News Briefs

World Airline News, May 25, 2001

* The continuing difficulty for small European carriers to remain viable without a major airline partner was demonstrated as Norway's flag carrier Braathens announced on May 21 that Scandinavian Airlines Systems (SAS) would purchase a controlling stake in the carrier.

SAS is purchasing a combined 68 percent share in the company from the Braathen family and KLM Royal Dutch Airlines. SAS is paying NKr$1.1 billion (US$125 million) for the current stake, and has hinted its intentions are to purchase the remaining shares from current stakeholders.

The two airlines have avoided European regulatory scrutiny with their decision to divest Braathens' operations in Sweden, the base of operations for SAS. The agreement also allows Braathens to retain its brand in Norway. The arrangement allows for improved route networks and timetables. Braathens operates 32 Boeing 737s while the SAS fleet includes 737s, 767s, MD 80s and 90s, as well as Saab and deHavilland turboprops.

The agreement means the elimination of a potential competitor for SAS, according to SG Securities analyst Ian Wild. Although Braathens has historically been an unprofitable company, Wild told World Airline News there was intense Norwegian domestic competition in 1999. Since then, SAS has swallowed most of those competitors including Wideroe Flyveselskap and now Braathens.

Wild said it was virtually impossible for small independent carriers to survive in Europe, and other major carriers were adopting SAS's strategy, including KLM, Iberia and Lufthansa. Otherwise, according to Wild, the value of those smaller carriers is diminished and they lose money.

SAS paid a fair price for its current stake in Braathens, Wild said, reasoning that cost savings would result from combining two operations.

* Officials from Lufthansa were quick to dismiss reports about potential discussions with Air China regarding the Asian carrier's entry into the Star Alliance. Media reports from Shanghai said Air China could join the alliance by 2004.

Lufthansa and Air China concluded a marketing agreement in October 2000 and codeshare on 22 routes including flights from Germany to Peking and Shanghai. The two carriers also plan to expand that agreement to six additional German cities, and eventually include domestic Chinese routes in their network. In addition to their codesharing arrangements, Air China and Lufthansa also participate in a Peking-based joint venture called AMECO, a maintenance repair and overhaul operation.

Although Lufthansa took great pains to deny Air China's immediate entry into the Star Alliance, Air China's future role in the group was left open to interpretation. In a statement Lufthansa commented, "presently, there is no question of Air China joining Star Alliance, although this cannot be completely ruled out in the future. Most of the current Star Alliance members were tied by some form of bilateral relationships before becoming a new member."

* The Air Transport Association (ATA) reports that for the month of April, traffic is down slightly for U.S. carriers. Figures for the major carriers, however, paint a more bleak picture.

According to the ATA, domestic enplanements were 1.1 percent lower than in April last year, while domestic revenue passenger miles were down 0.6 percent. Lifted by international figures, total enplanements dropped only 0.7 percent and RPMs actually increased by 0.1 percent.

Domestic load factor was down 1.6 points to 72 percent, and system-wide load factor fell 1.9 points to 72.4.

The ATA data includes all its member airlines. Isolating the domestic figures for the major U.S. airlines only, and taking Southwest out of the equation, Merrill Lynch reports that the decline in traffic is much more significant.

Total traffic for the major carriers fell 1.7 percent for the third month in a row, the Merrill Lynch report states, principally due to a 14.3 percent decline in business traffic.

Domestic unit passenger revenue declined 4.5 percent for the major carriers, which fell within the range predicted by the company. This was actually somewhat of a relief to many, the report states, as a greater decline had been rumored.

The drop in unit revenue was attributed to 2.5 percent yield decline, and a 1.5 percent drop in load factor.

The Merrill Lynch report said that while Continental, Northwest, America West, and possibly American performed better than expected, Delta and United performed worse.

May revenue performance is expected to be similar to April's, the report said.

Monthly Preliminary Scheduled Passenger Traffic Report, ATA Member Airlines*
-                              April       -           -
-                              2001        2000        Percent
-                              -           -           change
Passenger enplanements (000)   45,181      45,691      -1.1
Revenue passenger miles (000)  39,800,527  40,042,819  -0.6
Available seat miles (000)     55,266,433  54,422,319  1.6
Load factor (%)                72          73.6
Passenger enplanements (000)   4,755       4,594       3.5
Revenue passenger miles (000)  15,182,001  14,899,901  1.9
Available seat miles (000)     20,653,501  19,543,591  5.7
Load factor (%)                73.5        76.2
Passenger enplanements (000)   49,936      50,285      -0.7
Revenue passenger miles (000)  54,982,528  54,942,720  0.1
Available seat miles (000)     75,919,934  73,965,910  2.6
Load factor (%)                72.4        74.3

-                              Year-to-date
-                              2001          2000         Percent
-                              -             -            change
Passenger enplanements (000)   170,437       171,169      -0.4
Revenue passenger miles (000)  149,917, 639  149,732,037  0.1
Available seat miles (000)     218,698,773   216,565,588  1
Load factor (%)                68.5          69.1
Passenger enplanements (000)   18,039        16,998       6.1
Revenue passenger miles (000)  57,196,649    54,334,268   5.3
Available seat miles (000)     79,328,976    74,884,147   5.9
Load factor (%)                72.1          72.6
Passenger enplanements (000)   188,476       188,167      0.2
Revenue passenger miles (000)  207,114,288   204,066,305  1.5
Available seat miles (000)     298,027,749   291,449,735  2.3
Load factor (%)                69.5          70

Carriers included: Alaska, America West, American, American Trans Air,
Continental, Delta, Northwest, Southwest, Trans World, United, US Airways,
Aloha, Contintal Micronesia, Hawaiian, and Midwest Express.
Source: ATA