Joe Sharkey At Large

Bad news for airlines; good news (at least in the short term) for travelers, and especially those looking for bargains in international business-class travel.

Discussing his airline’s latest quarterly loss (of $174.7 million), B.A. chief Willie Walsh said that the strategy for the rest of the year is to try to drive up passenger volume, which can’t be done with any increase in fares this year, given the climate.

That means that big discounts on business-class fares will continue through the fall and at least into early winter as British Airways and its competitors on the long-haul international routes struggle to achieve a balance between supply and demand.

But even if that balance is achieved with further capacity reductions, the market has spoken on sky-high international premium fares that routinely sold at $10,000 and up in recent years: Nuh-uh. No way. Ain’t happening. Those days are gone, even after the economy rebounds.

As a result, all major carriers that depend on high-volume premium long-haul traffic (and I see you back there trying to keep your heads down, Delta, American, Continental, Virgin Atlantic, United and the rest of yez) are going to need to take costs out of the service (cutting back on not only staff but in-flight amenities) and significantly reduce capacity to accommodate the new reality of long-haul premium fares. It is a buyers’ market.

(By the way, in the link to the Virgin Atlantic story in the Guardian in the paragraph above, ignore the goofy out-of-date financial numbers, which inexplicably are given for the year ended in March for British Airways. British Airways’ most recent results, announced today, show a loss of $174.7 million for its first fiscal quarter which ended June 30).

Largely reflecting the plunge in premium traffic, B.A.’s revenues were off 12 percent in the quarter ended in June. It was even worse at Air France-KLM, where revenues dropped 20.5 percent, and at Lufthansa, down 19.5 percent.

B.A.’s Willie Walsh said in a statement today that there are “no visible signs of improvement” in revenues, but “some signs of improvement” in passenger demand. Walsh — who has been commendably up-front in calling things by their right names — didn’t say so, but any improvement in demand reflects fare sales.

And in what I predict will be a more common strategy among airlines in years to come, Walsh said that British Airways is increasing its efforts to offer package deals — flights combined with hotels, car rentals and other travel services. This initiative “has led to bookings of ancillary products and packages more than doubling compared to last year,” he said.

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Southwest Airlines confirmed today that it was preparing a $113.6 million bid to buy Denver-based Frontier Airlines, which is operating under bankruptcy court protection and will be sold at auction next month.

If Southwest prevails with the acquisition, it would operate Frontier separately at first until it could merge the airline into its operations.

It isn’t clear to what extent Southwest wants to acquire Frontier to eliminate competition on overlapping routes, or how much it sees an acquisition also as a way to expand.

Frontier has a fleet of Airbus aircraft — 38 A319s, 10 A318s and three A320s. Southwest famously flies Boeing 737s, and has about 535 of them.

Frontier entered bankruptcy protection in April 2008.

Here’s a list of Frontier’s route network.

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The fall sales continue as airlines desperately try to gin up sagging demand and raise cash as the usual Fall slowdown in travel approaches. From Delta this morning:

“Delta Air Lines announced today it has introduced leisure sale fares in most domestic and some international markets. The reductions offer significant savings on 21-day advance-purchase domestic fares to many popular destinations.

A few sample domestic sale fares, effective immediately, include:

Each-way fare* (based on
From To round-trip purchase)
Atlanta Orlando $59
Atlanta Portland $194
Cincinnati Ft. Lauderdale $119
Memphis San Diego $164
New York-Kennedy Ft. Lauderdale $79
Salt Lake City San Francisco $89
Salt Lake City Tampa $99

*Additional taxes/fees/restrictions/baggage charges may apply. See below for details.

Sample international sale fares, effective immediately, include:

Each-way fare* (based on
From To round-trip purchase)
Atlanta Nassau, Bahamas $159
Atlanta Santiago, Chile $429
Detroit Frankfurt, Germany $269
Los Angeles Sydney, Australia $329
Los Angeles Tokyo, Japan $399
New York-Kennedy London-Heathrow, United Kingdom $189
Pittsburgh Paris-Charles de Gaulle, France $289
Portland Tokyo, Japan $429

*Additional taxes/fees/restrictions/baggage charges may apply. See below for details.

