Flying The Unfriendly Skies
Brian Deagon , On Friday January 29, 2010, 7:53 pm EST

Buffeted by a decade of terrorism, endemic influenza, volatile fuel prices and two economic downturns, the airline industry is hoping for smoother skies in 2010.

The International Air Transport Association last Wednesday said airlines suffered the largest-ever decline in passenger demand in 2009, down 3.5% despite a 4.5% year-over-year jump in December traffic.

Passenger revenue among leading U.S. airlines fell 4% in December vs. the same month a year ago, the 14th consecutive monthly decline, according to the Air Transport Association of America. For the year, U.S. passenger revenue declined 18%, the biggest drop on record, exceeding the 14% decline in 2001.

That plunge stemmed from a 6% decline in passengers and a 13% decline in the average price paid to fly one mile.

Airlines aren't out of the clouds just yet, but the outlook is brighter. Carriers have reduced capacity and cut jobs over the past two years to offset declining travel because of the recession. They also got some relief from lower fuel prices in the second half of 2009.
Vaughn Cordle, an analyst with AirlineForecasts, said U.S. airline revenue declined about 17% in 2009 from 2008 but should grow 7% to 9% in 2010.

"Business travel is coming back and with capacity coming out of the system, the industry has the opportunity to get load factors and yields up," which will boost profit, Cordle said.

1. Business
Simply put, the airline industry is all about filling enough seats to fly planes at 80% capacity or better.

To reach that level in a depressed economy, airline companies have been reducing the number of planes in their inventory and the frequency of flights. Globally in 2009, airlines cut the frequency of flights 3% and routes flown 8%.

As a sign of growing confidence, airlines worldwide have been adding more flights and seat capacity in recent months.

Globally, available seats rose 3% to 294.6 million in January from a year ago, with 2.37 million flights scheduled, up 2%, according to OAG Aviation Solutions. It was the fifth consecutive month in which airline capacity has shown growth. For low-cost airlines such as Southwest Airlines (NYSE:LUV - News) and JetBlue Airlines (NasdaqGS:JBLU - News), frequency and capacity rose 10% in January from a year ago.

"It's a sign that demand is increasing," said Mario Hardy, OAG analyst and vice president of UBM Aviation.

Unlike recoveries of times past, though, airlines have been more cautious in the amount and pace of capacity increases.

"During any sign of recovery in the past they put back a greater amount of capacity than they have this time," said Hardy. "Now they're very cautious, adding capacity gradually and slowly, and are really watching the market. It is a wise strategy, which should help them manage better yields as the economy recovers."

In January, U.S. airlines actually trimmed total flights 2.7% and seat capacity 2.8%, boosting profits.

In December, Continental Air-lines (NYSE:CAL - News) increased its load factor to 83%, up 3.1% from a year ago. In its most recently reported quarter, Continental earned 3 cents per share, or $4 million, the second straight quarterly net profit after six quarters of losses.
"We are a long way from being out of the woods, (but) we are seeing some signs that business travel is beginning to head in the right direction," said Jeff Smisek, chairman, president and CEO, in a conference call on Jan. 21 after earnings were posted.

American Airlines parent AMR (NYSE:AMR - News) reduced its available seat miles 5% in the fourth quarter and boosted its load factor to 81% from 78% a year ago. Delta Air Lines (NYSE:DAL - News) increased its load factor to 81.7% from 80.6% as capacity fell 8.2%.
Name Of The Game: Match airline capacity to passenger demand to keep flights full and squeeze out as much cost as possible to deal with swings in jet fuel and other sudden unexpected costs.

2. Market
An average of 2.5 billion passengers and 50 million tons of freight are flown annually, according to a report by Oxford Economics, published in June 2009. The industry employs about 5.5 million workers and has annual revenue of about $1 trillion.

