|
______________________________________________________________________________
Click
for pictures from
Washington DC
Journey
to Mata Vaishno Devi
United
Airlines - US Airways Merger? Cost Savings but Higher Fares
High
Oil Prices, Fare Increases and Resistance from Passengers
Boeing
and Airbus Delivery Delays
United
in alliance talks with Continental. United Airlines has
begun talks with Continental Airlines for a possible alliance even as its
merger talks with US Airways continue to advance, sources briefed on the
matter said. United will make a decision on whether to merge with US
Airways soon, two people said, adding that a deal with US Airways is
likely, but not imminent. Continental Airlines, which called off merger
talks with United in late April, is also in advanced alliance talks with
American Airlines and British Airways, sources have previously said.
The wave of talks come after Delta Air Lines and Northwest Airlines said
in April they planned to merge and become the world's largest airline,
seeking to counter high fuel prices, a weak economy and growing
competition from European carriers as trade barriers fall on
trans-Atlantic travel. After racking up US$35 billion in losses and
finally emergi! ng from a five year slump in 2006, U.S. airlines are
hoping mergers could give them greater market power to reduce flights and
raise fares. The airlines also face a renewed sense of urgency to
cut costs as jet fuel prices have more than doubled since the start of
last year. Continental, American and British are looking at forming
alliances and then seeking antitrust immunity. United would also seek
immunity if it were to form an alliance with Continental, one of the
sources said. Airline alliances allow partners to streamline costs
while sharing revenues. Without antitrust immunity, the data and revenue
shared on the routes would normally be considered collusive. Earlier
this month, the US Department of Transportation granted tentative
antitrust immunity to the SkyTeam alliance involving Delta, Northwest, Air
France-KLM and Alitalia. Continental, which has a marketing alliance
with SkyTeam but was not part of the group that received antitrust i!
mmunity, has said it would review its participation in that alliance.&
nbsp; Analysts have said a United-US Airways merger would not be very
complex as wages at the two carriers are closely aligned and their fleets
mesh well. The two are also part of the same global marketing alliance.
A United-US Airways deal foundered in 2001 on antitrust concerns. But
consolidation proponents say the industry and the two carriers have
changed dramatically. Both have restructured hubs and routes during
long stays in bankruptcy, and United has cut domestic capacity to focus
more on international routes.
(Source:
Reuters)
United
Airlines - US Airways Merger? Cost Savings but Higher Fares
If
United Airlines parent UAL and US Airways Group merged, the pairing could
result in massive cost savings for the new carrier as well as higher fares
for the troubled industry.
But, in order for a merged airline to win those benefits through
consolidation, the two carriers -- reported to be deep in merger talks --
would have to take on the painful tasks of closing hubs, grounding planes
and slashing jobs where United and US Airway overlap.
Industry
experts say the prime benefits of consolidation come from reductions in
capacity -- the number of seats for sale. Less capacity lets carriers
charge more for tickets.In the last two years, major carriers have removed
capacity from less profitable domestic routes and bolstered lucrative
international routes. The strategy has led to higher ticket prices and
stronger airlines.
Fare
increases, however, have not kept pace with rising fuel costs, which are
directly linked to the price of oil. As a result, airlines posted big
losses in the first quarter, and pressure is mounting on carriers to
merge.
"Absent
the removal of meaningful capacity reductions from the domestic airline
industry, you don't get substantial consolidation benefits," Klaskin
said. "That's the ugly, sad truth." Klaskin said a United/US
Airways merger could lead to a 25 percent reduction in their combined
capacity. But he predicted capacity cuts closer to 10 percent.
Sources
said last week that United and US Airways could reach a merger deal soon.
An agreement would come on the heels of one announced last month by Delta
Air Lines and Northwest Airlines, which are planning to form the world's
largest airline, to be known by Delta's name. The Delta deal features cost
savings and revenue improvements amounting to about USD$1 billion a year.
But the proposal currently offers no capacity reductions as the two
airlines' operations have little overlap. While Delta and Northwest may be
depriving themselves of hefty cost savings, their pairing may have a
relatively easy time winning approval from the US Justice Department,
unions and travelers.
United
and US Airways, on the other hand, could face higher antitrust hurdles
resulting from the strong presence of both airlines on the East Coast,
especially in Washington DC. They also would risk customer backlash if
they cut service or raised fares in popular markets.
"The
consumer won't like it. But the fact of the matter is the consumer won't
like all these airlines going out of business either," said airline
consultant Robert Mann.
Since
March, four small airlines -- Aloha Airlines, Champion Air, ATA Airlines
and Skybus Airlines -- have shut down amid increasingly hostile industry
conditions. Low-cost carrier Frontier Airlines, meanwhile, filed for
bankruptcy protection but said it would continue flying during its
reorganization. Experts say the industry desperately needs consolidation,
but the jury is still out on what mergers make the most sense.
United,
which completed a massive bankruptcy reorganization in 2006, suffered the
largest first-quarter loss of the major airlines this year. The carrier
still faces ill will from its labor groups, which made steep sacrifices to
save the carrier. US Airways, itself the product of a 2005 merger of
America West Airlines and the former US Airways, still operates with two
separate labor forces. The integration of a third labor force would
present further complications, although experts generally believe labor
issues would not torpedo a merger with United.
