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January 2003 issue

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Major losses for US carriers

Third quarter financial results for 2002 painted a gloomy picture for the US aviation industry. Atlanta-based Delta Airlines posted net losses of US$326 million and announced it intended to ground its MD11 fleet and defer the delivery of new aircraft over two years to reduce capital expenditure. 'Our industry is experiencing unprecedented financial challenges,' said Leo F Mullin, Delta's Chief Executive.

American Airlines, announcing losses of US$745 million, also deferred delivery of 34 new Boeing aircraft over the next three years. 'Any way you look at them, these are terrible financial results,' said Don Carty at the airline. '[They] reflect a sluggish economy, continued weakness in revenue, high fuel prices, the cost of enhanced security and the uncertain events in the Middle East.'

Continental Airlines posted losses of US$37 million, while Northwest Airlines pointed out that its US$46 million loss was good compared with some other carriers. 'Northwest, like the rest of the industry, continues to address the impact of diminished revenue resulting from a post-September 11, 2001, drop in passenger demand and the continued depressed levels of business travel,' said Richard Anderson, Chief Executive at the carrier.

United Airlines, which was pleased to find out its code-share with US Airways has been approved (see below), topped the bill with losses of US$889 million. 'There is no question that United continues to suffer from financial challenges,' said United's Glenn F Tilton. United has repeated warnings that it may file for Chapter 11 bankruptcy, while Northwest is cutting down its facilities. Only Southwest Airlines, the low cost US operator, posted gains for the financial quarter.


Hong Kong and USA strike air deal

Hong Kong and the USA have finally reached an agreement to liberalise air services between the two countries, after three years of deliberation. However, the deal came under fire from Cathay Pacific in Hong Kong, which complained that it incorporated greater benefits for US carriers. 'We are disappointed with the US protectionism, which denies Hong Kong carriers' equivalent commercial opportunities,' said the carrier in a statement.

There will be a huge expansion of cargo services between the two countries, while Cathay Pacific will be able to offer services to 25 US cities on American Airlines flights over a two-year period, and US carriers will launch up to 28 flights per week to Hong Kong and third countries over a two-year period.

Stephen Ip, Hong Kong's Secretary for Economic Development and Labour, said the deal would 'further strengthen Hong Kong's status as an aviation and logistics hub'.


Insurance blow for Europe's airlines

Airlines in Europe were told last year that they would no longer be able to rely on state guarantees to meet insurance costs to cover war and terrorism risks. For the first time since September 11, 2001, airlines have to meet these costs themselves, and experts are predicting that the cost could be too much for smaller airlines.

The Association of European Airlines had asked for an extension for the temporary aid, but the European Commission's finance ministers rejected the claim.


Pata report reveals regional growth

In the Pacific Asia Travel Association (Pata) 2002 half-yearly report, Vietnam and China notched up increases in outbound travel of 16 per cent and 37.2 per cent respectively.

Travel into China grew, up by 27.7 per cent on the same period in 2001. Both China and Thailand showed good inbound growth.


Travel Update

Argentinean airline Lapa, which was resurrected by the Aeroandina group last year, is to fly under the Lapa banner again. At the time of going to press, regional services were planned to Sao Paulo in Brazil, Santiago and Puerto Montt in Chile and Santa Cruz de la Sierra in Bolivia. However, domestic Argentinean carrier, Dinar, which was bought by private business investors last year, has been grounded amid mounting debts.

Virgin Blue in Australia is planning to expand its services to New Zealand this year, and with its code-share with United Airlines already in place between Brisbane and Sydney, it is making its mark as a fledgling international airline. 'The Brisbane code-share is the first step in developing a world-class product,' said Brett Godfrey, the airline's Chief Executive. 'It is about fair competition and [providing] travellers with choice.'

United Airlines and US Airways in the USA have won approval for their code-share, to the dismay of other carriers in the country. The deal is welcome news for the carriers, operating in a downbeat aviation environment (see above). 'This is great news for United and a win for travellers,' said Glenn F Tilton, United's Chief Executive, on hearing the news. 'This agreement is a good strategic fit for both carriers.' He added that the deal would bring 'significant revenue benefits'.

Ryanair has added new services from Frankfurt-Hahn in Germany to Rome and Bologna in Italy, Barcelona in Spain and Stockholm in Sweden. It is the latest attempt to dominate the German low-fares market from the carrier. 'While others, including Lufthansa, talk about setting up low fare airlines in Germany, Ryanair just gets on with the job,' said Michael O'Leary, the carrier's Chief Executive. Meanwhile, Deutsche Bahn, Germany's train operator, has introduced a new pricing structure and special offers to stay competitive.

China's airlines have been reorganised into three groups from nine airlines. The three key players are now Air China, China Southern Airlines and China Eastern Airlines, which between them control nearly all international routes and 80 per cent of domestic air traffic. According to press reports, the Chinese government sees the mergers as a way of tackling international competition, as well as reducing the number of airlines in the country. Air China is to seek an overseas stock market listing.

Another low-cost carrier is entering the UK aviation market. Jet 2 launches in February from Leeds Bradford International Airport, serving as-yet-unnamed European destinations.

After a three-year break, Finnair will relaunch flights to Osaka, Japan, in June 2003. The carrier discontinued its service in March 2000 for profitability reasons. 'Supply and demand are again in balance at Osaka,' said Henrik Arle, Finnair's Chief Executive, adding, 'The long-term objective is to have as many direct daily flights as possible to the biggest Asian destinations.' Finnair's passenger numbers on Asian flights grew by 40 per cent in the first half of 2002.

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