Due to the downturn in the number of passengers flying in the past two years, airlines began cutting passenger and freight capacity in early 2008. But in the first half of 2009, demand fell much faster than airlines were able to cut capacity, causing a severe slump in load factors.
In the second half of 2008 and the first half of 2009 combined, the top 10 U.S. airlines lost $10 billion, Cordle says.

Additional capacity cuts and growing demand in the second half of 2009 allowed airlines to restore load factors back to 2007 highs, resulting in most major airlines earning a profit.
Demand for first- and business-class tickets, which account for nearly a third of most airlines' revenue, improved in November from October but remained weak by historical standards.
The IATA noted that more business travelers flew on economy seats, especially on short routes.
Economy travel accounts for 91% of total international passengers and is showing signs of growth, up 2.4% from a year ago.

Across the board, industry executives have voiced growing confidence.

"We've seen clear evidence that the revenue environment is improving," said Delta President Edward Bastian in a conference call after the company's Jan. 26 earnings report. "While the comps have certainly become easier as we closed out the year, we have seen tangible evidence of sequential demand improvement, which indicates the recovery has begun."

Emerging economies such as Brazil and China represent a new growth driver. The best-rated stocks in IBD's airlines Industry Group include the likes of Brazil's Gol Intelligent Airlines (NYSE:GOL - News) and Tam (NYSE:TAM - News), China's China Eastern Airlines (NYSE:CEA - News) and Chile's Lan Airlines (NYSE:LFL - News). On Friday, a Brazilian magazine reported that Tam is looking to take a stake in Lan; Lan shares rose nearly 4%, while Tam fell about 5%.

3. Climate
Labor and fuel have consistently ranked as airlines' top two costs, forming about half of operating expenses. During the recession, U.S. airlines cut employment for 17 straight months. Full- and part-time employment totaled 379,400 in November, down 3.3% from a year ago, according to the U.S. Department of Transportation.

Fuel costs can be much more volatile and may hinder recovery efforts.

Fuel prices surged in 2008 and peaked at about $3.50 a gallon in the third quarter. By the second quarter of 2009, prices dropped 50%, helping airlines return to profitability in the second half.

Though airline executives sound optimistic, a number of issues could trip them up.
One is airline security. U.S. airlines spend $2 billion a year on security technology such as baggage scanners and personnel -- money that comes from fees tagged onto ticket prices.
That cost, already expected to grow to $5 billion by 2014, may rise faster than airlines can hike prices.

4. Technology
Breakthroughs in aircraft body design and materials have made planes lighter and more fuel efficient.

And while airlines have focused more on cutting costs than beefing up entertainment technology, more offer in-flight wireless Internet access.

Delta said in January that it plans to spend $1 billion over the next three-and-a-half years to boost fuel efficiency, remodel existing aircraft and improve customer service. It will add in-seat audio and video-on-demand on more planes.

At the same time it plans to install "winglets," curved wingtip extensions that reduce drag, on more than 170 aircraft to boost fuel efficiency as much as 5%.

5. Outlook
"We are cautiously optimistic on the airline space entering 2010," wrote Stifel Nicolaus airline analyst Hunter Keay in a mid-January research note.

But given the fragility of pricing and the industry's mixed track record of capacity, caution is the order of the day, he adds.

Among his concerns: airlines adding capacity too quickly and price fragility, which might make increasing fares difficult if fuel prices rise.

Fuel prices, as always, will play a big role in the financial performance of airlines.
Cordle projects the top 10 airlines will earn a net profit in the range of $1.5 billion to $2 billion in 2010, based on his estimate that the price of a barrel of oil will average $78.

A $10-per-barrel swing in oil prices would have a $3.5 billion hit on profit. Depending on the direction, it's possible that the top 10 airlines could earn more than $5 billion for the year or show a loss of as much as $4 billion.

Upside: The airline industry has downsized to a level that's matching demand and has seen relief in fuel prices.

Risks: A high-profile terrorist attack, a surge in fuel prices or continued high unemployment could thwart the airlines' best efforts at running a profitable business.

