Monthly Archive for October, 2008Page 2 of 4

NBTA’s Survey Provides Some Interesting Insights

Published
by
Dan Webb
on October 20, 2008
in Random
. 0 Comments

Yesterday the NBTA (National Business Travel Association) released the results of a survey it recently released, and honestly I was a little surprised with some of what they found. Let’s go through the highlights:

More than 50 percent of travel managers say new airline fees are having an impact on their planning and they are encouraging less air travel and eliminating all non-essential corporate travel.

That result is semi-surprising to me. I would expect that the fees would certainly affect the travel plans of some, but I didn’t know it would be that high. I would think that a sizeable portion of business travelers are elites in frequent flyer programs and as such don’t have to deal with as many fees as regular passenger. Either way, a decrease in business travel isn’t the best for the airlines.

Next!

76 percent of survey respondents believe that airlines are in fact misleading the public with their “low” and “advertised” fares by adding substantial fees.

Travel managers are…suggesting alternatives like Internet-based meetings for business dealings.

Last week I mentioned that during the Southwest call last week Gary Kelly said that some are assuming that the new fees are “additive” and that he doesn’t agree. I think that this survey helps prove that point – the fees certainly aren’t guaranteed revenue and if travel managers are booking less trips as a result, that’s not great for the airlines. I found the statistic that 76% of respondents thought the airlines were being dishonest was very important.

I think the airlines should soon start to reconsider their fee policies. American’s idea of moving to a la carte pricing is a good one. If done right, it should make life easier for passengers. Last week, Brett Snyder had some good comments on that. Also, I think the fee policies can now leave some passengers scratching their heads. The airlines used record-high oil prices as a reason for adding the fees. But now that oil has declined a large amount, I’m sure some consumers are wondering why the fees are still there.

JetBlue Expands in South America and the Caribbean

Published
by
Dan Webb
on October 20, 2008
in JetBlue
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JetBlue had a few press releases last week announcing new service, and due to the earnings releases I just wasn’t able to get to them.

First, JetBlue will start flying to Bogota from Orlando starting January 29. This route was expected to start soon as earlier this year it was announced the JetBlue had received regulatory approval to fly the route. There will be one flight a day in each direction on an A320. I do like that JetBlue decided to make it a one stop flight that will go JFK-MCO-BOG and back. Passengers will still have to sit on the ground for at least an hour and a half, but it’s still easier for those who are bound for New York.

But JetBlue also announced some Caribbean expansion. First, it will launch Saturday-only service to St. Maarten from Boston on an A320 starting in February. JetBlue already flies to SXM daily from JFK. It didn’t mention if the service was seasonal or not though. JetBlue has already announced some other Caribbean expansion for the winter out of Boston – daily flights to Santo Domingo.

Then, JetBlue announced two daily flights between Ft. Lauderdale and Nassau and one daily flight between Orlando and Nassau, all starting on February 1. This goes along with JetBlue’s announcement of starting San Juan service from Ft. Lauderdale in December. The routes will be flown with E190s.

Also, earlier this year JetBlue announced new service between Santo Domingo and San Juan.

Overall, JetBlue has a nice, modest Caribbean expansion going on. I believe they are increasing some frequencies out of JFK as well. I’m actually a little bit surprised. Winter does have increased demand for travel to sunny destinations, but I figured  demand might be weakert this year if the economic environment is as bad as some say. Though maybe JetBlue sees some oppurtunity here. American has cut back on Caribbean service a fair bit and maybe JetBlue sees an oppurtunity. I wonder if they will have more routes within the Caribbean soon, like San Juan-Santo Domingo.

Correction of Sorts

Published
by
Dan Webb
on October 19, 2008
in United
. 0 Comments

I was going through some old things today, and realized in a previous post that I criticized United’s hedging position and $544 million loss on its hedges. Well, I now realized that those losses on hedged were mark-to-market losses -  a similar situation to why Southwest’s special items brought its earnings report down. Anyway, I’m sure we’ll learn more on Tuesday when United reports its earnings.

Saturday Links #15

Published
by
Dan Webb
on October 18, 2008
in Uncategorized
. 0 Comments
  1. WSJ has an interesting piece on Icelandair and how it is trying to cope with that country’s financial situation.
  2. Republic is moving into Hawaii by operating E170s for Mokulele Airlines. Cranky has the details.
  3. Northwest’s CEO says more capacity cuts could be in the cards if needed.
  4. The first A380 flight to LAX departs on Sunday. It will be a Qantas flight from Melbourne.
  5. I’ve started using e-Miles to earn Northwest miles. Now it is possible to earn AirTran credits with the service, too.
  6. The talks between Boeing and IAM aren’t exactly going that well.

