ATA Airlines Canceled All Frequent Flight Benefits
ATA Airlines last night filed a petition for Chapter 11 bankruptcy protection and this morning discontinued all of its operations. ATA said an “unexpected cancellation” of a military charter contract, provided through an agreement with FedEx, dried up its capital and necessitated the stop in service.
ATA said it no longer would honor reservations, has canceled all frequent flier benefits and has eliminated positions for the vast majority of its 2,230 employees. ATA alerted customers holding reservations purchased with a credit card to contact their credit card company for refunds. The carrier said booked passengers should “seek alternative arrangements for current and future travel. To that end, ATA has contacted the airlines that serve ATA destinations and asked them to provide assistance to ATA customers.”
ATA said a decades-old teaming agreement with FedEx comprised the bulk of its charter operations. However, ATA said FedEx alerted the carrier that it is dissolving that contract for the next fiscal year. “This termination is a full year earlier than the term specified in a letter of agreement between FedEx and ATA,” ATA said in a statement this morning.
Prior to the military contract cancellation, ATA had been in a financial tailspin, attributed in part to the growing cost of fuel. The carrier last month announced it would cease domestic scheduled service at Chicago Midway Airport on April 14 and international service from that airport on June 7. “All such service has been discontinued immediately, in addition to all of ATA’s other scheduled flights, which operated between the West Coast and Hawaii,” ATA said today.
ATA COO Doug Yakola in a statement said, “We deeply regret the disruption and hardship caused by the sudden shutdown of ATA, an outcome we and our employees had worked very hard and made many sacrifices to avoid. Unfortunately, the cancellation of a critical agreement for our military charter business undermined ATA’s plan to address the current conditions facing all scheduled service airlines, including the tremendous spike in the price of jet fuel in recent months. As a result, it became impossible for ATA to continue operating.”
In February 2006, ATA Airlines emerged from 16 months of Chapter 11 bankruptcy protection as a privately held airline with a realigned route structure. Upon its exit, the carrier deepened its codeshare agreement with Southwest Airlines, and the two carriers inaugurated a reciprocal frequent flyer arrangement (BTNonline, March 1, 2006).
Southwest Airlines in a statement today said it would accommodate its customers traveling on ATA with “a new itinerary closest to their previous travel plans” or provide refunds. Southwest CEO Gary Kelly in a statement this morning said, “ATA Airlines has been an outstanding partner for Southwest, and we are disappointed to hear this unfortunate news. We are sad to end our codeshare relationship with ATA but understand it’s extremely difficult for an airline to flourish in today’s arduous financial environment that has been plagued by soaring fuel prices.”
Continental Airlines to Launch Non-stop Flight Service Between Cleveland and London
Continental Airlines has announced that it will launch a seasonal daily non-stop service between its Cleveland hub in Ohio, US and London’s Heathrow Airport, effective May 2, 2009.
The new route will replace the current seasonal service between Cleveland and the London-Gatwick Airport.
The airline will operate the new service using Boeing 757 aircraft. In addition, due to economic challenges, the airline will end the seasonal service from Cleveland to the Paris-Charles de Gaulle Airport.
Larry Kellner, chairman and CEO of Continental Airlines, said: “Our Cleveland customers have told us they want non-stop service to Heathrow, the most important business airport in Europe, and we are delighted to be able to meet the city’s needs. We are investing in this service because of its potential.”
Major Airlines Industry Expected to be Profitable in 2009
A year ago, most experts were predicting that 2008 would be a strong year for the airline industry, with high hopes for growth and billions in profits.
Those expectations were shattered by a record-breaking spike in oil prices, followed by a plunge in demand for travel as the economy took a nose dive. The year’s events were a stark reminder that predictions can quickly go awry in the tumultuous airline business.
So many are being cautious about forecasting 2009. The biggest factors that will affect airline passengers, employees and investors are the economy and price of oil, which remain question marks.
“It’s no secret that the big question is what’s going to happen with the economy,” said Dan Garton, executive vice president of marketing for American Airlines, based in Fort Worth. “Nobody knows for sure, and the industry’s health is very closely tied to the economy.”
Still, many analysts are predicting the major airlines to turn a small profit despite the downturn, although projections have been slashed in recent months. The airlines are likely to continue cutting their passenger capacity, which could keep ticket prices stable. Travelers can expect to keep paying fees on items like checked bags and may have to start paying for some new services as well.
American hopes to receive approval for its alliance with British Airways, which would allow it to coordinate with that airline on operations, scheduling and marketing for trans-Atlantic flights.
