Airlines Companies Revenues Under Pressure Impact From Oil Prices Dropp
With oil price having dropped to $35 a barrel levels, airlines will see their revenues come under pressure and yields (the average revenue per mile per paying passenger) disappearing, besides airfares being revised downwards in 2009, according to industry experts.
“Oil at below $35 a barrel is not that bad news for the airlines. But this would result in airlines revising their ticket prices downwards in 2009, which would mean that revenues are going to drop and the yields will be lost,” Kareem Murad, Vice President – Research at Shuaa Capital, told Emirates Business.
Explaining the rationale behind such a move, he said: “When oil prices went up to the levels of $147 a barrel, the airlines’ operating costs also went up substantially, and when the oil price fell, their operating costs came down too.”
“However, just because revenues would be lower, it does not mean that the airlines’ profitability will be lower as well in 2009, because on the other hand cost has dropped as well,” he added.
Gulf airlines, on the other hand, seem to be in line with their strategies. “The price of oil is constantly changing, it always has and always will. We are happy that the price of oil has come off record highs. We are happy with our hedging position and are in a strong position to take advantage of lower market prices,” said Iain Burns, Etihad AirwaysEtihad AirwaysLoading…’ Vice-President – Corporate Communications.
EmiratesEmiratesLoading…, meanwhile, did not reveal specific impact of sliding oil prices on its revenues and profits. “We have been monitoring fuel prices closely, and since August 2008, we have implemented two rounds of fare reductions in the UAE, reflecting the softening fuel prices,” the airline’s spokesperson said.
Regarding the impact of falling oil prices on airline’s expansion and future investment, the spokesperson said EmiratesEmiratesLoading…’ plans for growth “remain unchanged”.
Welcoming the drop in oil prices, Sharjah-based budget carrier, Air ArabiaAir Arabia
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’s spokesperson, Housam Raydan said: “Mid-range price of oil is always better for the economy and for airlines. Air ArabiaAir Arabia
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enjoys one of the world’s lowest operational costs and we will remain price competitive in 2009.”
All said and done, airlines will all in likelihood, fall back on their old behaviour, according to Addison Schonland, a US-based aviation analyst with Innovation Analysis Group.
“They will cut fares to add load factor. But of course that does not help with profitability. To recover costs airlines must focus on revenues — cost are pretty much cut to the bone,” he said.
“Oil price below the levels of $35 is a two-edged sword – it is great for airlines’ costs which were thrown out of whack by the oil spike. But prices have fallen because of falling consumption, which is driven by dropping consumer confidence the world over. So even though costs have dropped, demand for travel may drop off even faster,” he added.
Qatar Airways Reported Flight and Passenger Traffic
Qatar Airways carried more than 12 million passengers last year, a gain of 35 per cent, and says it hopes to achieve similar growth this year, even as economic turmoil dampens demand for international air travel.
The Doha-based airline plans to redistribute resources to exploit emerging markets in Africa and Asia to counteract the fall in demand from Europe, said Ali al Rais, the executive vice president of commercial operations.
“Yes, there are drops in Europe,” he said. “But Africa and Asia are still resilient, and the ability to manoeuvre our assets gives us more control.”
The carrier expects demand for air travel in the Middle East to grow 4 per cent this year, down from an earlier forecast of 6 per cent. It said it would stay on course despite the slowdown and was investing aggressively to promote Doha as a major hub for international air travel. Its fleet is expected to increase from more than 60 to 110 in the next five years, while its route network will expand from 83 to 120 destinations during the same period.
“We are optimistic, being geographically located in this part of the world – I feel bad for airlines located in other parts,” Mr al Rais said.
But recent delays may prove worrying for the airline as it seeks to grow its network. Its inaugural flight to Houston was postponed for several months due to late aircraft arrivals, following a 58-day Boeing labour strike last year. The route is now scheduled to open on March 30.
A nearly two-year production delay of the Boeing 787 Dreamliner will affect Qatar Airways, which is seeking financial compensation from the US aircraft manufacturer – a standard course of action among airlines that is written into their purchase contracts.
“They already know they have been at fault,” Mr al Rais said in Dubai yesterday while promoting the Houston launch. “They know that the standard clause will kick in.”
