the number of passengers willing to pay for headphones were droping dramatically, whereas they still have to pay patterns to broadcast films onboard. The weight of cattering carts and pillows are also questionned by some carriers. Other have decided to suppress seatback pockets to speed aircarft cleaning and again reduce weight. An airline has even thought of stripping the paint off its aircraft and to increase the frequency of engine wash. Another is thinking of reducing cruise speed to safe fuel. What about paying to use the toilets? the idea is progressing within the industry. And the cutting edge of all this new costs saving and revenues genration"battle", is the idea that passengers could be charged based on their weight. Just go to the following website and have a bit of a yellow laugh and turn green http://flyderrie-air.com/.

Ok, now that they are cutting flights and putting basic amenities at stake, aren't passengers going to  find themselves in a situation where they receive less services and pay more. What about providing passengers value for their money as they all pretend in their adverts?

Have they decided to cut passengers throat and prevent them from travelling? When are these ultra sophisticated if not ridiculus measures going to end? I thing we have not finished to pay to for stockatic oil prices, which are more and more becoming the troyan horse used to empty passengers pockets. Ok oil prices soaring and demand weakness are serious issues to the airline industry. But lets bet that once the crisis is over, these ridiculus measures won't be cancelled, and air ticket price won't return to where it was before.

High flying Ryanair: Crisis? What are you talking about?

The irish low cost low fare carrier has posted exceptional half year results. While average fare was down 17 per cent to 39 Euros, traffic grew 15 per cent to reach 36 million passengers, and unit cost drop 27 per cent. Net profit gained 80 per cent compared to last year at the same period. Ancillaries revenues represented 20% of total revenues. How do they manage to post insolent results in time of deep recession? lets go for a one minute Airline Business MSc course:

-They Fly to low cost secondary uncongested airports, and avoid delays generating big hubs
-They operate a young modern low fuel burning fleet
-They practice fleet commonality (Single type aircraft)
-They Fly point to point shorthaul routes
-They're no frills to the extreme
-They optimize frequencies by reducing turnaround times to the minimum
-They employ a highly productive staff
-They only sell one-way seats and they are 100% web check in
-They charge every additional service
-They manage to lower maintenance costs without reducing safety margins
-They bargain everything
-They are the champions of economies of scale and scope
-They are truly low cost and low fare and stimulate demand

Guess what! RyanAir has freezed its staff pay as a continuation of its cost discipline policy. They are putting pressure on their main suppliers ans service providers to maintain costs as low as possible. This is nothing new from Michael O'Leary. They are complaining about UK and Ireland Governments plans to raise PFCs rates and are threatening to switch capacity to low costs airports in continental europe this winter. They are campaining for monopoly break up in UK, and if Boeing does not accept to reduce its prices, Ryanair says they will rather use that money to pay dividends to its shareholders. This is not high flying bargaining strategy, but it sometimes works with ryanair. Their results allow them to fly high while their competitors are grounding capacity and loosing money. They don't know what crisis means.

Source: Financial times

Air France-KLM hit hard by the crisis

The European largest airline has announced a 426 million Euros net losses in the first Quater, compared to a 217 million net profit posted in the same period last year. Negative fuel hedging has made the results worse. Load factor dropped by 0,9 points from  80,2 to 79,4 per cent which is relativelly stable. ASK and RPK fell respectivelly 4,7 and 5,8 per cent. Yield was down 11 per cent in comparison to the last quater of 2008. The yield problem has even worsened during the second quater this year as it fell 16,3 compared to the first quater. Premium passengers traffic drop is the main factor in yield contraction. During the second quater this year, Unit seat revenue for business passengers fell 18,2 per cent /Q4 2008, and -27,1 per cent / Q1 2009.

The airline has cut capacity in all major routes to adjust to demand. Africa and middle east were the only markets where capacity increased (3,6 per cent). The fall in unit revenue was also limited, due to low competition in africa, and passenger market structure.

Air france is pursuing its costs containing policy, and is now trying to rationalize its routes structure, notably in Latin America, and reduce frequencies while maintaining the same number of seats offered, by operating high capcity aircraft. The company is also retructuring its medium haul network to better compete with low cost airlines.

Source: Air France-KLM

Air France to service CDG-JFK with A380 from November 23rd

Air France to be the first european airline to operate the A380. The carrier will effectivelly launch a daily CGD-JFK service from november 23rd. A booking simulation shows that the new aircraft will be operated for the 01.30 pm service and will replace the 777-300 ER actually used. That will incease capacity on the route as the company does not seem to plan cutting flights. The airline will offer a three class configuration: 9 First seats, 80 Business and 449 Economy (538 Seats offered in total). A simulation on their website shows that the fares will range from 216 Euros for the lowest, and 5260 Euros for first class travellers. There is certainly a yield management component here but if we assume a 80% load factor, it looks like high yield contributors (Business + First), representing 16 per cent of all passengers are going to provide 35 per cent of the flight revenues. This is classical airline revenue strategy. But i just wonder if increasing capacity now is not too soon as the industry is not yet out of troubled waters.