June 2003 issue

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Doom and gloom in air industry

Airlines around the world are filing for bankruptcy protection or cutting flights and staff in a bid to stay afloat as a severe downturn in sales and increased operating costs grip the industry. Colombian carrier, Avianca, and Air Canada are among the airlines filing for bankruptcy protection. Air Canada posted losses of CAN$428 million (US$287 million) last year and has arranged emergency financing while it attempts to restructure the company.

''Clearly, while not our preferred course of action, the [bankruptcy] filing is necessary to allow Air Canada to make the required changes to compete effectively and profitably in a changed environment,'' said Robert Milton, Chief Executive of Air Canada. Avianca, which has also had to contend with troubled economies in Latin America as well as war worries, is also restructuring. Job losses are expected at both carriers.

In the USA, many airlines have announced job losses, including Northwest Airlines, which will lose close to 5,000 staff, and Continental Airlines. At American Airlines, pay cuts have been introduced across the board and international capacity has been reduced.

Other airlines temporarily downsizing flight schedules include KLM, Lufthansa, British Airways, Qantas, Air France and Finnair. The Severe Acute Respiratory Syndrome (Sars) virus outbreak has contributed to the decisions made by some carriers to reduce services, as the virus has also slowed bookings. Asian carrier, Korean Air, has shelved 29 flights to the USA and Europe, saying it expects fewer passengers on these routes.

At Delta in the USA, capacity cuts of 12 per cent have been announced, including the indefinite postponement of services to Rome from Cincinnati and Boston. ''Military action in the Middle East and the resulting heightened security sensitivities have contributed to a steep decline in passenger demand,'' said Subodh Karnik at the airline.

WTO is upbeat about the future of world tourism

The World Tourism Organisation (WTO) has predicted that the war in Iraq will not have a long-term effect on the tourism market, providing that the hostilities are not drawn out into months. WTO Secretary-General, Francesco Frangialli, told members, ''If the conflict remains short and contained, it is not out of the question for recovery to come during the second half of the year.''

Sales have been dropping since the build up to war in Iraq commenced, and currently, many airlines have cut routes and staff (see above). However, Frangialli pointed out that sales have always bounced back stronger than ever after crises in confidence. In 1991, when the Gulf War occurred, the industry achieved 1.2 per cent growth followed by an increase of 8.3 per cent in 1992.

''The need to travel, whether business or leisure, is too deeply ingrained in our societies to be easily effaced,'' said Frangialli.

SAS launches Snowflake

Scandinavian Airline System (SAS) has joined the low-cost market with the launch of its subsidiary, Snowflake. The airline offers flights from Stockholm in Sweden and Copenhagen in Denmark to cities in various European countries, including Alicante, Athens, Barcelona, Dublin, Istanbul, Lisbon, Malaga, Nice, Prague, Rome and Sarajevo.

Snowflake will be competing directly with Ryanair, which opened a base at Skavsta Airport, south of Stockholm, this year. SAS is also expected to extend Snowflake's routes to include flights from Oslo, Norway.

Travel Update

Emirates Airlines has increased its services to countries in the Middle East at a time when many other carriers are scaling back their services to this area. Emirates' Commercial Operations Director at the airline, Ghaith Al Ghaith, said, ''We are boosting our Middle East routes as part of the expansion taking place this summer across the whole network. We will not be deflected from our planned growth by the conflict in Iraq.''

Irish carrier, Ryanair, could be the largest airline in the world within two years, according to the airline's Chief Executive, Michael O'Leary. Speaking at an Irish parliamentary transport committee, he said that given a low cost base, Ryanair could bring four million passengers into Ireland and carry 30 million passengers annually by the end of 2005.

Spanair, a 15-year-old Spanish carrier, has officially joined the global Star Alliance, adding a new southern European focus to the global group. LOT Polish Airlines is expected to join the alliance later this year.

China Eastern Airlines is launching a three-times-weekly service between Shanghai and London this month. The carrier has also announced that its passenger numbers increased in January this year - up 32.3 per cent from the same month in the previous year and up by 0.5 per cent on December traffic. Meanwhile, China Southern Airlines has revealed an increase in profits and a 4.3 per cent rise in passenger numbers during 2002.

Brazilian carrier, Varig, has revealed record losses, citing the current economic problems in Brazil, rising operating costs and increased competition. The airline lost 2.02 billion reals (US$593 million) between January and September last year, which was worse than expected. Now, its international fleet is dropping in size as planes are being returned to the manufacturers and two have been seized by creditors.

Vietnam Airlines is launching its first non-stop service to Europe next month, with services from Hanoi and Ho Chi Minh City to Paris. Flights from Ho Chi Minh City to Fukuoka are also planned for this year.

EasyJet has announced that it will not buy Deutsche BA, a German subsidiary of British Airways. It had acquired first rights to buy Deutsche BA at around the same time as negotiating the purchase of Go from British Airways. Ray Webster at EasyJet said key reasons were the inflexibility of German labour law and a deteriorating performance across German airlines in general. British Airways said it would continue to develop Deutsche BA as a no-frills carrier.

Yugoslav Airlines has changed its name to JAT Airways, following the recent political decision to rename the country - formerly known as Yugoslavia - Serbia and Montenegro.

Low-cost Belgian carrier Virgin Express has posted an increase in profits for 2002. Chairperson David Hoare said the carrier had achieved its aims of expansion and recouping losses inflicted when Belgian carrier Sabena, an alliance partner, had folded, ''in spite of an extremely hostile trading environment''.

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