Lambert-Louis International Airport To Consider Expanded Airline Incentives
Officials at Lambert-St. Louis International Airport are expected to consider a package of expanded incentives to entice new and existing airlines to add or expand service.
Airport Director Dick Hrabko plans to unveil an expanded incentive program for airport commissioners to consider and possibly adopt at their meeting Wednesday.
The package would give airlines thousands of dollars in breaks through abatements on landing fees, reduced rents and increased marketing money.
The airport already suspends landing fees and gate rents for new carriers for nine months, saving them anywhere from hundreds of thousands of dollars to $1 million. The airport also suspends the same fees for six months for existing carriers that add flights to new cities.
Hrabko said he is continually talking and meeting with various carriers, including Southwest Airlines, in an effort to expand service, particularly in light of American Airlines’ plans to significantly cut its St. Louis operations.
Later this year, Lambert will launch a business-to-business marketing campaign targeting airlines, cargo companies and other aviation-related businesses to invest or expand in St. Louis, Hrabko wrote in a letter Thursday to business members of the St. Louis Regional Chamber and Growth Association.
“Since, and before, American’s announcement, we have been in talks with numerous airlines about the opportunities to service this market,” Hrabko wrote. “… We talk, meet and pursue new and expanded air service every day.”
By April, American will cut 46 daily flights from St. Louis and end service to 20 cities, leaving 36 daily flights to nine destinations.
Unless other carriers back-fill where American retrenches, St. Louis travelers won’t be able to get direct flights to a dozen cities: Austin; Des Moines; Jacksonville, Fla.; Indianapolis; Madison, Wis.; Nashville; Norfolk, Va.; Raleigh-Durham, N.C.; Richmond, Va.; San Antonio; San Francisco; and Wichita, Kan.
Southwest Airlines Reported Flight Traffic Increase 3.4 percent in July
Southwest Airlines said traffic increased 3.4 percent in July, and its load factor hit 84.9 percent, a monthly record.
Load factor measures how much of an airline’s carrying capacity is filled.
The company’s revenue passenger miles — a measure of available seats sold — hit 7.5 billion in July, up from 7.2 billion a year ago.
Year-to-date, Southwest also is filling more flights with the airline’s load factor now at 78.8 percent, up from 75 percent.
In July 2010, Southwest boarded 10 million passengers, up 4.7 percent from last year.
Airlines Merger Analysis, Continental Airlines and United Airlines
A Wall Street analyst expects Continental Airlines to bid to acquire United Airlines, after reports that United and US Airways were in merger talks.
Stifel Nicolaus airline analyst Hunter Keay said in a client note Monday that a United-US Airways merger is “a suboptimal scenario” because of pilot labor issues, revenue risks, and “problems with regulatory review due to higher domestic overlap” on routes United and US Airways have in common.
“We expect Continental to respond to reported United-US Airways merger plans with a bid for United,” Keay wrote, “partly as a defensive maneuver. . . .We expect Continental to respond relatively quickly.” Keay said he had no knowledge of merger negotiations or discussions between Continental and United.
Industry observers acknowledge that Continental is a better match for United. “But it takes two to agree,” said aviation consultant Robert W. Mann, of Port Washington, N.Y.
Continental and United discussed merging in 2008, until Continental walked away.
A combined United-Continental would create the world’s largest airline, ahead of Delta Air Lines, now the largest after acquiring Northwest Airlines in 2008. A combined US Airways-United would be the second-biggest U.S. carrier. Delta and Air France-KLM are larger worldwide.
Continental’s strong presence in New York and in Pacific markets would complement United, said Gimme Credit L.L.C. bond analyst Vicki Bryan in a client note. A United-Continental combination “could generate nearly $2 billion in revenue and cost savings, perhaps twice the benefits” of a United-US Airways merger, she wrote.
Continental has more cash – $2.9 billion – vs. US Airways’ $1.3 billion and “stronger free cash flow as a percentage of revenue, and slightly lower leverage,” Bryan said.
Keay said a United-US Airways merger would “seriously jeopardize” the joint ventures Continental and United had been pursuing to coordinate on scheduling and pricing.
A United-Continental merger would face less regulatory scrutiny because the carriers have fewer overlapping city pairs – nine, whereas United and US Airways have 14.
Keay said that, in a United-US Airways merger, proposed service or job reductions at Philadelphia International Airport “would be met with pushback” by politicians, possibly including U.S. Sen. Arlen Specter (D., Pa.), who protested when US Airways closed its Pittsburgh hub in 2006.
“We see potential political and/or legal issues with the handling of US Airways’ Philadelphia hub, given the relatively close proximity to United’s Washington Dulles hub,” Keay wrote.
“We see a high likelihood of forced asset divestitures at Philadelphia or Dulles, and Phoenix or San Francisco, given hub redundancy.”
Gimme Credit’s Bryan noted, “US Airways lacks the rich appeal of new markets.”
United and US Airways’ overlapping markets – such as Washington – could result in reduced market share “if the combined carrier was required to sell common slots, for example, before the merger could meet regulatory approval,” Bryan said.
Most airline CEOs, including United’s Glenn Tilton and US Airways’ Doug Parker, have touted the benefits of more industry consolidation.
In 2002, Tilton was recruited to United, after nearly three decades in the oil industry, to turn around the troubled Chicago-based carrier. Hit by competition from low-fare carriers, United’s labor costs were among the highest in the industry. Two United passenger planes were hijacked in the Sept. 11 terror attacks.
