Industry Briefs

World Airline News, Jan 30, 1998

Canadian Airlines and LanChile signed a commercial alliance agreement that further closes the circle on global alliances. Both carriers are strong American Airlines partners. The Canadian-LanChile agreement takes effect March 11 and will encompass coordinated flights between Canada and Chile, as well as frequent flyer program reciprocity. The airlines estimated the value of the new codesharing agreement at more than C$100 million (US$69 million). As a result of the Canada-Chile Free Trade Agreement signed July 5, 1997, Canadian Airlines said that trade between the two countries is expected to double by 2000.

British Airways will resume non-stop service between Scotland and the U.S. this summer. It suspended Boston-New York-Glasgow flights in Nov. 1997 due to losses, but will resume flights five times a week with a 757 beginning June 1.

Southwest Airlines ordered 59 additional 737-700 jets last week, bringing its total Next Generation 737 order to 129.

Egyptair this week was added to the list of launch customers for Airbus Industrie's A340-600, with an order for two firm, two option aircraft. Egyptair currently operates three A340s as well as a large number of A320s, A321s and A300s. The carrier's chairman, Mohammed Fahim Rayan, said that in launching the A340-600, Airbus "has broken a thirty-year monopoly [by the 747] to give us a choice of very large aircraft for the very first time." Egyptair officials chose the aircraft because of "less up-front investment, better economy and valuable commonality with our other Airbus aircraft."

Air France will move its Asia/Pacific headquarters from Hong Kong to Bangkok July 1 in an effort to save money. "Hong Kong is very expensive and Thailand is very cheap," said one analyst. "The decision makes a lot of sense." The savings to the airline is estimated at about US$750,000 annually, and carrier officials said the move is unrelated to the opening of Hong Kong's new airport, Chek Lap Kok, five days after the scheduled move.

The government of St. Lucia has joined Grenada and Antigua in reaching an agreement for American Airlines to replace San Juan jet service with service to Miami. Although American would not confirm the amount of the deal, reports this week put the total subsidy at $5 million.

The UK Civil Aviation Authority (CAA) rejected a request from easyJet Airlines to intervene in the formal approval of British Airways' (BA) plans to set up a low-cost subsidiary, currently dubbed Operation Blue Sky. easyJet Chairman Stelios Haji-Ioannou urged CAA Chairman Sir Malcolm Field "to take a crucial proactive step to protect [airline] competition" after the CAA received a formal application for an air operator's certificate from Operation Blue Sky Limited. CAA officials said that they had no power to intervene in BA application for certification.

Northwest Airlines quadrupled its fourth quarter net profit to a record $105 million, largely due to tight cost control. Operating expenses rose by less than $1 million in the fourth quarter, while traffic grew by 6.7 percent. On a unit basis, costs fell 4.6 percent, compared to the fourth quarter a year ago. Unit revenues increased 1.3 percent despite a 3.3 percent drop in yield. Northwest's full-year 1997 net profit climbed 11.3 percent to a record $597 million. Airline officials expect earnings to further increase in the first quarter of 1998.

Southwest Airlines rode fourth quarter domestic hikes to a whopping 186 percent gain in net profit to $80.6 million over the fourth quarter 1996. A 14.5 percent jump in yield more than offset a five point drop in load factor to 63 percent. For the quarter, unit revenue rose a healthy 6.5 percent. Southwest's fourth quarter performance also was driven by a 17.5 percent fall in the average price per gallon of jet fuel, which led to a 1.7 percent decline in unit cost. A 30.7 percent uptick in freight and other revenue was a surprising contributor to a $144 million increase in fourth quarter operating revenue, a 17.3 percent jump from the same period in 1996. Southwest's gains were not quite as dramatic for the year as a whole, although net profit rose 53.3 percent to $317.8 million due to many of the same factors that fueled the carrier's impressive fourth quarter performance.

United Airlines recorded a 57 percent increase in net profit to $222 million in the fourth quarter, primarily due to a stronger yield. A 2 percent climb in yield to 12.51 cents - driven principally by domestic gains - along with a 0.2 percent rise in load factor translated into a 2.7 percent improvement in unit revenue. A 16 percent drop in the average price per gallon of jet fuel and various cost-control efforts contributed to a 0.9 percent drop in unit cost to 8.99 cents. Revenues for the quarter rose slightly, to $4.2 billion in 1997 from $4.0 billion in 1996. United's 61 percent jump in full-year net profit to $1.55 billion was helped by a one-time $378 million pre- tax gain from the carrier's sale of its stake in Apollo Travel Services to Galileo International. United's 1997 net profit rose 29 percent to $1.32 billion.