Airline Finance News - North America

AirGuide Business, May 5, 2008

May 5, 2008

US Senate, which earlier this week appeared on the verge of finally passing a long-stalled FAA reauthorization bill, failed to agree on both procedural rules for the proposed legislation's floor debate and whether amendments regarding airline pension plans should be included. Aviation Subcommittee Chairman Jay Rockefeller (D-W.Va.) and Finance Committee Chairman Max Baucus (D-Mont.) thought they had reached a compromise earlier in the week on funding FAA operations. A controversial proposal to force business aviation to pay user fees to fund a greater share of the FAA budget, which had been cited as a key reason the bill has been stalled for months, was dropped and replaced with a plan to raise jet fuel taxes on noncommercial aviation from 21.9 cents to 36 cents per gal. That was enough to move the bill to a floor debate and possible vote this week, but senators began bickering over amendments and rules of debate once it officially was introduced. The House of Representatives passed its version of FAA reauthorization legislation last year, but the Senate's lack of action has forced Congress to fund the agency via temporary extensions this year because its authorization has expired. May 2, 2008

Warning that airline consolidation is harmful to consumers and does not address the airline industry[sup.1]s real problems, Kevin Mitchell, chairman of the influential Business Travel Coalition (BTC), urged Congress to examine the consumer and competitive issues carefully and deliberately, and develop a new fact based national aviation policy that serves the traveling public. Mitchell[sup.1]s statement emerged in the aftermath of last week[sup.1]s Congressional hearings on the proposed merger of Delta Air Lines and Northwest Airlines and subsequent reports of merger and alliance talks between American, US Airways, Continental United and British Airways. Full details of the BTC policy statement can be found at www.btc.com. May 2, 2008

As fuel pushes up costs, airlines may be forced to trim service With recent oil prices reaching record highs, the airlines' trade group projects the 2008 jet fuel bill will be 44% higher than last year's. Airline executives say that only major capacity cuts and higher fares will allow them to cover the higher cost of jet fuel. If airlines cut service as much as some industry analysts have indicated is necessary, passengers will see fewer daily flights to many cities, more crowded planes and more inconvenience overall. Many warn that higher fares and reduced service could have a devastating ripple effect on local economies. Industry experts say travelers can expect to see big schedule and operational changes as early as this fall. May 1, 2008

Debate over airline pension plans and oil prices dominated the Senate Wednesday, complicating efforts to pass legislation to overhaul how the government regulates aviation safety. Spurred by a rash of safety lapses and flight cancellations in recent weeks, momentum has gathered behind a bipartisan bill that would revamp the Federal Aviation Administration's core functions, change the agency's approach to safety regulation and provide funds to upgrade the aging air-traffic-control system. As debate kicked up in recent days, many senators introduced amendments that have muddied the prospects for quick passage of the bill. May 1, 2008

Few in the airline or the political worlds are willing to tackle a key question, aviation analysts say: What does the government have to do to ensure a vibrant, competitive domestic and international aviation industry? Most of America's major airlines are again losing hundreds of millions of dollars. This time, the causes are escalating jet-fuel prices and intense competition. This latest round of red ink started to flow just as the airlines were finally getting back in the black after losing record amounts of money in the post-Sept. 11 era. For passengers, the latest losses mean higher fares, more crowded planes, longer delays, and steadily deteriorating service. But beyond that daily hassle factor, there is a much higher price to the economy, analysts say. The aviation industry is a backbone of the U.S. economy. It was once the gold standard that countries around the world looked to for cutting-edge innovations. Now it lags behind much of the rest of the world with an old, inefficient fleet and an air-traffic control system based on 1950s technology. And that takes a toll on the bottom line of other US businesses. May 1, 2008

Recently US Airways, Delta, and United joined three other major carriers in reporting hundreds of millions of dollars of losses in the first quarter of the year because of jet-fuel prices. The only big airline to post a profit is the low-cost giant Southwest Airlines. In most industries, when the cost of providing a service goes up, so, too, does the price of the service. And airline fares have been inching up. They increased an average of 4 percent during the fourth quarter of last year, according to figures released this week by the Department of Transportation's Bureau of Transportation Statistics. But that still leaves airfares lower than they were in 2000. In fact, fourth-quarter fares in 2007 were still 2.7 percent below the high set back in 2000. The reason that airlines don't just hike prices more, analysts say, is that they're afraid of losing passengers, especially with the economic slowdown. The competition is intense for Americans' flying dollars. May 1, 2008