Posted by: Justin Bachman on May 08
The latest airfare fuel surcharge, $20 from Delta, may well be another that sticks. American, Continental and United have matched as of late on May 8, according to the blogger-guru of fare-watching, Rick Seaney. How many more can there be before sales drop off? I rang Kevin Mitchell of the Business Travel Coalition on Thursday for his opinion. He quickly raised a better point: Airlines have a poor track record detecting downturns, that shift in consumer sentiment in the months immediately preceding the whammy of weak sales. Most recently, Mitchell offers the example of 2001. Demand looked fine at year's start, and the industry anticipated profits. Months later -- and before the 9/11 attacks -- the industry had been quickly beset by weak sales and was forecasting a loss. Then came the terrorists.
Minus the horrendous national tragedy, I am wondering if 2008 may be shaping up in a similar vein. You see the new records for crude oil by the day, along with the steady stream of fare hikes and fuel surcharge increases. Fares have jumped more than 12% in the past 13 months, according to government data. Airline executives say they have yet to see demand softening, even though they are planning major capacity reductions right after Labor Day.
But come now. Americans are fiscally strained; no one argues the opposite. Some oil analysts talk periodically about the potential of a correction in crude, arguing that supply and demand have slipped out of sync as speculators rush in hunting hard asset hedges against a weak dollar. Maybe they're right, maybe not. But I have a question for all the airline pros: Is such a correction possible in the travel industry, ie, a rapid, radical plunge in demand? Is it possible that we all just might decide to stay home?
Posted by: Justin Bachman on May 07
The largest air shuttle operator, DayJet Corp., laid off nearly half its 260 employees this week as it was unable to secure $40 million to expand to a fleet of very light jets serving 20-30 fully-developed markets in the Southeast. DayJet, which is based in Boca Raton, Fla., flies business travelers among 45 smaller cities in Florida, Georgia and Alabama. The VLJ-air taxi model is one that has generated heavy press coverage and some skepticism. DayJet targets business travelers who may not be keen to drive three-five hours each way on a business trip but also love to avoid big airline fares and hubs. The 100 job cuts were spread throughout the company, which said in a statement to workers that “given the current state of the U.S. capital markets, the timing of our planned financing could not have been worse.”
Interestingly, this is one airline contraction in which the credit crunch – not jet fuel prices – is starring as the villain. Fuel accounts for less than one-fifth of DayJet’s operating costs, chief financial officer John Staten said in a telephone chat Wednesday afternoon. He emphasized repeatedly that the job cuts do not affect DayJet’s current service or the viability of its business model, which features Eclipse Aviation 500 jets carrying up to three passengers on trips up to 1,100 nautical miles. The company, which launched service in October, 2007, says it has about 1,500 registered “members” and a rebooking rate of 40%. DayJet’s average flight is one hour, with fares averaging $600-$700. Its load factor is 1.8 people. (An amusing data point, to be sure.) DayJet has raised $60 million from private sources, to date, and has debt facilities totaling $140 million. “These cutbacks had absolutely no bearing on the fundamentals of the DayJet model,” Staten says.
But here’s the rub, the proverbial turkey in the jet engine, that speaks to the current capital troubles, as outlined in its statement: “DayJet’s business model is based on operating at a critical mass, requiring investment ahead of growth. We hired and trained a number of employees in anticipation of future growth and always planned for additional capital investment at this stage.” In other words, the expense arrives before the revenue. These days, with the finance world spooked, that’s a no-no. It is also one reason United parent UAL Corp. was forced to plead with its bankers earlier this week to revamp terms on some $1.5 billion of debt. The airline said May 6 it had received the "flexibility" it needs from a consortium led by JP Morgan Chase, Citi and Credit Suisse.
DayJet says it will continue to expand, albeit not as rapidly.
Posted by: Justin Bachman on May 01
The JFK-West Coast Wars may be even more heated than we suspected. Delta dropped an e-mail in my inbox this evening with a somewhat novel promotion: a $50 American Express card on round-trip flights to LA, San Francisco, San Diego, Portland and Seattle. You'll quickly note that on all those routes JetBlue is a nonstop competitor. You may also note that American, United and Virgin America all compete on several of these routes with nonstops.
In other words, Delta must really feel a competitive pinch on the JFK-West Coast nonstops. The deal runs through June 30, and careful scrutiny of the tiny print reveals no fare class restrictions but Delta does toss in a "on select flights" notice. The $50 can be had on every r/t through June. Anyone jumping on this, please give a holler if there's a hitch that's not apparent.
Posted by: Justin Bachman on May 01
The aviation world is geared up this week about alliance talks Continental is having with American and British Airways. Ostensibly, this would lead to Continental’s departure from the SkyTeam alliance with Delta, Northwest, Air France-KLM, etc., and its membership in the AA-BA-led oneworld alliance.
Um, ok. Would this mean antitrust immunity across the Atlantic for that new trio? Some say maybe. I have doubts. Here’s another question: Has American ever been able to derive the kind of economic benefits Northwest and Continental reaped from their scheme? Nope. BA and American were just too large to pass the regulatory smell test. For the sake of argument, let’s say the regulatory environment shifts (massively) and U.S. and European bureaucrats decide that competition is robust and we’re in a new era where consumers are protected.
It’s that sort of thinking that saw nice pops today for all three stocks. BA shares rose 7% in London, while Continental shares are up 8% and AMR jumped 14%. But even if you stipulate a different regulatory take, how does an entity the size of a reconfigured oneworld – which would include the largest player at Heathrow – win antitrust immunity? That just seems a stretch to me, and to some other people, including Virgin boss Richard Branson, who has the resources to severely hamper whatever he deems a grave threat.
So what am I missing here? Does the advent of some kind of AA-BA-Continental business relationship mean much in the larger industry scheme? Even if you’re a million-plus miler on any of the five carriers involved here, will a revised SkyTeam and oneworld affect your life? Likely no. I’m most intrigued by the potential in an idea posed by a reader at Bart Noeth’s aviation site, Luchtzak: Why not a fourth global airline alliance? Yes, why not? Surely Continental could attract interested, revenue-worthy partners. After all, Sir Richard's affection for bold ideas is well-documented. Hint, hint.
Posted by: Dean Foust on May 01
The folks at NPR's national call-in show, Talk of the Nation, hosted by Neal Conan, asked me to come on again recently to talk about airline consolidation, and the effect it will have on airline service and fares. Here's a link to the segment.
My take: The airline mergers we're seeing now are bringing an end of the era of cheap travel. My favorite statistics: The average one-way fare is now $140. $140!! In real terms, the average fare has declined more than 50% in real terms since the industry was deregulated in 1978. When the major bus companies go bankrupt because they can't compete against these cheap airfares, you have to appreciate how good fliers have had it. But no more.
Oh sure, you can go to AirTran's web site and see a promotion for $49 fares. But I have a hunch that rather than being a standard offering, those $49 fares are going to be like those too-good-to-believe prices for new cars you see in the Saturday newspaper. But you get to the dealership and discover there was only one vehicle at that price--and, surprise, it sold at 5 am. Same for those great fares: One seat, and good luck getting it.