Dallas-based Southwest Airlines, meanwhile, plans to begin flying into New York City for the first time and will work to build the first North American low-fare alliance with the Canadian carrier WestJet and Mexican airline Volaris.
“I think 2009 is going to be a very, very interesting year for the airlines,” said travel analyst Terry Trippler of Tripplersview.com.
Fees ‘here to stay’
Travelers taking to the skies in 2009 can probably count on one thing — they’ll have to keep paying those fees, such as checked-baggage fees, that airlines began charging in 2008.
Although airlines cited the high price of jet fuel when they implemented the fees this year, the charges are unlikely to disappear, even though oil prices have dropped.
“I really don’t think we’ll see those fees go away,” Trippler said. “They’re here to stay.”
Garton said most customers have adjusted to the extra charges.
“The initial response was negative, but in reality, it’s giving customers more choices to pay for what they really want to consume,” he said. And, he added, “It’s been positive in terms of revenue, clearly.”
Trippler said it’s unlikely that many new fees will be added next year.
“There really isn’t much more for them to start charging for, except maybe beverages,” Trippler said. He also doesn’t expect airlines to raise fees that are already on the books.
But the airline consultant Stuart Klaskin of Klaskin, Kushner & Co. disagrees.
“I don’t think they’ve even begun to plumb the depths of the passenger fees,” he said. More airlines could begin charging for window or aisle seats, he said, or early boarding. They can also put more charges on frequent-flier program transactions.
Airlines may also begin offering new services for a fee. Several carriers, including Delta Air Lines, are planning to roll out in-flight wireless Internet access, for example, during the year.
And United Airlines recently began offering a $25 pass that allows passengers to use shorter security and ticket lines normally reserved for elite and first-class travelers.
“We’ll probably see more of these new products that the airlines will offer for a price,” Trippler said.Klaskin predicts that airlines may also try selling more expensive fares that include several services, such as checked baggage or preferred seating.
“It’s like the value meal,” he said. “Once people get irked enough paying all these fees, they may be willing to pay more for a ticket that includes them upfront.”
The lone holdout, Southwest Airlines, is likely to continue to refrain from charging most fees. The airline has made its lack of fees a major selling point in recent advertising.
Garton said it’s “hard to know” whether American has lost many customers to Southwest over the fees.
“Clearly there’s been some,” he said, but other factors such as price, frequency and schedule are factors.
Prices stable
The future is more cloudy when it comes to ticket prices. Most analysts expect demand to decline as the economy shrinks, which usually means more fare sales and cheaper tickets.
UBS recently conducted a survey of corporate travel managers, which found that 75 percent plan to reduce their company’s travel spending in 2009.
Most of those cuts are expected in domestic markets, although spending on travel to Europe is likely to be down as well.
“The results are clearly bearish for demand,” said UBS airline analyst Kevin Crissey, but he added that they are “not out of line with economic news.”
Fares may remain stable if the airlines continue cutting passenger capacity, Trippler said. American, for example, cut the total number of seats for sale by 8 percent this year and plans to cut an additional 6 percent next year.
Gerard Arpey, American’s chief executive, said recently that it could cut capacity further next year if warranted.
“The airlines have been extremely disciplined when it comes to capacity,” Klaskin said. “I think we’ll see more of that next year.”
Economy crucial
Garton said the challenge is in keeping total passenger capacity consistent with the economy.
“Traditionally, we model our revenues by looking at industry capacity plus or minus the change in” the economy, he said. “When those two get out of sync, that’s when you’ve got a problem.”
Most analysts say, at least right now, that the airlines are up to the challenge. Despite the slowdown, analysts are predicting a profitable year — although predictions are far less rosy today than they were a few months ago.
The International Air Transport Association expects a $300 million profit for North American carriers.
“North America will be the only region in the black, but the expected profit is less than 1 percent of their revenue,” said Giovanni Bisignani, the group’s director general and chief executive. “2009 will be another tough year for everyone.”
Analysts expect AMR Corp., the parent of American Airlines, to post a profit of $1.74 per share in 2009, excluding special gains and charges. Southwest is also expected to make money, with analysts predicting a 59 cent-per-share profit.
Both airlines plan some big moves to help boost revenue during the year. American executives hope to win approval for an alliance with British Airways.
It’s a partnership that both airlines have craved for years but hasn’t been allowed by government regulators because of concerns that the airlines would dominate London’s Heathrow Airport, Europe’s busiest hub.
A new aviation treaty between the United States and the European Union has opened Heathrow to more competition. That, Garton said, makes it more likely that the airlines will be allowed to work together.
