Re: A Sacred Cow in the Cockpit
By Steven Pearlstein -- Washington Post
Friday, March 21, 2008; Page D01
Dear Mr. Pearlstein,
In your March 21 article, "A Sacred Cow in the Cockpit", you highlighted the airlines' pilot seniority system, along with unions and "the selfishness and shortsightedness of airline pilots" as being the source of the airlines' ills.
I too find fault in the seniority system for this reason: the seniority system is a trap, impeding a pilot's ability to market his skills to the highest bidding airline.
In 1980, after earning my way through college as a commercial diver, competing three years as a varsity college athlete, and graduation with honors in aeronautics, my hard work, commitment, and sacrifice were rewarded with acceptance into a Navy pilot officer training program.
If I worked hard and successfully completed Aviation Officer Candidate School in Pensacola, I would earn the opportunity to work hard, sacrifice, and commit to Navy flight training. Of my initial class of thirty-three officer candidates, only thirteen of us completed this initial program. The other two thirds, all selected college graduates, washed out before the hard work of flight training had even begun.
The next year and a half were similar, in that my hard work, sacrifice, and commitment led ultimately to graduating Navy jet pilot training at the top of my class. Additionally, there was now risk. The risk of failure - many other very capable pilot trainees washed out, and the physical risk that could cost a young pilot his life.
Earning my wings at the top of my class gained me the privilege of another full year of hard work, sacrifice, commitment, and risk. This time, as a Fleet Replacement Pilot, learning to fly and fight the F-14A "Tomcat".
As before, the weeding out process continued, with the first two of several squadron mates lost in a fatal accident, and the ongoing performance standards to meet, with the final cut being based on successful night-time aircraft carrier landing qualification.
The next five years of active duty service to my country were characterized again by, you guessed it, hard work, sacrifice, and commitment, and a substantial amount of risk which claimed the lives of several more squadron mates. Are you beginning to see a theme yet?
In 1987, after serving seven years as a Navy carrier based fighter pilot, I competed against many other highly qualified applicants to attain a position on the bottom of Delta's pilot seniority list. At that time, Delta Air Lines was sought after by many aspiring professional pilots, due to its long tradition of strong management, financial stability, harmonious labor relations, and top of the industry compensation.
The subsequent twenty years of my career as a Delta pilot are where the aforementioned strategies of hard work, sacrifice, commitment, and risk were no longer rewarded. We in the profession became the target of airline managers constantly seeking to diminish our hard earned standard of living, while greatly boosting their own wealth.
A compliant business press aided these executives in their effort to deflect attention from their own inability to successfully manage our airline, by dutifully scapegoated pilots.
This is where you come in. Those of us in the piloting profession long enough to have been through several business cycles have seen the same business press misrepresentations recycled several times now.
These biased journalistic efforts typically contain phrases such as yours: "the selfishness and shortsightedness of airline pilots", even though the seniority system ensures pilots interests are in the long term health of his or her company. These same pilots have seen a parade of turnstile executives cycle through, taking their plunder with them in the form of early vestment in special executive retirement plans, severance packages, and other forms of featherbedding.
Another business press straw man is the spoiled pilot, who works only a few days per month. The dishonest omission, as you probably know, is the length of a pilot's work day, and his total hours of paid time which is always less than actual in uniform on-duty time.
An airline pilot's on-duty time frequently exceeds twelve hours, and more recently, goes well over sixteen hours, due to the advent longer range international flying. A pilot is not paid for preflight preparation time, or time spent in between flights while connecting to the next leg of flying during his duty day. This doesn't even take into account the amount of time a pilot spends away from home, as his working days off-duty time is spent living in a hotel room.
In your article, you assert that one would think that "given the precarious financial nature of the industry, pilots would be willing to show some flexibility to assure the long-term success of their companies." You failed to point out that Delta pilots lost their defined benefit pension plan, and nearly half of their pay, during Delta's recent trip through bankruptcy.
Would you or your readers care to show such flexibility?
I believe that your misrepresentations cause harm to the airline industry by deflecting attention from other, very serious structural and management issues, which aids in their perpetuation.
These issues include skyrocketing jet fuel prices, skyrocketing medical insurance benefit costs, a lack of pricing power in order to cover these skyrocketing costs , and a disconnect between executive compensation and a company's long term financial performance.