Availability is limited and tickets must be purchased by Aug. 3, 2009 for international destinations and Aug. 14, 2009 for domestic itineraries at delta.com, or via Delta reservations or ticket counter at a slightly higher fare.”

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Virgin America just announced a fare sale with some very low prices, like New York-Los Angeles or San Diego-Boston, $238 round-trip. Read the fine print, of course. For travel August 18-November 18.

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Delta Air Lines is slapping a new status level, Diamond, onto its SkyMiles elite-status program.

Does that improve the program or dilute it further for platinum-level members who will be lower in priority for upgrades, but even for the lowest-level members who will drop one place in the pecking order?

Hmmm. You decide. Seems to me this is a definite bonanza for the dwindling number of heavy-duty fliers who remain loyal to a particular airline for whatever reason and who are out there slogging away at 125,000-plus miles a year. And the rollover feature seems to be  good for everyone, though it also seems to me that it will help dilute the program simply by making its membership bigger.

Also, under the current system, where elite-qualifying miles vanish at year’s end, at least the herd was culled a bit, year to year.

“We’re keeping the benefits that mean the most to our Medallion members and adding others that surpass what any other airline offers,” said Jeff Robertson, Delta’s vice president of loyalty programs. “Features introduced in 2010 will provide SkyMiles Medallion members meaningful, unmatched benefits on flights to nearly 400 destinations across six continents.”

Yeah, yeah. So what’s the deal?

—Diamond Medallion Status: A fourth Medallion level for flyers who get 125,000 elite-qualifying miles, which Delta calls MQMs, or who fly 140 segments per calendar year will offer free Sky Club membership, 125 percent mileage bonus for purchases, award booking and baggage fee waivers and other exclusive rewards.

—Rollover MQMs: Delta is the first airline to allow customers to retain any MQMs earned above a Medallion threshold at the end of the year, supplementing the ability to earn status the next year. For example, if you accrue 40,000 MQMs in one calendar year, the 15,000 MQMs that exceed the 25,000 MQM Silver Medallion threshold will be rolled over to the following year. There is no limit to the number of miles rolled over, and the benefit and takes effect immediately.

—Diamond, Platinum and Gold Medallion members will have ticketing fees waived for all bookings, whether completed by phone, online or in person.

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The fall-travel fare sales are starting to arrive.

JetBlue has one today (for 10 days) with one-way fares of $149 for New York-Seattle. Other examples: Boston-New York, $49; Long Beach-Boston, $139; Fort Lauderdale-New York, $79. Here’s the full list, for travel between Sept. 8 and Dec. 16, with advance purchase requirements of up to 14 days and other restrictions.

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Despite all that dough many carriers are raking in on checked-bag fees (see previous post), most airlines are in financial trouble because overall passenger revenue is off so sharply. The reasons for that revenue sinkhole:  persisting low fares coupled with a sharp fall-off in demand that began really digging in at end end of last year — and shows no sign yet of turning around.

Here is a summary of airline financial results for the second quarter ended June 30, as helpfully compiled by SpeedNews. Look all those double-digit revenue declines:

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“FALLING REVENUE

This week, several US airlines reported their financials for 2Q 09; some lost and some profited, but all — except for Allegiant Air — saw declining revenues:

DELTA AIR LINES lost $257m in 2Q 09 (vs $83m profit in 2Q 08) on 23% lower revenues;

UAL CORPORATION (United) reported net loss of $323m (vs $2.7b loss in 2Q 08) on 25% lower revenues;

CONTINENTAL AIRLINES had $213m net loss in 2Q 09 (vs $5m loss in 2Q 08) on 22.7% lower revenues;

SOUTHWEST AIRLINES has $54m net profit in 2Q 09 (vs $321m in 2Q 08) on 9% lower revenues.