Southwest Reports Earnings

Published
by
Dan Webb
on October 17, 2008
in Southwest
. 0 Comments

You may have seen headlines yesterday about how Southwest lost money for the first time in 17 years, or something to that effect. Including special items, yes the airline did lose $120 million, $0.16/share.  But excluding those special items, there was a profit of $69 million ($0.09/share).

In this case, it is important to consider those special items. In Southwest’s case, one of them was a $247 million charge involving its hedging program. Curbcrusher over at FlyerTalk explained it the best in a post:

It is due to “mark-to-market” accounting. When oil was $140/bbl, the then-current market value of their hedge positions shot through the roof and was reported accordingly. Conversely, now that oil is roughly half that, the current market value of those hedge positions is not so high. So I believe the loss is the difference between the hedge position market values between the end of 2Q and 3Q.

Basically, not a big deal, in my opinion.

Overall, I found the results pretty good. Southwest’s total revenues increased 12.5%. To compare, Delta’s went up 9%, Continental’s 9.9%, and American’s 8%. Southwest was able to increase its revenue more even though it hasn’t followed the other airlines in terms of fees. To be fair, many of the new fees didn’t come into effect until the third quarter was underway. The fourth quarter results will paint a clearer picture but so far I find this to be a good sign for Southwest, and it appears that CEO Gary Kelly is optimistic too, as he told one analyst that “we had 14% unit revenue growth in October on top of a capacity increase and I feel really good about that.”

Fees seemed to be a big topic of both the analyst call and the media call. It seems that the airline is getting good feedback on the no-fees policy. One thing that was mentioned is that more people need to know about Southwest’s lack of fees, hence Southwest becoming a bit more aggressive in marketing it. Gary had a few words on the no-fees approach:

We think that the no fees approach will also earn us more customers that will more than pay for what incremental fees would be. That’s our view and we’ll know. We’ll know in a year or two or maybe sooner or maybe later whether that was the right choice or not, but the way we see it this is just a gift from our competitors and we’re taking full advantage of it.

He did leave the door open for changes, though:

But in the end the customers are going to tell us what they want. If they want fees and they want fares unbundled, we’ll do that. It’s just based on our knowledge of our customers, and we carry more customers than any other airline in the world. We don’t think that’s the right thing to do and so far I feel like we’re being rewarded for it.

I really liked his comment on the fees of other airlines:

There’s this assumption I think that people are making that the fees are additive and there’s certainly no evidence yet that that will be the case.

I was able to ask Gary a couple of questions during the media call which was pretty cool considering that I’ve only been at this for a few months. Thanks very much to Southwest for letting me join in! Anyway my first question was on WestJet and how the timetable looked for that, and he said it was still on schedule for late 2009, and that both airlines still need to get some work done to get everything running. I also asked about future international service and codeshares, and he said that Southwest still has plenty of opportunities to expand here in the US, and that it is not ready to announce any new international partners. Finally, I asked about the upcoming enhancements to Rapid Rewards that were hinted at during the call. I wanted to see if I could get any more details about, but sadly these changes seem top secret for now – Gary said he would be “slapped silly” if he revealed them. :D

American Reports Earnings; Orders 787s

Published
by
Dan Webb
on October 16, 2008
in American
. 0 Comments

Occasionally, there’s a nice bit of exciting news to come along with an earnings release. Yesterday, American reported earnings along with Delta, and announced a 787 order! First, to the financial stuff, though. Including special items, the airline made $45 million, or $0.17/share. But I think it is more important to look at the figured excluding special items, considering one of those items (which PlaneBuzz pointed out earlier):

The results for the third quarter of 2008 include the impact of several special items. The Company recorded a $432 million gain from the sale of American Beacon Advisors.

Excluding special items, the airline lost $360 million or $1.39/share, compared to a profit of $175 million ($0.61/share) for the third quarter of 2007.

Now to the good stuff – the 787-9 order. American has ordered 42 of them with options for 58 more, with the first ones getting delivered in 2012. I wasn’t surprised that it was the 787, but the fact that American went with the 787-9 over the 787-8 surprised me a little bit. The 787-9 is more towards the capacity of American’s 777s, I figured they would go with the 787-8 as that seems to be a more adequate replacement for American’s older 767-300s. But, as the press release says:

American has yet to decide on a specific cabin configuration or engine type for its 787s and is in the process of determining the specific wide-body aircraft in its fleet that the 787 would replace.

Cranky beat me to mentioning something else I was thinking about…since the 787 has a composite fuselage, what will happen to American’s metallic paint scheme. Personally I hope it might mean a change in livery. I don’t dislike the current one, it’s just that it’s been around…forever it seems.