In fact, it is ironic that you mention "a disconnect between performance and reward" in reference to the pilot seniority system, without noting what is in the recent memory of nearly every Delta pilot. That is the gang of short-term executives, led by Leo Mullin, who briefly passed through Delta, and then left for greener pastures with their lavish unearned retirements safely in hand, as Delta approached the bankruptcy that cost these pilots their pensions and standard of living.
The bias you employ in playing to your target audience is a disservice to professional pilots, who now find that, contrary to the long held promise of America, their hard work, sacrifice, commitment, and risk are no longer rewarded. They deserve better. And you, and the traveling public, should hope that enough reward remains in the airline pilot profession to draw the quality of people needed to ensure that your every flight continues to operate at the high level of safety which you currently take for granted.
For my part, I have conceded that, in a time in which leaders at the very top of our political and corporate culture are not held accountable for their failures, near term change is not likely.
At the age of fifty, without enough remaining working years as an airline pilot to rebuild a retirement, I quit Delta, in order start over by running my own business. Finally, after twenty years, my hard work, sacrifice, commitment, and risk are again being rewarded.
Dan Owen
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Delta to charge $25 to check that second bag
United, US Airways had already paved the way
By RUSSELL GRANTHAM
Associated Press
Published on: 03/24/08
Citing its record fuel costs, Delta Air Lines plans to begin charging customers an extra $25 for checking a second bag.
The new charge, which takes effect May 1, follows moves by United Airlines and other carriers to add similar fees for transporting a second piece of luggage, which previously has been included in the price of the ticket.
"The change is due to rising fuel costs and ... the changing competitive environment we face today," Delta spokesman Kent Landers said Monday. "This is in line with general industry practices."
United and US Airways announced similar fees last month, to take effect in May. United, which is similar in size to Delta, estimated that its fee will generate about $100 million in cost savings per year, according to the Associated Press.
Chief Executive Officer Richard Anderson disclosed the new fee Friday, in a recorded weekly update to employees.
Landers declined to say how much money Delta expects to generate from the new fee. He said the fee will not apply to first-class or business-class customers or members of its frequent-flier program who log at least 25,000 qualifying miles of travel per year. Those travelers will still be able to check up to three bags without extra fees, said Landers.
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Why Airline Mergers Don't Work
By Victor Cook -- SeekingAlpa.com
March 24, 2008
http://seekingalpha.com/article/69605-why-airline-mergers-don-t-work
Ever wonder why over the last 30 years Southwest Airlines managers (LUV) spent only $0.03 on mergers and acquisitions for every $1.00 of shareholder value they created? By comparison, Delta management (DAL) spent $2.35 for every $1.00 of value they created. And Northwest (NWA) spent $1.61 on M&A for every value dollar they created. In Louisiana we have a name for this kind of strategy. It's called jumping over a dollar to get to a nickel.
Does Herb Kelleher know something about creating shareholder value that other CEOs don’t know? Perhaps he understands that in the domestic airline market earnings don’t necessarily increase with market share. Or in economics speak, changes in earnings with respect to a changes in market share may be very inelastic. Because the demand for air travel is very price elastic.
BELIEVE IT OR NOT
Believe it or not, elasticity is one of the most powerful metrics in business. In a single number, elasticity pins to the wall the relationship between percent changes in price and quantity. In theory, if the percent change in quantity purchased by customers is greater than the percent change in price paid, demand is elastic. Alternatively, if the percent change in quantity is less than the percent change in price, demand is inelastic.
Then why does one rarely see price elasticity numbers used in industry analyses? In the real world, price and quantity data are notoriously ill behaved. That’s why your Econ 101 professor couldn’t use real numbers in his or her hand-drawn demand schedules. The axes on the graphs were always labeled p1, p2 and q1, q2. Remember?
It is, however, possible to get at the relationship between price and quantity in the real world if you have access to a large base of precise data, an in-depth knowledge of econometric methods and lots of time on your hands. About the only people I know with these resources are doctoral students in economics. Therefore, I was not surprised to find exactly what I was looking for in Jong-Ho Kim’s 2006 dissertation on “Price Dispersion in the Airline Industry: The Effect of Industry Elasticity on Cross-Price Elasticity.” You can buy and download a copy of it from University Microfilms.
