Global airlines expect $2.5B profit in 2010
Copyright by Reuters
Published on June 7, 2010 6:00 AM
Reuters | Global airlines banished two years of economic misery with an abrupt turnaround in industry forecasts on Monday, though they were laced with a strong note of caution on Europe's carriers.
The International Air Transport Association said it now expects global airlines to report a $2.5 billion profit this year, an improvement of more than $5 billion from its forecast of a loss just three months ago.
European markets fell sharply and the euro hit multi-year lows as a renewed crisis of confidence in government debt and the health of the U.S. economy showed the recovery the industry is counting on is still fragile.
IATA Chief Executive Giovanni Bisignani said the global economy was improving more quickly than anyone expected, boosting traffic and yields sharply -- something unthinkable even two months ago during Europe's volcanic ash crisis.
But Europe, mired in bad debts and bad feelings from flight cancellations during the ash crisis, is expected to lag -- particularly if a summer of strikes paralyses air travel.
"We have a currency problem, we have the volcano that struck in April ... and we have some tension with labour unions, so those three aspects are making the difference," Bisignani told Reuters Insider TV on the sidelines of the AGM.
IATA most recently predicted worldwide industry losses of $2.8 billion in 2010, as airlines cut prices to fill seats. It said on Monday that Europe is still expected to lose that amount this year, almost 30 percent more than its forecast in March.
The forecast is expected to be the highlight of the opening of IATA's meeting and comments by executives bore that out.
"We are seeing a recovery around the world. I would like to call it a fragile recovery. There is still a lot to be worried about. But companies are sending their people back on the road. Our corporate traffic has picked up quite a bit," American Airlines CEO Gerard Arpey told reporters.
German flagship carrier Lufthansa said Monday passenger numbers were improving, but yields were still below the year-earlier level. LAN CEO Enrique Cueto told Reuters on Monday his airline was optimistic, based on June traffic figures so far.
Scandinavian airline SAS also reported an increase in traffic, with some international routes showing signs of improvement.
The general note of industry optimism could spread to planemakers represented at the Berlin Air Show to be held back to back with the IATA summit. A regional event usually dwarfed by the larger Paris and Farnborough air shows, the June 8-13 show could come into its own this year.
John Leahy, sales chief at Airbus, a unit of the aerospace and defence group EADS, told Reuters he would be unveiling deals at the show. There has been speculation that industry heavyweight Emirates, the top Airbus customer, could be bulking up its fleet soon.
Meanwhile, the chief executive of Boeing Commercial Airplanes told Reuters on Monday the planemaker was working on a number of deals to sell 777 and 787 long-haul aircraft.
But, as so often with the airline industry, the good news is tempered with more bad news. Strikes in Europe and unrest in Asia could add to the industry's woes.
British Airways is in the midst of a series of cabin crew walkouts, and labour unrest looms at Lufthansa.
BA Chief Executive Willie Walsh, in Berlin despite being taunted by union leaders for not staying to negotiate an end to the bitter dispute over conditions, roundly criticised the Unite union that represents the cabin staff.
"They have failed in their efforts and they will continue to fail" to shut down the airline, Walsh told Reuters on the sidelines of a Oneworld airline alliance presentation.
Walsh also said there was no trade-off point for the airline between the cost savings it has made from cuts and the ongoing costs of the strike itself.
Airlines overpack for summer travel - FAA says carriers can cut delays by reducing flights during peak airport hours
By Jon Hilkevitch and Julie Johnsson
Copyright © 2010, Chicago Tribune
5:36 p.m. CDT, June 6, 2010
Travelers at O'Hare International Airport face delays this summer that could be easily avoided if the airlines simply overcame their penchant for jamming too many flights into the most-congested hours, the Federal Aviation Administration has warned.
The FAA says the carriers have scheduled almost as many flights as the airport can handle in peak travel times on good-weather days, and added operations that far outstrip O'Hare's capacity in stormy weather.
By tightly scheduling departures, the airlines are creating waves of delays that expand and can last all day, FAA Administrator Randy Babbitt said. Much of the problem could be avoided if United Airlines and American Airlines simply spread out departures and arrivals during slower periods when there is plenty of excess capacity on runways and at gates, FAA officials said.
The over-scheduling is occurring in short bursts, 15 minutes, at most, FAA data obtained by the Tribune showed. Left unchecked, the snarls could aggravate the chronic congestion that has plagued O'Hare for decades, which prompted federal regulators to tightly cap arrivals and departures at the airport from 2004 to 2008.