In other earnings news…Continental and Southwest reported earnings today. Continental recorded a loss, and Southwest reported a profit (excluding special items, with them it was a loss). More on them later or tomorrow!

Delta Reports Earnings

Published
by
Dan Webb
on October 15, 2008
in Delta
. 1 Comment

Welcome to earnings season. :D

Delta was the first major airline to release results: excluding special items, the airline lost $26 million, or $0.07/share. With those special items, it was a $50 million loss, or $0.13/share. To compare, for the same quarter last year there was a profit of $220 million, or $0.56/share.

You can see the full release here. Once some more airlines release their results hopefully I can get a little more in-depth with the results.

Airlines Cut Fuel Surcharges on European Flights

Published
by
Dan Webb
on October 15, 2008
in Random
. 3 Comments

Sometimes, my timing is just plain screwy. I post my predictions about the possibility of fares dropping and then @myTransponder on Twitter informs me that some airlines are cutting their fuel surcharges on Europe flights. BestFares has a great chart showing the reductions.

Most of the cuts are in the 17-18% range, but according to the article there hasn’t been a reduction from some Northeast cities to London (not sure if a new press release from BA will affect that figure that much) and to German cities.

Of course, I am happy about the drop. It’s always nice when air travel becomes more affordable. The drop is a bit higher than I expected yesterday. But there are a few things to consider. This drop in fuel surcharges is still less than the decrease in the price of oil. For many markets, the fuel surcharge is still double what it was last year, even though oil was trading in a similar range a year ago.

The BestFares article also mentions the recent gains made by the dollar:

The Euro is also down from its summer high by approximately 18%. The English pound is now at a five year low. Last November, travelers needed to pay $2.10 for a pound. This past week, we saw the pound as low as $1.68, a drop of almost 25% in less than one year.

With airfares now dropping to Europe and currency exchange between 18 to 25% less, Europe is starting to look like a bargain compared to those who visited Europe in summer 2008.

The currency issue, at least in terms of the euro, does not seem to be a big issue to me. While the dollar has certainly made some gains in the past couple of months, it is only up 4.29% on the year. And while the gains against the pound are a bit more impressive, I’m not sure if that’s enough to change demand. (Where does the article come up with a 25% decrease in the pound? It mentions the prices of $2.10 and $1.68…which is 20% to me unless I’m making some dumb math error.) While I have read the argument that a stronger dollar will encourage travel to Europe, I think it goes both ways, and that it also discourages travel from Europe to the United Sates.

Anyway, it’s nice to see fuel surcharges come down a bit.

Oil is Down…What About Fares and Fees?

Published
by
Dan Webb
on October 14, 2008
in Random
. 0 Comments

As of this posting oil is trading in the low $80 range, more than $60 below its peak in July and about the same range oil prices were in the same time last year. Does this mean that we’ll see some decreases in fuel surcharges and fees? Well, it is certainly possible. WestJet, Air Canada, and Porter already did, just to name a few. Last week Northwest announced an additional reduction in its fuel surcharge on cargo shipments.

Personally, though, I think we are more likely to see fares hold steady or decrease slightly rather than a decrease significantly. The first reason is hedging, at least in part for some airlines. While the current price of crude might be low, some airlines already hedged at a higher price*. For example, Alaska said last week that losses on hedging will contribute to a third quarter loss. The second, and more important issue, is the capacity cuts. Many of the airlines have cut seat capacity significantly, and I think it will keep fares up.

In terms of fees, I don’t think they will be going away anytime soon, even though I would love to see that. Even though fuel has gone down, the fees still help the airlines – the extra revenue they generate can just go somewhere other than fuel expense. PlaneBuzz reported earlier that US Airways has found some benefits of charging for all beverages. There’s also a strong possibility (as explored last week) that the number of mishandled bags will go down as there is less luggage going through the system due to checked luggage fees. On a related topic, Brett had a great post on a la carte pricing on his BNET blog.

*On a related note, I wouldn’t be surprised if consumers who locked-in heating oil prices for the winter this summer will pay higher than market prices.

Edit: According to myTransponder on Twitter, US carriers are starting roll back fuel surcharges on European flights!

Fantastic Southwest Flight Attendant!

Published
by
Dan Webb
on October 13, 2008
in Random
. 2 Comments

Well, today is a day off over here, so there’s not going to be a normal post today. But, I’ve been meaning to post this video that I found on YouTube for awhile. This is why I love WN FAs. Enjoy!

Edit…having trouble embedding this video…here’s a link.