Dr. Kim based his research on data from the Department of Transportation’s Origin and Destination Survey from the 1st quarter 1989 through the 4th quarter 1997. This is a 10% random sample of all tickets issued in the U.S. In his dissertation Dr. Kim hypothesized that:
Southwest’s entry provides a natural setting for investigating how travelers respond to the changes in air fares. More specifically, we can make full use of variations in relative prices among airlines and the revenue shares of airlines by focusing on Southwest entry routes. Consequently, we can focus on coach class travel in those markets where Southwest entered and has been serving since then. … [R]ival airlines adjust their average fares upon Southwest’s entry and remain relatively constant in ensuing quarters (page 12).
In that study, when Southwest entered a new market (city-pair), estimated price elasticity ranged from a high of -2.6 (with only one other competitor), to -1.63 (with four other competitors), to a low of -1.1 (with 7 other competitors). All of these estimates were statistically significant.
WHAT HERB KNOWS
I think Herb Kelleher understands – as no other sitting airline CEOs seems to – a fundamental principle about competition. Given:
a capital intensive industry,
with few meaningful scale efficiencies,
delivering a highly perishable product,
within a partly regulated infrastructure,
operated by talented professionals,
in a very price sensitive market, with
free entry and court protected exit,
shareholder value can best be created organically. How? By maximizing the satisfaction of employees, passengers, suppliers, partners, and shareholders. Here is the corollary to that fundamental principle:
In airlines, building market share through mergers short circuits the creation of satisfied stakeholders.
The purpose of this article is to examine why mergers don’t work today in domestic airlines, using the DAL/NWA merger as an example.
EARNINGS ELASTICITY
Elasticity can be expressed for any pair of variables. Take earnings elasticity for example. It’s the percent change in earnings divided by the percent change in market share. Here’s what happens. Cutting price leads to an increase in market share. But it also leads to a decrease in earnings. Theoretically, in a price elastic market with few scale efficiencies and a perishable product, earnings and market share are not happy partners.
Suppose the management of a hypothetical airline with 20% of all domestic revenues decides it would be good for earnings if they increased share of revenues to 30%. The quickest way to do that is to merge with a company that has 10% of the market. In a matter of months its market share increases by 50%. Bingo!
But in a highly price sensitive market for a perishable product, earnings may increase only a little, say about 6%. The ratio of the percent change in earnings to the percent change in market share (0.06/0.50) is just 0.12. In this hypothetical case, earnings are highly inelastic with respect to market share. Is this is a bad thing? Yes. It’s a classic case of jumping over a dollar to get to a nickel.
MAXIMUM EARNINGS MARKET SHARE
To test the hypothesis that the DAL/NWA merger won’t be good for shareholders I ran a maximum earnings market share analysis on the combined companies in a strategic group with seven other domestic airlines for the calendar year 2007.
In a nutshell, maximum earnings occur when EBITDA generated by the last share point exactly equals the cost of acquiring it. I worked out the details of how to calculate maximum earnings share in my book Competing for Customers and Capital. I applied the results to eight domestic airlines in the 1st quarter of 2003 when only two of them weren’t losing money. If you want to get an overview of that analysis see my audio slide show The Rule of Maximum Earnings. It’s short and no walk in the park.
Table 1 sets the stage for this analysis with each carrier’s share of the combined $114.7 billion revenues in calendar 2007. American Airlines (AMR) captured 20.0% of total revenue. UAL Corp (UAUA) walked away with 17.6%; Delta and NWA got 16.7% and 10.9% respectively.
Continental (CAL) generated 12.4%; US Airways (LCC) had 10.2%; followed by Southwest with 8.6%; Jet Blue (JBLU) at 2.5%; and Frontier (FRNT) with 1.2% of group revenues.
Combined, DAL and NWA actually captured 27.6% of total revenues. Since both carriers were financially cleansed by bankruptcy court, what is your guess about their potential to maximize earnings? The answer appears in Chart 1.
Combining DAL & NWA revenue and costs as they appeared on their individual income statements produced an actual 2007 market share of 27.6% of group revenues. The vertical axis on this chart is the marginal cost (the red schedule) as well as marginal earnings (the green schedule) per share point.
Marginal costs continuously increase reflecting the underlying reality of competition. The marginal earnings schedule is constant, reflecting the assumption that there would be no major changes in the scale of combined operations. Under this assumption, maximum earnings market share is 26.7% of group revenues. If synergies were to be found after merging, the effect would be to push actual and maximum earnings market share even closer together. In either event, the combined companies come within no more than 90 basis points of realizing maximum earnings. That’s the good news.
TOTAL EARNINGS ALMOST AS FLAT
The bad news is the total earnings schedule is almost as flat at the marginal earnings schedule. Chart 2 tells the story.