“We think we have a very strong argument,” he said.
Southwest, meanwhile, plans to move into two unlikely markets in 2009. Besides New York, Southwest will enter Minneapolis.
Both are major business destinations, which could attract more corporate dollars to Southwest.
And Southwest’s construction of an alliance with WestJet and Volaris links three low-fare carriers with similar business models.
The alliance would allow Southwest to book fares to a wide variety of cities beyond the U.S. border.
“I think Southwest is going to be the airline to watch in 2009,” Klaskin said. “They have some very big plans.”
Delta Airlines Reports, Slow Demand for Flight Service Airlines Companies Plans Cuts Capacity
Nine days after announcing new overseas routes for 2009, Delta Air Lines Inc., the world’s biggest carrier, said in a regulatory filing Friday it plans to reduce future domestic and international capacity because demand for seats has slowed amid the global financial crisis.
The Atlanta-based airline did not provide specifics, but did say it would give more details about its outlook in early December.
Spokeswoman Betsy Talton said Delta still plans to add starting next spring the 15 new international routes it announced Nov. 12, but the company will continue to monitor performance.
It was unclear if future capacity reductions would mean a net reduction in international capacity next year or simply smaller growth.
In a Securities and Exchange Commission filing Friday, Delta said that demand has slowed over the course of the fourth quarter, which began Oct. 1 and ends Dec. 31.
Domestic advance bookings are running two points higher year-over-year, reflecting capacity reductions in the domestic system. International bookings are down 4 to 5 points, Delta said.
“As a result, we are evaluating our capacity plans for 2009 on both the domestic and international system and expect to reduce future capacity to better align supply with current levels of demand,” Delta said.
JP Morgan airline analyst Jamie Baker said in a research note Friday that Delta’s guidance appears to affirm the widely held view that domestic capacity cuts and international corporate travel curtailment are likely to result in domestic trends outperforming international next year.
He noted that the industry has been through challenges before, like the aftermath of the 9-11 attacks.
“Perhaps the steeper cliff is yet to come, but it is interesting nonetheless travelers appeared to grow more averse to air travel more quickly in 2001 than is so far the case in 2008 – despite September and October’s global upheaval,” Baker wrote.
He said that at $50 a barrel for oil, the industry could withstand as much as an 11 percent decline in revenue, while still producing near-breakeven results.
“While we would be disappointed with such an outcome, it would nonetheless appear to be one well ahead of the deep losses, covenant breaches, and liquidity challenges that many equities appear to imply,” Baker wrote. “No change to our unrelenting equity bullishness.”
Delta said that as a result of its $2.8 billion acquisition of Northwest Airlines, which it completed Oct. 29, Delta’s consolidated reported results for the fourth quarter will include Northwest results from Oct. 30 through the end of the year, in addition to Delta’s standalone results for the entire quarter. The comparable 2007 figures will include only Delta standalone results.
The airline said its guidance in its investor update Friday excludes special items and the impact of applying purchase accounting to the merger.
Delta said that for the fourth quarter, it expects operating margin to be 0 percent to minus-2 percent. Operating margin is operating income as a percentage of sales or revenue.
It said consolidated revenue per available seat mile would be up 2 percent to 4 percent. It said system capacity would be down 4 percent in the quarter.
Delta’s shares fell 20 cents, or 2.9 percent, to close at $6.82 in Friday trading.
Indian Airlines Cancel Aug 18 Domestic Flight Stoppage
India’s private airlines have called off plans to halt domestic travel for one day on Aug. 18 because of fears of a backlash and after the government agreed to talks about high taxes and airport fees, an industry group said.
The Federation of Indian Airlines, which has 10 member airlines including heavyweights Kingfisher and Jet Airways, said in a statement Sunday that the boycott had been canceled “in view of the agitated public sentiment and potential inconvenience to thousands of passengers on the one hand and Government’s willingness to enter into dialogue on the other.”
After federation members announced their intention to strike Friday, Civil Aviation Minister Praful Patel warned that the government would take “appropriate action” if private carriers inconvenienced passengers, the Press Trust of India reported.
FIA says Indian airlines together lost 100 billion rupees ($2 billion) last fiscal year due to high fees and taxes, falling passenger numbers, and rupee depreciation which has made it more costly to lease and maintain aircraft.
The group has been lobbying the government to cut fuel taxes, which make airline fuel costs 60 to 70 percent higher than international norms, according to the Center for Asia Pacific Aviation, an independent research group.