Additionally, Qatar Airways’ new hub, tentatively named New Doha International Airport, will not be completed until 2011, two years later than originally expected. Mr al Rais said that a $US500 million (Dh1.83bn) upgrade of the existing airport in Doha would help ease capacity constraints until then.
The airline, which is targeting profitability in 2011 after launching in 1993, said official figures would be released in April, when it concluded its fiscal year. In its 2007 calendar year, the airline carried 8.87 million passengers.
Mr al Rais also put to rest reports that Qatar Airways was interested in the privatisation sale of Greece’s Olympic Airways,
“We have never been interested in taking any other airline or any other ventures,” Mr al Rais said.
The initial reports, coming from the Greek ministry of transport, had confounded analysts who follow the Doha airline’s heavy investment in cultivating a five-star image.
“What on earth did Qatar want with Olympic?” asked Addison Schonland, the chief executive at Innovation Analysis Group. “Qatar is a ‘new-age airline’ and any association with Olympic could only tarnish its image. Olympic’s brand is as dead as ancient Greece. Its labour trouble alone ensures that there is nothing worth saving.”
Qatar Airways expects to receive about 12 aircraft this year, including long-range Boeing 777s, to help it expand its reach as an ultra-long-haul carrier for international air travel between Asia, Europe and Africa.
Despite the dramatic fall in jet fuel prices, which closely follows crude oil prices, Qatar Airways does not plan to purchase jet fuel futures contracts, called hedging, because energy trading was “too volatile”, Mr al Rais said.
Airline Quality Rating, Airline Performance Year 2009 Reached Highest Score
The annual report assessing the performance of the airlines put some of the airlines at the best rating. But the overall performance of both airlines rose by achieving the highest score in the year 2009.
Performance evaluation factors airlines, among others: timely arrival time, service boarding, mishandled baggage and customer complaints.
Fourteen airlines improved their on-time arrival performance in 2009, the report said, though only six airlines had an on-time percentage greater than 80 percent.
Customer complaints fell industrywide to 0.97 per 100,000 passengers, from 1.15 per 100,000 passengers.
The Airline Quality Rating report is a joint research project by Purdue and Wichita State universities. The study is based on figures compiled by the U.S. Department of Transportation.
Hawaiian Airlines had the best on-time performance for 2009, with 92.1 percent. With 69 percent on-time arrivals, Comair recorded the industry’s lowest rate in this category, the report said.
Airline Quality Rating rankings, with the 2009 ranking in parentheses:
1. Hawaiian (1)
2. AirTran (2)
3. JetBlue (3)
4. Northwest (4)
5. Southwest (6)
6. Continental (8)
7. Frontier (7)
8. US Airways (10)
9. American (9)
10. ExpressJet (not ranked in 2009 report)
11. Alaska (5)
12. Mesa (14)
13. United (11)
14. SkyWest (13)
15. Delta (12)
16. Comair (15)
17. Atlantic Southeast (17)
18. American Eagle (16)
The report said Hawaiian was the best-performing airline in 2009, followed closely by AirTran Airways. JetBlue, Northwest and Southwest rounded up the top five.
Among major carriers, Continental was ranked sixth, U.S. Airways eighth, American ninth, United 13th and Delta 15th.
Compared with 2008, the airline industry scored higher in every category except for denied boardings, which shouldn’t come as a surprise, said Dean Headley, a Wichita State professor and one of the report’s authors.
“You would expect denied boardings to increase as you tighten up on the number of seats that are available,” Headley said in a statement. “When you look at the past 10 years, you find that the airline industry performs most efficiently when the system isn’t stressed by high passenger volume.”
There’s also an explanation for why the airlines did better in the other areas, said Claes Fornell, a professor of business at the University of Michigan and creator of the American Customer Satisfaction Index.
“What has happened is that because there are fewer flights, fewer passengers, you know airlines have been able to lose fewer bags and arrive on time more often, and that’s what’s driving the numbers up,” he said.
“But of course they are losing money also, so this is not a sign that the airlines have really improved. It’s a sign of weak demand, and it’s easy to handle fewer customers than many customers.”
Joe Brancatelli, who flies several times a month and runs JoeSentMe.com, a Web site for business travelers, said he is no fan of the report.
The report “is such a small part of the overall experience, it’s almost unimportant, in my opinion,” he said.