In Chart 2 market share appears on the horizontal axis ranging from 20% through 35% of group revenue. In this chart, total earnings appear on the vertical axis ranging from zero to $8 billion. There is just a $10 million difference between actual and maximum earnings.
A DOUBLE WHAMMY
I began this article by pointing to the painful price elasticity that exists in this capital intensive market for perishable products. For carriers competing with Southwest in the same city-pair, reported price elasticities range from -1.1 upwards to -2.6 depending on the number of competitors in the market. If you’re the only other carrier in a market with a 10% price premium in a city-pair boarding 1,000 passengers a day, 260 of them likely will switch to Southwest. So you have to match LUV’s price. If you’re competing for 10,000 passengers a day in a market with four other carriers, including Southwest, and you don’t match LUV’s price, 1,630 of them likely will switch to Southwest. So, you’ve still got to match its price.
But, just as bad, you’re likely to be facing a highly inelastic earnings/share schedule. In the DAL/NWA example presented in this analysis, there is just a $30 million difference between total earnings at a 20% share of revenues ($3.56 billion) and a 35% share of revenues ($3.59 billion). That represents just a 0.8% increase in EBITDA across a spread from 20 to 32.5 revenue share points, a 63% increase. Without extraordinary synergies, a merged DAL/NWA might be facing an earnings/share elasticity of just a little over 0.01. Looks just like a double whammy.
What’s an airline CEO to do in this situation? Reconfigure the business model. Is there a road-map on how to do that? Yes, it’s called The Momentum Effect by Professor J.C. Larreche of INSEAD. It’s going to be published in hard copy by Wharton next month.
Full disclosure: I recommend this book as a co-author with a long history of collaboration.
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Airline Mergers Can't Afford Delays
Monday March 24, 11:57 am ET
By Dan Caterinicchia and Adam Schreck, AP Business Writers
Window Closing for Carrier Combos to Be Reviewed Under Business-Friendly Bush Administration
WASHINGTON (AP) -- While talk of a combined Delta-Northwest and other airline mergers seems to be circling the gate, further delays could jeopardize carriers' chances of getting regulatory clearance under the business-friendly Bush administration.
Antitrust experts say any such combination will take several months to gain Justice Department approval, and that a decision likely would be needed before Election Day or the airlines will have to roll the dice with whomever follows George W. Bush into the White House.
"The Bush administration has rarely met a merger it didn't like," said Darren Bush, an associate professor at the University of Houston Law Center who worked in the Justice Department's antitrust division from 1998 to 2001. But the airlines "have to get it done by the end of April if they have any hope of getting it (approved) under the Bush administration," he said.
The carriers are convinced the Bush administration is more supportive of their "business efficiencies argument" than the "constituency argument" that may play better with a Democrat or John McCain in the White House, said Michael Waxman, a professor at Marquette University Law School in Milwaukee.
Since talks began a few months ago, lawmakers have railed against the proposed combination of Northwest Airlines Corp. and Delta Air Lines Inc., seeing it as competition-killer and ticket price-hiker. Many in Congress have promised hearings if any mergers are announced, but antitrust review responsibility ultimately falls to the Justice Department.
A spokeswoman for the Justice Department's antitrust division would not comment on how long a review could take. Agency officials previously have said airline merger reviews focus on ensuring that competition is not lessened in any market by examining city pairs where both carriers provide service, and likely will in the future, to gauge how market share will be affected.
Andrew Steinberg, who until mid-January was assistant secretary for aviation and international affairs at the Transportation Department, said a deal could be approved "relatively quickly" -- in a matter of months -- if the two sides were well prepared and willing to compromise. That could leave the companies some wiggle room, but not much.
"By the summer, they're running out of time," he said.
Antitrust concerns have grounded potential deals before. In July 2001, more than a year after it was originally proposed, an attempt to merge UAL Corp.'s United Airlines and US Airways fell apart amid concerns that the combined carrier would control too much of the Washington, D.C. market and dominate several other key routes.
But in the case of Eagan, Minn.-based Northwest and Atlanta-based Delta, there is little overlap in most markets. And that, say observers, makes it more like the America West and US Air combo -- which won Bush administration approval in June 2005, a month after it was proposed.
"The ones that get through quickly are end-to-end mergers," Steinberg said.
If Delta and Northwest hasten their negotiations, they may find more sympathetic regulators because of fundamental changes in the airline industry.
