Business Travel News - May 5, 2008 - (Page 12)

AVIATION Fuel Costs Crushing Carriers BY JAY BOEHMER UNITED SEEKS TO DELAY 2008 LAUNCH OF U.S.-CHINA SERVICE has proved fatal for several carriers, The growing cost of fuel contin- helping to sink Aloha, ATA and Skyues to dampen domestic airlines’ bus. Baker said the cessation of prospects for profitability this year, those carriers would take out about as one analyst likened the magni- 1 percent of system capacity. “Every tude of fuel costs to the fallout from bit helps, though in this case not by Sept. 11, 2001, and raised his voice much, in our view,” he said. in the growing chorus for drastic inFuel costs also partially condustry downsizing. tributed to Frontier Airlines’ ChapJP Morgan analyst Jamie Baker ter 11 bankruptcy protection filing in said plans for industry consolidation April. Though Frontier said a poliand the recent downfall of several cy change by its primary credit card smaller carriers would not take processor to increase the share of customer receipts it would hold forced its hand into Chapter 11, Frontier president and CEO Sean Menke also April 11Jan. 1cited “unprecedentApril 15 April 15 ed and significant 2007 2008 2008 increases in the cost of jet fuel.” Oil cost per barrel $72.34 $99.43 $111.32 Baker predicted Refining expenses $18.58 $23.71 $35.87 even more gloom and doom for an alTotal jet fuel cost ready gloomed and per barrel $90.93 $123.14 $147.19 doomed industry, Sources: Energy Information Administration and Air Transport Association predicting others would follow Fronenough capacity out of the domes- tier’s path. “Unless fuel prices rapidtic system to yield profits in 2008. ly retreat, it stands to reason that Major domestic carriers’ first-quar- additional carrier bankruptcies canter losses reported in recent weeks not be ruled out. After all, no recesset the tone for the year. sion since the industry deregulated Though many major carriers con- has failed to include the bankruptcy tinue to scale back capacity growth of at least one—more typically, sevfor 2008 on top of downward de- eral—carriers of size.” Some eyes have turned to Amermand projections established earlier this year, it likely is not enough, ican Airlines as a candidate, one of Baker said, as the fuel bill for the in- two legacy carriers that avoided a dustry likely would exceed 2007’s Chapter 11 filing in recent years. “by at least $15 bilFollowing AA’s firstFor the latest breaking news, quarter earnings report, lion,” a figure he said see btnonline.com/bn “roughly approxiUBS analyst Kevin mates the operating impact the in- Crissey said the carrier “is seeing its dustry withstood as a result of the annual costs rise at about $1 million 9/11 terrorist attacks.” per hour. That is what AMR has faced Unless current fuel prices abate, in fuel costs so far this year.” “the industry needs to downsize anyBaker said, “Our base case rewhere from 15 percent to 20 per- mains that AMR avoids a bankruptcent in order to recalibrate for prof- cy fate, but we simply cannot ignore itability at current fuel prices,” Baker the potential realities of current fuel said in a research note following the and economic conditions in which announcement of the Delta-North- the company may be forced to operwest merger agreement. ate for a sustained period of time.” The growing cost of fuel already ■ jboehmer@btnonline.com ■ JET FUEL BILLS CONTINUE TO SOAR United Airlines in April petitioned the U.S. Department of Transportation to delay the launch of an approved U.S.-China route by one year, from June 30, 2008, to June 30, 2009. DOT in September 2007 awarded authority to only one carrier to launch U.S.-China service this year (BTNonline, Oct. 8, 2007), following hard-fought attempts by many domestic airlines to gain the slot. United in its DOT filing in April said high fuel costs and reduced demand forecasts for its proposed San Francisco-Guangzhou route prompted it to seek an extension. United said when it applied for the route, fuel cost $63 per barrel, but since has surged beyond $100 per barrel (see story, left), which would make annual fuel costs for the route exceed $70 million. United also said it reduced demand forecasts for travel between San Francisco and Guangzhou, “principally due to the subprime crisis in the U.S. and its impact on the domestic economy.” FLIGHT LOG EUROPE APPROVES INFLIGHT CELL PHONE USE The European Commission in April said it would allow passengers to use cell phones on airplanes, though it’s not likely the United States will adopt a similar policy anytime soon. The European Commission said it first plans to “harmonize the technical and licensing requirements for the use of mobile phones onboard aircraft,” allowing passengers to link “to an onboard cellular network connected to the ground via satellite”to REP. PETER DeFAZIO (D-ORE.) ensure mobile calls do not interfere House Transportation Committee with flight operations. Several carriers, including Air France, already have plans in motion to enable inflight mobile phone calls. The Federal Communications Commission and the Federal Aviation Administration already ban cell phone use in U.S. airspace, but several members of the House Transportation Committee in April proposed the Hang Up Act to “ensure that voice communication does not happen on U.S. flights.” The legislation would prohibit voice communications but still allow carriers to adopt silent connectivity offerings, including Internet, e-mail and text messages. One of the bill’s sponsors, Peter DeFazio (D-Ore.), said, “The public doesn’t want to be subjected to people talking on their cell phones on an already overpacked airplane. However, with Internet access just around the corner on U.S. flights, it won’t be long before the ban on inflight voice communications is lifted.” BA WORKS TO COMPLETE HEATHROW TERMINAL 5 MOVE Following the botched opening of a new terminal that caused hundreds of service disruptions at Heathrow Airport, British Airways said it would postpone from April to June its move of the rest of its long-haul operations to the terminal because it needs “more time to iron out remaining problems, including the baggage system and its operation, to give us confidence that customer service in Terminal 5 can be maintained at a high level when the terminal is handling larger numbers of customers.” BA at press time said it still was determining a specific date for the completion of June’s move. —Jay Boehmer 12 Monday, May 5, 2008 www.BTNonline.com Business Travel News http://btnonline.com/bn http://www.BTNonline.com

Table of Contents for the Digital Edition of Business Travel News - May 5, 2008

Business Travel News - May 5, 2008
Contents
Inside Track
Profile
BTN Research
Aviation
Lodging
Travel Management
Travel Management Tech
Executive Dashboard
Corporate Travel World
Destinations

Business Travel News - May 5, 2008