US AIRWAYS GROUP had $58m net income in 2Q 09 (vs $568m loss in 2Q 08) on 18.4% lower revenues;

JETBLUE had $20m net income in 2Q09 (vs $9m net loss in 2Q 08) on 6% lower revenues;

ALASKA AIR GROUP had $29.1m net income in 2Q 09 (vs $63.1m in 2Q 08) on 9.3% lower revenues;

AIRTRAN HOLDINGS had $$78.4m net income in 2Q 09 (vs $14.8m loss in 2Q 08) on 13% lower revenues;

ALLEGIANT TRAVEL (Allegiant Air) had $23.9m net income in 2Q 09 (vs $2.6m in 2Q 08) on 12.5% higher revenues;

AIR FRANCE-KLM reports revenues for first quarter ended June 30 dropped 20.5% from a year ago to €5.19b; it plans to announce its [full] results at the end of the month.”

Adding to the above list: American Airlines reported a $390 million second-quarter loss (vs $298 million in the 2008 2Q), on 22.3 percent lower revenues.

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American Airlines is adding $5 to the fees it charges coach passengers to check a bag on domestic flights, effective with tickets bought on Aug. 14.

Checking the first bag will cost $20, rather than $15, and the second bag will be $30, rather than $25.

Last year, U.S. airlines pocketed over $1.5 billion in checked-bag fees. In the first quarter of this year alone, the take was $550 million.

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[Photo: An Ilyushin Il62 passenger aircraft]

There’s been another fatal plane disaster in Iran. An Aria Air flight with 160 on board skidded off the runway during an emergency landing and crashed into barricades in the city of Mashhad. At least 17 were killed as the plane caught fire.

The plane was a Russian-built long-range Ilyushin Il62. Here’s a link to the specs on that aircraft. It was operated by Aria Air, an Iranian airline.

Less than two weeks ago, another Russian-built airliner, a Tupolev Tu154 operated by Iran’s Caspian Airlines crashed in a fireball after takeoff, killing 168.

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US Airways is finally climbing onto the Wi-Fi bandwagon. The airline said today it had chosen Aircell, the leading supplier of in-flight broadband connectivity, to install the service, starting early next year.

That leaves Continental alone among the legacy carriers in not signaling its intentions, at least, regarding Wi-Fi.

Aircell has already installed its Gogo-branded service on about 675 aircraft. AirTran and Virgin America now have it on their entire fleets. Delta, Aircell’s biggest customer, has been busily installing Gogo and expects to have its mainline domestic fleet completed by the end of September. Not far behind is American, with United saying it also plans to install Gogo.

US Airways said that Aircell’s Gogo — which costs about $100,000 per plane to install — will initially be installed on its A321 aircraft on “select routes.” A map showing those routes is on the airline’s Web site. [Good luck with that. I couldn't find it readily and life is too short to waste any more of a fine summer morning in the desert fiddling with the US Air Web site!]

Later next year, customers will be able to see if Wi-Fi is available on a specific flight by looking for the Wi-Fi icon while booking a flight on usairways.com, the airline said.

Pricing hasn’t been set yet. Aircell’s standard pricing ranges ranges from $5.95 to $12.95, depending on the length of flight and type of Wi-Fi-enabled device used.

Wi-Fi is the only major customer-service initiative the airlines seem to be going for these days. Now that Aircell has bagged another major airline, the big question is, what does Southwest do?

Southwest has been testing a different system in partnership with a company called Row44, which is Aircell’s only serious competitor. Southwest is testing the service on four aircraft. Alaska Air has also tested Row44 on a single aircraft.

Southwest hasn’t yet announced whether it will install Row44′s Wi-Fi system on its entire fleet of about 535 Boeing 737s. Testing will continue through the summer.

If you’re flying Southwest, there’s no way to know at booking if your plane is one of the four with the service. But 24 hours before departure, Southwest notifies you by e-mail if it is.

There’s a big difference between Aircell and Row44 technology. Aircell uses land-based cell towers, which means that Gogo is not able to provide service over oceans. Row44 is a satellite-based system, fully capable of transoceanic service.

It would seem odd that Southwest, which doesn’t fly transoceanic, would partner with a satellite Wi-Fi company, but Row44 says that satellite delivery provides a faster and more consistent-quality connection than land-based delivery in which connections are shifted from one point to another on the ground.

Row44 won’t say how much it costs to install its systems on an airplane, except to say that the cost is considerably higher than Aircell’s installation cost.

Expect an announcement by Southwest on its intentions regarding a fleet-wide rollout sometime in the early fall, if not sooner.

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