Monthly Archives: October 2009

It’s Official: Continental Airlines Joins Star Alliance

Posted on October 28, 2009 by | Leave a comment

Continental Airlines, based in Houston, TX, officially switched from the SkyTeam alliance to Star Alliance. The move isn’t a surprise, as Continental’s intentions to switch were announced over a year ago.

Star Alliance is the world’s first and largest airline alliance, consisting of founding members: Air Canada, Lufthansa, SAS, Thai Airways, and United Airlines. A day following failed merger talks with United, Continental CEO Larry Kellner received a call from United’s Glenn Tilton, asking for Continental to leave SkyTeam and join the Star Alliance.

On Continental’s relationship with SkyTeam, Continental President Jeff Smisek said, it “worked for us when there were three equal airlines.” Prior to the merger of Delta Air Lines and Northwest Airlines, SkyTeam consisted of a level playing field – all three airlines were relatively similar in size. Following the combination of Delta and Northwest, Smisek said, “it relegated us, in effect, to junior-partner status.”

Continental’s a good fit for Star – but why? For starters, Continental does not share a hub city with any other Star Alliance members. The Newark hub will boost Star’s status in the New York City region – a needed key city on Star’s combined route map.

United is known for their pacific international destinations, while Continental boasts an extensive European route map. Then there is US Airways, who compliments Star’s network with hubs at Philadelphia, Charlotte, and Phoenix.

Customers that fly United will be able to earn miles on Continental flights – and vice-versa. It’ll be easier to find alliance members gates, as Continental is shifting gates at 11 airports to neighbor Star Alliance members.

The move adds yet another airline to the Star Alliance collection. Already, Star consists of 25 full members, serving 1,071 destination airports in 171 countries.

Quotations: AP

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IATA Reports Airline CFOs More Confident

Posted on October 27, 2009 by | Leave a comment

As airlines struggled this past third quarter, good news came from the International Air Transport Association (IATA). After surveying airline chief financial officers, the industry trade group reported an increase in market confidence from airline CFOs, with over 73 percent of them expecting profitability to improve over the next twelve months. How will airlines stack up with this prediction?

It’s not too difficult for airlines to improve – it seems as though they’re at their worst. Profitability weakened throughout the third quarter, and weak demand attributed to low yields.

Economically, the markets are making a comeback – an indication that we’re heading out of a recession. Unfortunately, the unemployment rate is still high, but on a broad-based scale, companies are improving financially. Once firms have more money to spend, the number business travelers should increase, as well as leisure travelers.

The outlook for passenger traffic, says the IATA, is expected to improve within the next twelve months – 60 percent of airline CFOs said they expect increases over that period. Nearly half of airline CFOs also indicated that they expect an increase in yields for passenger service (46.7 percent), and 69.6 percent expect an increase in cargo.

Half of airline CFOs said they expect to reduce headcount over the next twelve months. As for employment, the IATA stated:

“Employment trends tend to lag the cycle in air traffic and airline profits, as airline need to restructure after recessions to reduce losses. While there are early indications of an upturn in traffic volumes, the downward movement in employment levels reported in July has continued during the last quarter.”

The IATA says the survey results are consistent with their forecast for $11 billion of net losses this year for airlines. Overall, it looks as though airlines will soon see increases in passenger numbers, as well as yields.

Source: IATA (Q3: Airline Business Confidence Survey)

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Allegiant Air Continues Profitability Streak

Posted on October 21, 2009 by | Leave a comment

The nation’s cheapest, ancillary revenue friendly airline, Allegiant Air, reported a profit of $13.8 million this past quarter, making them the nation’s most profitable airline for this quarter. In a period of weak demand for air travel, Allegiant successfully boasts higher profit margins than any other carrier in the United States.

What are they doing right? (see post) Nothing’s changed drastically. The Las Vegas based company continues to make money from food, beverage, and souvenir sales. More importantly, the carrier makes money off of vacation packages, hotels, and car rentals. “We’ve taken a focused approach on selling something more than air travel,” CFO Andrew Levy told USA Today.