After United filed for Chapter 11 bankruptcy reorganization, management in 2003 eked out hefty concessions from unions that saved about $2.5 billion.
“United flight attendants and pilots have been at war with the company since the restructuring,” said Mann. “It wasn’t a small haircut. These were scalpings.”
US Airways filed for bankruptcy protection twice in the last decade and was saved from liquidation in 2005 by combining with America West Airlines, of Tempe, Ariz.
Parker, with America West since 1995, became CEO of the new US Airways. Under his leadership, US Airways improved operational problems at Philadelphia International Airport – uneven baggage service, and one of the worst records for on-time flights.
Parker made an unsuccessful hostile bid for bankrupt Delta in 2006. US Airways tried to combine with United in 2008, but United walked away.
One of US Airways’ biggest unresolved headaches from its 2005 merger has been integrating its pilots and flight attendants, which are split on seniority lines – with more-senior crews employed by the old US Airways and less-senior personnel working for the former America West.
“US Airways hasn’t been able to run one airline,” said Mann. “They still operate on two separate contracts. They still fly on two separate fleets.”
If United and US Airways merge, seniority integration of the workforces will have to be resolved. Management has to be “willing to pay to play,” Mann said.
“I think they could convince people who are today opposed to a merger to participate. They are going to have to share the economics,” Mann said. “If they try to do it cheap, chances are they’ll have a lot of resistance.”
Spirit Airlines Begins Cancellations in Preparation for Strike
Spirit Airlines earlier this week vowed to fly with the help of other carriers, even if its pilots go on strike. But now there are reports the airline is cutting flights as a strike looms.
The Associated Press is reporting Spirit pilots are threatening to walk out at 12:01 a.m., Saturday morning. Both sides have indicated they’d like to make a deal before that time.
The Florida-based airline began canceling some weekend flights and has been contacting customers to help them with alternate travel plans, AP said. A reservations agent told the AP that all weekend flights out of Spirit’s Fort Lauderdale hub had been “suspended.”
The dispute with the pilots is over issues including pay. The Spirit pilots say they are paid less than competitors.
“We are looking for pay parity,” Sean Creed, a Spirit captain and the head of the Air Line Pilots Association, told AP. He added that many management pilots have promised not to cross the picket line.
Negotiations are ongoing in Washington, and are being overseen by the National Mediation Board.
The carrier flies about 150 flights per day, including from the eastern U.S. to the Caribbean. The privately held airline was also in the news recently when it announced it would start charging $45 for carry-on bags beginning Aug. 1.
Crisis for Airlines as Passenger Figures Fall by 500,000
Scotland’s main airports have lost almost 500,000 passengers in just 10 months, signalling a reversal in the era of expanding air travel and highlighting a major dent in the Scottish economy.
Flight statistics recorded by the Civil Aviation Authority show that in the period January to October 2008, the last month for which figures are available, 20.5 million people used the country’s five biggest airports – the first decline in a decade.
Analysis shows that 56 destinations had been axed by October when compared to the same month the previous year. Only 40 new routes had been established, a net loss of 16.
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The retrenchment follows a crisis in air travel prompted by a rise in oil prices last summer which led to the collapse of tour operators XL and Seguro Holidays, leaving thousands of tourists stranded abroad.
Passenger figures for Scotland’s biggest airports – Edinburgh, Glasgow, Aberdeen and Prestwick – show that the drop in passengers accelerated in November, while industry analysts and business leaders told The Herald that the UK’s economic problems would put more pressure on airlines in 2009.
Garry Clark, head of policy at the Scottish Chambers of Commerce, warned that a drop in international destinations served and the volume of flights would impact on the ability of businesses to compete.
He called for the Scottish and UK governments to consider reinstating a form of the controversial Route Development Fund, the subsidy which helped drive major airport expansion until it was scrapped last year, to help the industry recover.
He said: “Going into this year, there’s going to be a bit of pain to come but it’s essential that we’re prepared for the recovery when it comes. It’s particularly important that we’re able to compete internationally and having high- quality international links, in as short a timescale as possible, is integral to that.
“Perhaps as we look towards emerging from the recession period we’re now in, the Scottish and UK governments should look again at some kind of scheme to incentivise route development within Scotland. Even with EU regulations there is scope for additional market subsidy there. It may help to kick-start the replacement of the transport linkages that we’re likely to lose.”
The downturn has been driven by a collapse of the chartered holiday market, with tourists abandoning traditional package holidays in favour of scheduled flights, and domestic UK flights, which have come under pressure from reduced business demand and competition from rail.
At Prestwick, passengers on non-scheduled flights were down nearly one-fifth compared to the previous year.
It follows a dramatic expansion in airline capacity in Scotland which saw the number of passengers using Glasgow, Aberdeen and Edinburgh increase by one-third between 2002 and 2007. Prestwick also experienced massive expansion as passengers took advantage of low-cost flights.
While few doubt that aviation will continue to expand in the long-term, especially in scheduled flights to foreign destinations, industry insiders said 2009 would be a “tough year” which could threaten the survival of some airlines.
RDC Aviation, a consultancy which analyses passenger and flight trends, predicted further shrinkage in the industry.
A spokeswoman said: “Comparing 2008 capacity to 2007 levels, all major Scottish airports, with the exception of Aberdeen, have decreased. It is thought there are going to be more defensive measures put into place by airlines with additional reductions in capacity, frequency and destinations served, in an effort to maintain load factors and thus operate profitable flights.”