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The scheduling snarls occur at the top of the hour, when research shows flights make more money, aviation consultant Darryl Jenkins said. On Thursday, for example, American Airlines scheduled 27 flights and United scheduled 39 flights between 8 a.m. and 8:15 a.m., according to FlightStats.com. That's seven more flights than the airport can handle under the best conditions.
"O'Hare can handle more than 100 departures an hour, but not 50 in a 10-minute window," Babbitt said in a phone interview.
FAA officials warned that congestion problems forming at O'Hare could worsen as the carriers have already announced plans to expand their schedules in the second half of 2010 — adding almost 22,000 more flights at O'Hare from July through December compared with the same period last year, according to flight data compiled for the Tribune by OAG an aviation information company.
Summer travel will be relatively smooth overall at most of the nation's airports, the FAA predicts, because traffic remains down as a result of capacity cuts that airlines enacted in 2008 and 2009 to survive the Great Recession and high fuel costs. But as air travel begins to rebound, O'Hare, San Francisco International, Atlanta Hartsfield-Jackson International and the three New York airports are being closely monitored for serious congestion that could drag down the entire system, officials said.
Although Babbitt publicly declined to single out individual carriers for their scheduling, the FAA privately pressed United to alter its summer flight plan for O'Hare. The Chicago-based carrier subsequently made some changes, "resulting in a little bit smoother schedule," FAA spokeswoman Laura Brown said.
American Airlines, which with United dominates O'Hare, retooled its schedule years ago to lessen the sharp peaks and valleys, and has not concentrated new flights during prime hours, American spokeswoman Mary Frances Fagan said. She added that the FAA had not voiced concern to Texas-based American about its O'Hare flights.
O'Hare's carriers had scheduled an average of 77 arrivals and departures between 8 p.m. to 8:15 p.m. on weekdays in June. That's five planes landing or taking off per minute, and it's nearly double the 42 aircraft operations scheduled during the same 15-minute span in June 2009.
Largely as a result of United's schedule tweaks, an average of 54 flights are now planned during that time span each weekday, although the actual number will vary, FAA officials said. In good weather, O'Hare can handle only 59 flights every 15 minutes. Its capacity sinks to 48 departures and arrivals per quarter-hour when visibility is poor, according to the FAA.
"We are in close, frequent contact with the FAA about the performance at O'Hare, which for United has improved significantly over the past three years," United spokeswoman Megan McCarthy said. In fact, 86 percent of United's flights arrived on-time at O'Hare during April, up from 81 percent a year earlier and 74 percent in 2008.
Still, overloaded schedules help explain why O'Hare continues to battle congestion even after opening a new runway in 2008 and even though its carriers operate hundreds fewer daily flights than they did a decade ago.
This year, flight operations are averaging 2,300 a day, down from 2,700 in 2004, according to the Chicago Department of Aviation. O'Hare handled 992,427 flights in 2004 — an all-time record. Last year's tally was 827,899.
Jamming too many flights into short periods doesn't do the airlines or its customers any good, officials warn. Among the 29 busiest U.S. airports, O'Hare ranked 23rd for on-time departures in the first four months of this year, according to data collected by the Bureau of Transportation Statistics.
Babbitt said that as a last resort he would reimpose hourly flight limits at O'Hare — and at the Atlanta and San Francisco airports too — if other airlines refuse to voluntarily smooth out their schedules to ward off creeping congestion and flight delays.
"This compression of schedules just won't work," Babbitt said. "Everything we are doing to increase capacity — building new runways and redesigning the airspace — will all be for naught if even one airline is bound and determined to be uncooperative."
The airlines say they base their schedules on when their customers want to fly. They also say they've made major gains in "de-peaking" their schedules to reduce the gaps between flight operations going all-out versus little activity.
Airline executives also point the finger back at the FAA, saying the government is criticizing airline business decisions when it should be delivering a modernized air-traffic system that can handle whatever schedules the airlines devise.
But Babbitt said airline scheduling practices are undermining the gains the FAA is attempting to create through its NextGen program, which is aimed at transforming air-traffic control to a satellite-based system that will replace ground-based radar.
It's too early to tell how responsive the airline industry will be to the problem, Babbitt added. But the U.S. Department of Transportation is considering temporarily suspending antitrust provisions in order to call a meeting with airline executives to hammer out an agreement on scheduling without compromising competition.
Still, some industry observers think the government is overreaching and playing politics. Regulators "really have nothing to lose doing this," said Jenkins, founder of TheAirlineZone.com. "The truth is the airlines are about as likable as tobacco companies."