The competition – there virtually isn’t any. Allegiant serves 70+ cities, and only faces competition on five of their 140+ routes. The airline doesn’t fly to/from big airports, rather they are known for going ‘nowhere to nowhere,’ as most of Allegiant’s route map consists of small airports – many border major cities.

Smaller airports pay off for Allegiant, as small typically means cheaper to operate out of. Additionally, smaller airports generally have fewer delays. However, some airport managers have complained that Allegiant is too ancillary revenue based – in some situations, the carrier discontinued routes, despite high load factors, if flights were not making enough on hotel / rental car / vacation bookings.

Allegiant has orders for 16 (early 2009 data) McDonnell Douglas MD-83s, expanding its fleet (as of April 2009) of 43 aircraft. While most airlines are dumping MD-80 series aircraft due to fuel consumption costs, Allegiant is buying them. The airline owns a majority of their aircraft, reducing costs, as the carrier does not need to pay off leases. The planes cost roughly $4 million, a tiny fraction of what most airlines pay for aircraft.

They’ve found a niche, and it’s paying off well. Quarter after quarter, the airline continues to be profitable. No, you may not see their commercials, but they might be in your hometown. As long as the airline continues to wisely and skillfully manage its routes, Allegiant will continue to grow and build on its success.

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U.S. House Passes Airline Safety Bill

Posted on October 17, 2009 by | 2 Comments

In an effort to increase the amount of experience required for airline pilots, the U.S. House of Representatives passed H.R. 3371, the “Airline Safety and Pilot Training Improvement Act of 2009.” Many organizations, including the Coalition of Airline Pilots Associations (CAPA), applauded the bill’s passing by the House, but not everyone is happy.

The primary element of the bill requires all pilots to hold an FAA Airline Transport Pilot (ATP) license and have a minimum of 1,500 hours of flight time to pilot part 121 commercial aircraft (most commercial airplanes). Legislators, including Transportation Committee Chairman Jim Oberstar (D-MN) and ranking GOP members, are happy to see the bill pass, as they say it will make the skies safer.

Yet the new bill puts a challenge on student pilots who wish to pilot airliners in the future. Some students at Embry-Riddle Aeronautical University expressed concerns about the bill, as most graduating seniors have not fulfilled the ATP 1,500 hour requisite. Approximately 25 percent of commercial airline pilots have graduated from Embry-Riddle.

The new bill could potentially force student pilots to get their flight instructor ratings, which many students hope to get, to reach the 1,500-hour mark.

Although countless pilots are frequently furloughed, there is a shortage looming on the horizon. FAA statistics have shown that the number of issued pilot’s licenses is decreasing. Experts predict, based on FAA statistics, there will be a heavy demand for pilots in the forthcoming decades. The new bill would add yet another hurdle to the dilemma of becoming an airline pilot, likely lowering the number even further.

Most of today’s pilots fly because they really want to. Already, airline pilots have seen pension plans decrease a significant amount, pay fall to unbelievably low ($16,000 p/year for some), and an increase in the number of flights they fly.

Will the new bill be as safe as legislators make it out to be? A pilot could easily rack up hours through “pattern-work”, or practicing takeoffs and landings over-and-over, in a Cessna 172 to get their ATP. Although hours usually means experience, would the new bill make pilots any safer?

This bill is thought to be the result of Colgan Air flight 3407, the flight that crashed in Buffalo, NY, after an NTSB report showed that both pilots had little experience.

Capt. Chesley “Sully” Sullenberger, the pilot that landed US Airways flight 1549 on the Hudson River, argued that the bill is necessary. In his book, “Highest Duty,” Sullenberger concludes that more hours make a safer pilot – which most pilots will agree with.

What do you think? Will the new bill make pilots safer, or is it just another hurdle?

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