American Air Attendants Delay Strike Vote as Talks are Extended
By Mary Schlangenstein

Jan. 22 (Bloomberg) -- American Airlines’ flight attendants delayed a strike vote and a federal mediator extended negotiations after the two sides failed to reach a contract agreement.
Talks will resume next month, spokesmen for American and the union said.

The Association of Professional Flight Attendants had set today as the earliest date for balloting on a walkout. The union is “re-evaluating its options and consulting with our board” on when to take such a vote, Laura Glading, APFA president, said yesterday.

“Although APFA came to this session determined to reach an agreement, the company responded with nothing but concessions on top of concessions,” Glading said in a message to members on the union Web site. “Apparently the company believes this round of bargaining is 2003 all over again, and is demanding what it could not get from us seven years ago.”

AMR Corp.’s American is trying to reduce its industry- leading labor expenses while avoiding a dispute that could cripple operations. The attendants, who struck the airline for five days in 1993, are pushing to recoup pay and benefits ceded to help the company avoid bankruptcy in 2003.

The APFA represents 16,550 active attendants. Contract talks opened in June 2008, and a federal mediator joined the discussions a year ago to try to speed progress. The union and company agreed to a focused round of talks that began Jan. 11 in hopes of reaching a contract. A strike vote, if approved by members, would give leaders the authority to call a walkout.

“While the teams did not reach an agreement during this time, the company stays committed to the process and we are ready to move ahead with any proposal that makes good economic and operational sense,” American said in a statement posted on a company negotiations Web site.
Five Days of Meetings

David Roscow, a union spokesman, said the mediator scheduled five days of meetings starting Feb. 27 in Washington. An American spokeswoman, Missy Latham, confirmed that the mediator plans more negotiations between the two sides in February.

The union said it would ask the National Mediation Board to declare talks at an impasse, moving it a step closer to a possible strike, if an agreement isn’t reached when the next round ends.
Talks with the attendants may prove pivotal in American’s efforts to reach contracts with its 11,500 pilots and 25,000 employees represented by the Transport Workers Union. All three labor groups are seeking to win back pay and benefits ceded in 2003 to save AMR from bankruptcy.

American and the attendants agreed to the focused round of talks in hopes of reaching agreements on 11 remaining contract articles, including compensation, vacation and medical and retirement benefits.

No Favorable Odds
Robert Mann, president of aviation consultant R.W. Mann & Co. in Port Washington, New York, said he “wouldn’t give favorable odds on a settlement outside of super mediation.”

So-called super mediation is a last-ditch effort to reach agreement before a strike could begin. Before that can happen, the National Mediation Board would have to declare the talks at an impasse. Both sides would then be asked to agree to binding arbitration to reach a contract. If either side declined, a 30- day cooling-off period would be triggered.

Without an accord in super mediation during the 30 days, the union would be allowed to strike and American could hire replacement workers.

“I doubt any carrier could successfully fly through a reasonably effective flight attendant strike,” Mann said.

Then-President Bill Clinton ended the 1993 walkout by persuading both sides to agree to binding arbitration. American lost $300 million in revenue during the strike.

To contact the reporter on this story: Mary Schlangenstein in Dallas at maryc.s@bloomberg.net

Airline Union, APFA, to Begin Charging Those on Military Leave for Membership Dues Accrued While Defending Their Country
FOR IMMEDIATE RELEASE
PR Log (Press Release) – Jan 12, 2010 – (Euless, Texas) —

Change will require all members on Military Leave of Absence to pay back dues upon returning to work in order to maintain employment.

In an unprecedented move, the flight attendants at American Airlines, represented by the Association of Professional Flight Attendants (APFA), have voted to change the rules governing unpaid leaves of absence as they pertain to our nation's active military reserves. The change, soon to take affect, will require all members on Military Leave of Absence to pay back dues upon returning to work as a requisite for maintaining their current airline employment.