Low-cost carriers are gaining market share at the same time that record-high oil prices are threatening to wipe out slim profit margins. Many on Wall Street are pushing for consolidation as a way for the industry to shed additional domestic capacity and shore up its pricing power. Fewer seats in the system means higher ticket prices.
But the Delta-Northwest deal seems to be taking its cue from so many tarmac-stuck flights: going nowhere soon. Last week, Delta's pilots union rejected going into arbitration with its counterpart at Northwest to break a deadlock over the integration of seniority lists. Delta has said no seniority protection means no deal.
If the two can work out their differences, the deal still could get rebuffed given its precedent-setting potential.
Industry observers see a Delta-Northwest deal as starting a chain reaction that would knock out at least half of the six traditional carriers.
The significance of the "tectonic shift" to the nation's air travel system won't be something regulators will rush through, said airline consultant Robert Mann. "These aren't small deals," he said. "There's no putting the genie back in the bottle after it's out."
The Justice Department may ask the merged airlines to give up some gate space at certain airports they both serve or where one has a particularly large presence as a condition for approval, said Waxman.
But by the time Justice turns it back over to the carriers to divvy up gates, there may be a new and less merger friendly passenger on Air Force One.
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With a wag of the finger, Delta produces spunky safety video
By DANIEL YEE
The Atlanta Journal-Constitution
Published on: 03/23/08
Before YouTube, redheaded, blue-eyed, high-cheekboned Katherine Lee was just another beautiful flight attendant who worked for the nation's third-largest airline.
Next month, up to 80 million Delta Air Lines passengers worldwide will know her as the face of Delta's newest safety video, in which Lee walks fliers through government-mandated safety instructions with a smile and a playful wag of the finger.
Lee breathes fresh life into the phrase, "Make sure your seat belt is fastened," establishing a new focal point of interest for frequent fliers tempted to tune out the routine message.
The safety video generated such a buzz after being posted on the Atlanta-based airline's corporate blog and on the video Web site YouTube that admirers dubbed the 33-year-old Atlanta woman "Deltalina," a combination of the airline's name and Hollywood actress Angelina Jolie, who they say she resembles.
"The main focus is to get our customers' attention and make sure they know what to do in the event of an emergency ... adding bits of humor and unexpected twists to something pretty standard," says Chris Babb, a Delta product manager in charge of producing the video. "We went through a rebranding last spring — we wanted to do something that injected the new brand, portrayed Delta in a more modern way."
The airline declined to disclose how much the video cost to produce.
On the soundtrack behind the mandatory Federal Aviation Administration safety instructions — such as how to buckle a seat belt, how to wear an oxygen mask and when to put away a cell phone — the new video is backed by a smooth jazz drumbeat and ethereal electronic tones. In one spot, the viewer suddenly sees a digital sparkle on the smile of a shaven-headed male flight attendant who is demonstrating how to properly wear a life vest.
There's also the finger wag. Halfway through the 4-1/2 minute video, Lee unexpectedly and playfully wags a long finger at the camera while instructing that "Smoking ... is not allowed, on any Delta flight."
"I hope they are holding classes for all ... FAs (flight attendants) on how to do the finger-wag," one viewer wrote on the Internet airline forum Flyertalk.com.
Every few years, airlines typically refresh safety videos, which free crew members from performing a live safety demonstration on a flight. Babb said Delta considered different styles of videos, including a popular animated safety video by Virgin Atlantic, but in the end opted for a version with a Delta employee speaking directly to the audience.
Deborah Cohn, associate professor of marketing at Touro College in New York, said Delta's video may have more staying power with passengers than regular airline safety videos but she thinks the video's "edgy" music, could make passengers jittery.
"It really captures your attention — the woman in the video is beautiful and you can't take your eyes off her," she said.
David Stempler, president of the passenger advocacy group Air Travelers Association, said the new safety video provides a "very consistent message for the passenger."
"Anything to make it more lively is going to get passengers' attention," Stempler said. "Although it's a very serious subject, they handle it in a very good way."
The video, made on a Boeing 757, was completed in mid-January after two 16-hour workdays in Atlanta.
Employees last fall auditioned for the role. The airline whittled down a list of 82 flight attendants and selected 10, including Lee. Four appeared as flight attendants in the video and the other six appeared as "passengers." The lead flight attendant wasn't selected until immediately before the filming.