"It's
not the most attractive pairing, but any kind of consolidation is good for
the industry," said Jim Corridore, analyst at Standard & Poors.
[Source:
Reuters]
High
Oil Prices, Fare Increases and Resistance from Passengers
The
march of oil prices to record highs is causing unrelenting pain for US
airlines, whose attempts to balance their fuel bills through fare
increases may soon meet stubborn resistance from customers. .
NYMEX crude notched a record high above USD$122 a barrel on Tuesday,
spotlighting a crisis that left no major airline unpunished in the first
quarter, when the largest carriers reported massive losses. Carriers such
as American Airlines and United Airlines have tried to cope by raising
ticket prices, mainly on domestic routes. The fare increases help, but
experts say there is a limit to how much travelers will pay for a plane
ticket.
"If
(oil) really does shoot up to USD$130, USD$140, USD$150, there's really no
way that airlines can raise prices high enough to cover that cost because
consumers are going to push back more quickly than they are right
now," said Rick Seaney, chief executive of airline ticket researcher
FareCompare. FareCompare data show airlines have tried to raise fares and
fuel surcharges in domestic markets 13 times this year. Nine of those
initiatives were broadly matched throughout the industry. Fare increases
last only when they receive industry-wide support.
In
an effort to perpetuate the trend toward higher fares, airlines have been
pulling in their growth plans and cutting their capacity on domestic
routes. Capacity cuts pave the way for higher fares. In April United's
capacity on North American routes fell 6.5 percent from the year-ago
period. Continental Airlines trimmed its domestic capacity by 2.9 percent
in April. Some experts believe that mergers in the airline industry may
result in capacity cuts and higher fares.
A
merger proposal issued last month by Delta Air Lines and Northwest
Airlines currently features no capacity cuts. But a possible merger of
United and US Airways -- the two carriers are deep in merger talks,
according to sources close to the matter -- could by some estimates lead
to a 25 percent reduction in the combined capacity of the two carriers.
Seaney said it won't be long before leisure travelers start canceling
vacations and business travelers start scrapping travel plans and relying
on video conferences.
Data
from online travel agency Travelocity show the average fare now paid for
travel is 12.2 percent higher than it was a year ago. Meanwhile, the price
of oil, which effectively sets the price of jet fuel, has risen 90 percent
since last May. The fare increases have been almost entirely on domestic
routes, where the overall year-over-year increase amounts to 16.4 percent,
Travelocity said. So far, demand for travel has not waned due to rising
fares, said Amy Ziff, who edits Travelocity's Window Seat travel blog.
"Signs of a strong summer are here. People are absorbing those hikes.
What's the threshold? I'm not sure we're at it." Ziff said. She
added, however, that leisure travelers have begun to rethink their travel
plans -- opting for shorter trips to less popular locations -- in hopes of
finding cheaper air fares.
In
addition to rising fares, air travelers also face an avalanche of new fees
for items and services that used to be complimentary. As of last week all
the major airlines had initiated a USD$25 fee to check a second bag. The
measure sparked controversy among the traveling public. Such initiatives,
however, are crucial to survival in the increasingly hostile airline
industry, said Terry Trippler, travel expert at TripplerTravel. Trippler
predicts even more such fees. Low-cost carrier Spirit Airlines, for
example, already charges to check a single bag.
"It's not going to be you get what you pay for. It's going to be you
pay for everything you want," he said. "(Airlines) will do
everything they can, and they have no alternative with oil at USD$120 a
barrel."
[Source:
Reuters]
Boeing
and Airbus Delivery Delays
787
delivery delays
reportedly will reach two years.
Boeing has estimated a 15-month delay in 787 deliveries but some customers
are facing delays of two years or more, The Seattle Times reported.
Launch customer ANA is scheduled to receive its first aircraft in the
third quarter of 2009 instead of this month, but the manufacturer's
ambitious ramp-up plans also have slipped and full production of 10 planes
per month will not be reached until 2012, two years later than planned. The
Times reported that ILFC, the largest 787 customer, has been advised
that it will have to wait an average of 27 months for its aircraft, citing
a May 8 regulatory filing from ILFC parent AIG. Boeing spokesperson Yvonne
Leach confirmed that average delay of first delivery for all 58 Dreamliner
customers is working out to about 20 months.
[Source:
Air Transport World]
Airbus
announced another delay in deliveries of its A380 superjumbo on May
13, deepening the woes of Europe's biggest industrial project and risking
further penalty payments to airlines.
Airbus said it was unable to boost production as quickly as it hoped as it
tries to recover from two years of production delays caused by problems in
installing the wiring on the world's largest passenger plane. "As a
result, Airbus plans now for 12 (instead of 13) deliveries in 2008 and 21
(instead of 25) in 2009. Details about the new plan and the further
ramp-up and delivery slots in 2010 and the following years will be
discussed with customers in the coming weeks," it said in a
statement. It gave no details on the financial impact of the latest delays
to the aircraft, already two years behind schedule.
[Source:
Reuters]
|