The union, suffering economically from years of attrition brought on by the company's 2003 Restructuring, decided that there's no room for free riding members anymore, and that includes those returning from active duty in the wars in Iraq and Afghanistan. The resolution states that dues are the "near-exclusive source of revenue" for the organization, and without the much needed financial boost the union fears it would be forced to cut back on much needed services.

While the organization understands the cost of freedom may come at the ultimate price — one's own life — the cost of a convention in one of the nation's metropolises can cost more than one-hundred thousand dollars. Voter turnout was less then expected with only 42% of the members taking time during the holiday season to cast ballots — the majority of those ballots flooding in from the airline's headquarter base, D/FW.

As one flight attendant put it, "The state of Texas has a major military presence, and many of the Airline's employees have relatives and spouses in the armed forces. For us, billing veterans on their return from service was a no-brainer: What better way to acknowledge their service to our country than by handing them a bill on the union's embossed letterhead." But not all flight attendants agree with this new policy.

While most understand the need to cinch the union's fiscal belt, some don't see how billing a dozen or so veterans for union services never rendered addresses the union's economic crisis. To them it appears more like political posturing than it does a sound business decision.

As flight attendant Tracey Crullers put it, "Why is the union placing so much focus on non-active employees when it should be focusing on active ones?" further adding that "even American Airlines gives our servicemen a free First Class upgrade when available, and nothing less than a complimentary sandwich, premium snack or a frosty beverage. It's the least we can do for those protecting our freedom. The idea of billing veterans is disrespectful."

The union, when asked about the timing of the referendum, stated that "the holiday season is a time when members are so busy trying to juggle schedules that they have little opportunity to zero in on the real issues pending their careers. Had the union waited until after the holidays, voter turnout would have jumped considerably. Given the sensitive nature of the issue — billing those defending our freedom — we just couldn't risk waiting until January.

Japan Airlines files for bankruptcy protection
By TOMOKO A. HOSAKA, Associated Press Writer Tomoko A. Hosaka, Associated Press Writer

TOKYO – Japan Airlines filed for one of the country's largest bankruptcies ever Tuesday, entering a restructuring that will shrink Asia's top carrier and its presence around the world.
Staggering under a $25.6 billion debt mountain, the carrier applied for protection from creditors under the Corporate Rehabilitation Law — Japan's version of Chapter 11 — with the Tokyo District Court.

Japan's flagship airline will slash nearly 16,000 jobs, reduce pensions for retired staff, cut routes and shift to more fuel-efficient aircraft as part of its restructuring.

Some $10 billion of government cash will keep JAL's planes in the air during the reorganization. Lenders will forgive $8 billion in debt, and JAL shares will be removed from the Tokyo Stock Exchange on Feb. 20, wiping out investors.

There was no word on the outcome of a fierce tug-of-war between Delta Air Lines and American Airlines for a slice of JAL's business. Despite its woes, the airline's access to Asia is a mouthwatering prize for foreign airlines.

A state-backed turnaround agency pledged 900 billion yen ($10 billion) in financial support for JAL — 600 billion yen in credit lines and a 300 billion yen cash infusion. The bankruptcy is the fourth-largest in Japan, according to figures from Teikoku Databank, which tracks corporate failures.

"This is not the end of JAL," transport minister Seiji Maehara told reporters. "Today is the beginning of a process to keep JAL alive."

JAL President Haruka Nishimatsu resigned, bowing deeply as he apologized for the company's troubles. Kazuo Inamori, a Buddhist monk and founder of Kyocera Corp. and Japan's No. 2 mobile carrier KDDI Corp., has been tapped as its next leader.

"This is our last chance," Nishimatsu said. "I believe we can be reborn as an airline that can represent Japan again."

JAL said flights will continue uninterrupted and that frequent fliers would not lose their miles. Tokyo asked foreign governments for cooperation to keep JAL flying around the world.

The day's events culminate a process that began in October when JAL — saddled with debts of 2.32 trillion yen ($25.6 billion) — first turned to the Enterprise Turnaround Initiative Corp. of Japan for help. Under the prepackaged reorganization, it will embark on a massive overhaul to shed the fat and inefficiency that hobbled its finances.