Lee, a 10-1/2 year employee who now trains other flight attendants at the airline's Atlanta headquarters, was selected in part because she already was comfortable being in front of other people, Babb said.
But can "Deltalina" (who's single, by the way) come to terms with her new fame?
"I was on vacation ... and when we landed in Munich, one of the passengers comments, 'Aren't you that girl in the safety video?'" Lee said. "It's been kind of interesting. With students I'm teaching, I feel like a rock star. I wanted to do this since the first day I became a flight attendant. Ten and a half years later, I finally made it."
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On the Net:
Delta safety video: http://www.nmedia.com/Onboardsafety—v11.wmv
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NWA progress hits turbulence
Merger isn't key, but hurdles persist
BY KATHERINE YUNG • FREE PRESS BUSINESS WRITER • March 23, 2008
Nearly a year after emerging from bankruptcy, Northwest Airlines is running into some unexpected turbulence.
In recent weeks, the carrier's stock price has tumbled as a highly anticipated merger with Delta Air Lines looks increasingly uncertain. At the same time, it's flying into two dangerous headwinds: sky-high oil prices and a slowing economy.
But don't expect its management to hit the panic button.
Even if a deal with Delta falls apart, Northwest doesn't need to rush to find another merger partner, industry experts said. Even flying solo, the airline can prosper.
"Northwest can survive just fine on its own," said Stuart Klaskin, a partner at KKC Aviation Consulting in Coral Gables, Fla.
Like other airlines, however, it will need to continue to raise fares, eliminate unprofitable routes, park or sell some of its planes and lower its operating costs even further.
"It's the only thing they can do," said Vaughn Cordle, chief analyst at the consulting firm Airline Forecasts.
Even though it is based in Minnesota, Northwest's largest hub is Detroit Metropolitan Airport, where its planes carry three out of every four departing passengers.
Business remains strong
At an industry conference on Tuesday, David Davis, Northwest's executive vice president and chief financial officer, reassured investors that the airline's business remains strong. Bookings have held up quite well, and the airline expects to enjoy a strong summer, he said.
But with oil prices at more than $100 a barrel, the airline is looking at reducing its non-aircraft capital expenditures, the number of seats it flies and its operating costs.
It's also examining ways to increase its revenue other than simply raising fares. And it may shrink its aging fleet of DC9s, which are less fuel-efficient than newer aircraft, even more than it had planned.
"We're in the process of aggressively responding," Davis told investors and analysts.
Northwest's would-be partner, Delta, already has announced plans to cut 2,000 jobs, eliminate some domestic flights and increase productivity, among other measures.
Although Delta seemed to be the perfect match for Northwest, the two carriers haven't yet made it to the altar because their pilot groups can't agree on a way to merge their seniority lists.
For now, no one is saying the deal is dead. The airlines face intense pressure from their hedge fund investors to do something to boost their ailing stock prices.
So they could opt to merge without their pilots resolving the seniority issue, though that likely would lead to labor unrest at the combined carrier. Or Northwest could seek another merger partner.
But doing a deal is not crucial to Northwest's survival. And that's why talks between Northwest and Delta pilots dragged on for weeks without any deadlines.
Northwest enjoyed its second consecutive year of profitability in 2007. Excluding bankruptcy-related items, it earned a pretax profit of $764 million, the third-highest in its history. It also had a pretax profit margin of 6.2%, second only to industry leader Southwest Airlines.
To reward its workers for this achievement, it is distributing $125 million in profit sharing, performance incentives and reliability payments -- the highest employee incentives payout in its history.
"We think Northwest is probably the best-positioned, certainly legacy carrier, if not carrier, out there right now," Davis said.
Many of the industry's previous mergers involved at least one ailing carrier that desperately needed to find a partner to stay afloat. But that isn't the case with Northwest and Delta.
Delta, Northwest are stable
Last year, both emerged stronger from their time in bankruptcy protection, which enabled them to slash costs and reorganize their operations.
Today, Northwest has $3.3 billion in unrestricted cash, as well as the lowest costs and strongest balance sheet among nondiscount airlines, Davis said.
Northwest's pilots "believe this is an airline that can make it as is," said Terry Trippler, an industry expert in Minneapolis. "I believe both" Northwest and Delta "can be very successful as stand-alone airlines."
Even before this year's merger mania made headlines, airlines already were achieving some of the benefits of consolidation on their own.
They have been steadily reducing the number of seats they sell and raising their fares. As a result, though the industry lost $35 billion from 2001 to 2005, the past two years are expected to generate the airlines' first back-to-back net profits since the decade began, according to the Air Transport Association.