“There is nothing in this that the government hasn’t already reported and it doesn’t address the issues the government doesn’t address, which is the waits at airports, the fact that there are no empty seats on the plane, which makes the experience terrible, the fee issue — all those things also go into the experience.”
One of the reasons why low-cost carriers are at the top of the ranking is because people know what to expect from their experience, Brancatelli said.
“The ones that do the best — JetBlue, Southwest, AirTran — it’s not that they’re smaller, it’s that they’re more consistent. They do the same thing every flight, every seat, every route, every day,” he said.
Airlines Promotion “Free Seat” : Airasia Offers a Million Free Tickets
Low-cost carrier AirAsia is giving travellers a reason to cheer – the airline is giving away a million free seats starting today.
The booking period for the “Free Seats” promotion begins today until Sunday, for travel between Jan 3 and May 8 next year.
Customers can choose from 130 destinations to 20 countries including India, Thailand, Indonesia, Laos, Singapore, the Philippines, Vietnam and China.
The promotion offers various “all-in fares” which are applicable for one-way travel inclusive of airport tax, with certain terms and conditions.
AirAsia’s regional commercial head Kathleen Tan said many enquiries had been made on the airline’s social platform about the promotion.
“This is the best chance for our guests to plan and book their flights for their travel plans next year and take advantage of Kuala Lumpur’s status as a gateway to Asia, Australia and Europe to connect globally,” she said in a statement yesterday.
To complement the free flights, Tan added that AirAsia’s one-stop travel portal was also offering online hotel deals from 70,000 hotels worldwide, tour packages and free tours and transfers to selected destinations via AirAsiaGo at www.airasiago.com.
Fraport Cleared to Expand Frankfurt Airport
German airport operator Fraport AG said a court has cleared its €4 billion ($5.7 billion) plan to expand Frankfurt’s main international airport, the final step allowing a fourth runway and third terminal to be built at Deutsche Lufthansa AG’s main hub.
The plan, which was approved by the administrative court of the state of Hesse, will allow Fraport to build Runway Northwest, the new runway it hopes to open in the winter of 2011. The new runway will allow 120 aircraft movements per hour and the new terminal, with 75 new aircraft positions, will have the capacity to handle 25 million passengers. The airport handled nearly 53.5 million passengers in 2008.
The move comes as other large European airports are also considering expansion plans, even though the industry is undergoing one of its worst-ever downturns as economic woes have slashed passenger numbers and cargo volumes. With 40,462 takeoffs and landings, Fraport recorded a 5.3% fall in aircraft movements from a year earlier in July.
In each case, expansion plans have polarized opinion, with businesses saying expansion is key to the growth of the economy, and local and environmental campaigners complaining about noise levels and the environmental impact.
The U.K. government earlier this year approved plans for a third runway at London’s Heathrow airport, Frankfurt’s larger competitor as one of Europe’s major hub airports. The decision came after intense lobbying by businesses and the airport operator BAA, who said Heathrow’s expansion was key to maintaining the competitiveness of the airport and to future growth of the U.K. economy.
However, the U.K.’s main opposition party has pledged to reverse the decision if it wins an election that must be called by next May, backing local residents and the environmental campaigners. Under current plans, Heathrow’s new runway would start being built in 2015 and is slated for completion in 2019.
The expansion in Frankfurt is causing a battle over night flights.
The state of Hesse’s local zoning authority recently reduced the number of flights allowed at Frankfurt airport between 11 p.m. and 5 a.m. to 17, from about 40, and local campaigners had called for an outright ban.
However, Fraport and Lufthansa, who want more night flights allowed, had asked the court to rule. But the court effectively deflected a decision, saying that the state of Hesse must come up with new rules.
“Ultimately, the issue will presumably be decided at the highest court level,” said Stefan Schulte, Fraport’s executive board vice chairman, who heads up the expansion project.
“We regret that the court didn’t listen to our argument,” a Lufthansa spokesman said.
Lufthansa has said a ban or reduction in night flights will further hurt its cargo operations, which have already seen volumes decline sharply due to the downturn in world trade. Airlines run most of their cargo operations overnight.
The Lufthansa spokesman said that without night flights, Frankfurt Airport would be cut off from global cargo flight traffic and left on the sidelines.
Lufthansa will wait for the court to publish its written decision and opinions before deciding how best to proceed, the spokesman said.