Maehara said the turnaround would involve 15,661 job cuts — a third of JAL's payroll — by March 2013.

The carrier will retire all 37 of its Boeing 747 jumbo aircraft and 16 MD-90s, which will be replaced by 50 small and regional jets. As of March, JAL's fleet consisted of 279 aircraft, mainly from Boeing Co. It served 220 airports in 35 countries and territories, including 59 domestic airports.

JAL shares, which have lost more than 90 percent of their value over the last week, tumbled another 40 percent Tuesday to 3 yen before finishing flat at 5 yen. The company is now essentially worthless, with a market capitalization of about 13.7 billion yen ($150 million) — the price of one Boeing 787 jet.

Nevertheless, American and Delta have continued to battle over JAL.

Delta and its SkyTeam partners have offered $1 billion, including $500 million in cash to lure JAL away from American's oneworld alliance. American Airlines and its partners say they would inject $1.4 billion cash into the Japanese airline.

"Delta and SkyTeam fully support Japan airlines and stand ready to provide assistance and support in any way possible," the Atlanta-based airline said in a statement following JAL's bankruptcy filing.

Maehara declined to comment on which U.S. carrier the government preferred and said it is "not in a position to force any partners on JAL."

The bankruptcy represents a humbling outcome for Japan's once-proud flagship carrier which was founded in 1951 and came to symbolize the country's rapid economic growth. The state-owned airline expanded quickly in the decades after World War II and was privatized in 1987.
But it soon became the victim of its own ambitions.

When Japan's property and stock bubble of the 1980s burst, risky investments in foreign resorts and hotels undermined its bottom line. JAL also shouldered growing pension and payroll costs, as well as a network of unprofitable domestic routes it was politically obligated to maintain.

More recently, JAL's passenger traffic has slowed amid the global economic downturn, swine flu fears, competition from Japanese rival All Nippon Airways Co. and a spate of safety lapses that tarnished its image. It lost 131.2 billion yen ($1.4 billion) in the six months through September.
Geoffrey Tudor, a principal analyst at Japan Aviation Management Research and former JAL employee, said the airline needs to be leaner and meaner.

"It wasn't commercially brutal enough in dealing with the facts of economic life," said Tudor, who spent 38 years at the Japanese carrier and now watches its collapse with a mixture of sadness and frustration.

Its four government bailouts since 2001 only exacerbated JAL's problems, officials now say.
Passengers seemed to agree as much.

"I guess they did not work in earnest and so fell into this situation," said Isao Sasaki, 72, who waited in line Tuesday at a JAL check-in counter at Tokyo's Haneda Airport. "Weren't they spoiled as they always had protection from the government?"
___
AP Writers Jay Alabaster, Yuri Kageyama and Mari Yamaguchi, and APTN staffer Kaori Hitomi contributed to this report.

FDA finds roaches, listeria at airline caterer

FDA cites LSG Sky Chefs airline food facility in Denver for roaches, listeria
By David Koenig, AP Airlines Writer , On Monday January 4, 2010, 8:24 pm EST DALLAS (AP)

-- A company that prepares food for major airlines says it has cleaned up its Denver kitchen after federal inspectors found live and dead roaches and listeria bacteria at the facility.The Food and Drug Administration warned the company, LSG Sky Chefs, that it could be barred from selling food to the airlines at the Denver airport if it flunks further inspections.

LSG Sky Chefs said Monday it took the FDA's comments seriously, fired the general manager and head chef, and believes it will pass a follow-up review.LSG is owned by Deutsche Lufthansa AG, the big German carrier.

Its U.S. subsidiary provides food to Delta, American, United and other airlines from 43 kitchens around the country.According to an FDA letter to the company, inspectors who examined the Denver facility found live and dead roaches "too numerous to count" in several areas of the kitchen, including at least 40 live insects in the silverware station.