However, the recent surge in oil prices could jeopardize additional gains. Analysts already are forecasting billions of dollars in industry losses this year.
And Northwest now anticipates its 2008 fuel expenses could soar to $5.2 billion, up 41% from last year's $3.7-billion tab.
If record fuel prices persist, financially weak airlines could be forced to seek mergers in order to stay in business.
That could put pressure on Northwest to do a merger, experts said.
But others say that the inability of Northwest and Delta to complete a deal will discourage other airlines from teaming up. After all, they would encounter the same roadblock: getting two groups of pilots to agree on a way to merge their seniority lists.
Contact KATHERINE YUNG at 313-222-8763 or kyung@freepress.com
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High-priced fuel scares airlines
Mar 25, 2008
By Dan Reed, USA TODAY
Like poker players dealt a bad hand, they're trying to act calm, but $100-plus oil is starting to really scare the people who run the USA's airlines.
Record prices for both crude oil and refined jet fuel are threatening to send U.S. carriers spiraling toward deep losses, drastic service cutbacks, job cuts and, perhaps by year's end, an industrywide cash crunch.
A year ago, airline managers were talking about the return of a profits cycle in 2007 that would grow larger this year and extend into 2009 or even 2010. Now, they're grounding and selling planes, trimming service on marginal routes and eliminating it on others where there's no hope of making money. They are cutting jobs, rolling out more service charges and — to the consternation of travelers — raising fares almost weekly by amounts never seen before. They're also watching their cash balances closely and nervously.
Prolonged oil prices above $110 a barrel could do what all the airlines' long list of problems in the last seven years have not — drive one or more out of business. That's a worst-case scenario, however. The government's Energy Information Administration forecasts crude oil prices will average $94 a barrel this year. And airlines have a well-established record of surviving the most horrible business conditions.
But even if expectations of prolonged triple-digit oil prices prove wrong, no one expects them to fall back near last year's average of $72 a barrel, which was then perceived as painfully high. So U.S. carriers are certain to spend much more on fuel this year than they did last year — $2 billion more in Delta's (DAL) case at current oil prices, for example.
That means the USA's air carriers appear headed toward the kind of huge losses they rang up in the post-9/11 years before earning very modest profits in 2006 and 2007. In recent reports, several industry analysts have projected those losses could range from $1 billion to $9 billion.
"Something's gotta give somewhere," says Joe Hodas, a spokesman for Frontier Airlines.
A small, Denver-based discounter, Frontier is squeezed not only by fuel prices but also by competition from United and Southwest at its Denver hub.
Low-cost carriers such as Frontier are perhaps most threatened by high oil prices because fuel represents a bigger share of operating budgets, and because they have fewer assets they can turn into cash for survival. But Hodas says triple-digit oil prices are a threat to all carriers. "None of us can sustain $110-a-barrel oil long term; none of us, I don't think," he says. "Whether it's consolidation or the shrinking of capacity, you're going to see more of that (as airlines) deal with these fuel prices."
Analyst Michael Derchin at FTN Midwest Securities says airlines are entering "another Darwinian period of survival of the fittest." Not only must capacity be reduced, "Fares will have to be a lot higher," he says. And fuel surcharges like those now in place on most international tickets sold must be "adopted domestically as part of the pricing system."
That's already happening. There have been at least seven successful major fare increases this year involving the big network carriers. Eleven days ago, United led the industry in tacking up to $50 to the round-trip price of domestic tickets, a huge price increase by airline standards in any era. Five days later Delta followed with a $10 boost to domestic fares, and American and Northwest added $20 to most trans-Atlantic fares.
To reduce their exposure to high fuel prices, Frontier, JetBlue and AirTran are selling some of their new planes. ATA Airlines, once the dominant discounter at Chicago's Midway Airport, is shutting down scheduled flying except for its West Coast-to-Hawaii flights. It will concentrate on charter service, where it's easier to pass higher oil prices on to the customer.
"The high cost of fuel and the fact that it stayed high were overbearing," says Steve Forsyth, spokesman for ATA's parent, Global Aero Logistics.
Even Skybus, the tiny year-old discounter that offers a few seats on all its flights for $10 one way, is reducing flights and scaling back its growth plans in the face of high oil prices.