The FDA said inspectors saw employees touching food with bare hands or while wearing unwashed gloves. They also noted problems with the building, including water dripping from the ceiling into utensil-cleaning areas and holes in walls that could house insects or vermin.

H. Thomas Warwick Jr., director of the FDA's Denver office, said in an interview that such conditions were more common 10 to 15 years ago but are seen rarely today because of better sanitation practices and more inspections by federal, state and local agencies.LSG "has been pretty good" over the years, Warwick said.

"This one sort of slipped a little. We will be back very shortly."LSG spokeswoman Beth Van Duyne said the company took the FDA's findings seriously and fired the general manager and executive chef in Denver. When chemical treatments failed to kill listeria found in a kitchen floor drain, the company replaced the pipes and drain, she said.

Listeria is a bacteria linked to food-borne illness."We make no excuses for this report," Van Duyne said. "We've taken immediate and aggressive actions after we received the initial findings in October. We're confident we'll pass" the follow-up inspection.

Van Duyne said the company hasn't received any reports of airline passengers becoming ill from its food. She said FDA inspectors were back in the Denver building on Monday.

Mesa Air files for Ch. 11 bankruptcy protection
Mesa Air files for Chapter 11 bankruptcy protection, will restructure its business

On Tuesday January 5, 2010, 8:07 am EST

PHOENIX (AP) -- Mesa Air Group Inc., whose operations include flying regional routes for major airlines like Delta, United and US Airways, has filed for Chapter 11 bankruptcy protection, hoping to shed financial obligations for leases on airplanes it no longer needs.

Mesa, which currently runs 130 aircraft, said the filing will allow it to reorganize its operations and allow it to get rid of its extra planes and become more competitive.

Mesa said Tuesday that its go!-Mokulele Hawaiian joint venture with Mokulele Airlines is not included in the bankruptcy filing and will run a full flight schedule.

It said the rest of its operations are expected to run normally during the restructuring process, with Mesa anticipating it will win court approval to continue paying workers and the fulfilling code-share partner agreements within the next few days.

In November, United Airlines chose not to extend a deal under which Mesa ran 26 regional jets for that carrier. The Phoenix company also runs regional flights for carriers including Delta Air Lines and US Airways.

Regional jets are smaller than the planes that large airlines use on most of their routes. They are often used to bring travelers to hub airports, where they can connect with other flights.
The company also expects its restructuring to help it more quickly resolve its lawsuit against Delta, in which Mesa is seeking more than $70 million in damages. Delta has tried to terminate their deal.

Chairman and CEO Jonathan Ornstein said in a statement that Mesa has spent the past two years working with lessors, creditors and others in order to restructure its financial obligations, which in turn helped it get rid of more than $160 million in debt obligations; rework inventory management and engine overhaul deals and return some planes.

Ornstein said the company has enough liquidity to support itself during the restructuring.
Mesa voluntarily filed its Chapter 11 petitions with the U.S. Bankruptcy Court for the Southern District of New York.

Mesa shares, which have traded between 1 cent and 36 cents over the past 52 weeks, closed Monday at 12 cents.

Mesa is a major commuter carrier and operates flights as Delta Connection, US Airways Express and United Express under agreements with Delta, US Airways Group Inc. and United Airlines.

Bye Bye Northwest Airlines, Pan Am, Eastern, Ozark, National, Braniff and Trans World Airlines

Northwest Airlines was founded on September 1, 1926, by Colonel Lewis Brittin. Based in Minnesota, the name for the airline referred to theNorthwest Territory, not it's early days as main carrier between the UnitedStates and the Orient.

Northwest did rebrand itself to Northwest OrientAirlines in the 1950s but did not change its legal name from NorthwestAirlines. They dropped "Orient" from their operating name and repaintedaircraft after buying Republic Airlines in the late 1980s.

That move createdthe three hub (Minneapolis, Memphis, and Republic's hub in Detroit) systemthat made them one of the nation's top airlines.