Breaking the budget
Oil prices are affecting big carriers, too:
•Northwest Airlines. CEO Doug Steenland two weeks ago called oil prices, which were then at $105 a barrel, a "serious budget breaker," because an average annual price above $100 a barrel would add $1.7 billion to Northwest's fuel bill this year. That's more than double its 2007 pretax profit of $764 million.
•United Airlines. It currently spends about $173,000 to fuel a Boeing 747 for a flight from Chicago to Hong Kong, roughly double what it cost four years ago. United has to get nearly $500 in revenue out of each of the 347 seats on that plane just to pay for the fuel — and it still has to cover other expenses, including crew salaries, in-flight meals, the plane's upkeep, marketing and the cost of the jet itself.
•American Airlines. Its annual fuel bill rises $33 million for every penny increase in the average annual price of a gallon of jet fuel. Last year, it paid $2.12 a gallon after adjusting for its fuel hedges. As recently as January, it had been forecasting an increase of about $1.5 billion in its annual fuel bill this year, a daunting increase for a company that earned a profit of just $504 million last year. In a Monday filing with the Securities and Exchange Commission, American said it now expects to pay an average of $2.98 a gallon this year, and for its fuel bill to rise $2.6 million this year, to a total of $9.3 billion.
Top executives for most of the big airlines outlined their emergency course corrections last week at JPMorgan Chase's annual Transportation Conference in New York. Delta, United, JetBlue and US Airways said they're grounding about 70 planes in total. Continental (CAL) emphasized that it will use new fuel-efficient Boeing jets it has on order not for growth but to replace 63 old gas-guzzlers by the end of 2009. American, Northwest and Southwest strongly hinted that operational cutbacks are likely.
The fact that oil prices rose this year was no surprise. U.S. carriers paid an average $2.10 a gallon for jet fuel last year, according to their trade group, the Air Transport Association. That equates to about $72 a barrel for crude oil, and to $88.28 a barrel for refined jet fuel. Most carriers had budgeted for crude oil prices of $85 to $90 a barrel this year.
The shock has been just how much higher prices have gone and how fast they got there.
In mid-January, jet fuel on the spot market was selling for as low as $1.73 a gallon. This month, the spot market price, which last week briefly touched $3.40 a gallon, has been well above the $3.13-a-gallon price at which jet fuel peaked in the fall of 2005 after Hurricanes Katrina and Rita knocked critical Gulf Coast refining, storage and pipeline facilities offline, creating a temporary supply shortfall.
The big difference this time, says John Heimlich, the ATA's chief economist, "is that Katrina was a couple of days, while this is sustained." If the price of oil remains $100 or above, "There'll be fewer players," he warns.
In late February, Merrill Lynch airline analyst Michael Linenberg analyzed what would happen to publicly owned US carriers' net profits this year based on average oil prices ranging from $70 a barrel up to $110. At $75, all 12 airlines he examined would be nicely profitable this year.
At an average price of $95 a barrel, five airlines would scratch out some profits, and the industry would lose $322 million. At $110, only two airlines — Allegiant Air and Southwest — would make money, and the group would lose $3.3 billion.
Cost cutting reaches its limits
To offset the effect of high oil prices, every carrier is looking for new ways to cut costs. But the reality is, many airlines have little left to cut.
In the years after the 9/11 attacks, airlines savagely cut costs, grounding many old, fuel-inefficient planes, dropping or cutting back service on weak routes and shifting service on marginal routes to their regional affiliates. Many increased their reliance on cheaper, contract maintenance providers. They sold ancillary assets and businesses, reduced or eliminated "frills" such as in-flight meals and pillows, and greatly increased their reliance on do-it-yourself technology that helped them cut tens of thousands of jobs. The big carriers used Chapter 11 bankruptcy reorganization — or the threat of it — to extract huge concessions from their vendors, aircraft lessors and labor unions.
There's not much more that U.S. airlines can achieve now via the bankruptcy process, say JPMorgan airline analysts Jamie Baker and Mark Streeter.
In fact, the only reason for any of the big U.S. carriers to enter bankruptcy protection this time around, they say, would be to keep from running out of cash. Even though airlines' balance sheets are almost certain to come under extreme pressure if oil prices remain above $100, the big carriers could sell assets and squeeze their vendors to stave off a cash crisis — at least until next year. But maintaining enough liquidity to stay out of technical default on loan covenants might be more difficult, they say.
In conversations with investors who are increasingly worried about a looming cash crunch, airline executives have begun emphasizing the strength of their balance sheets. Last week in presentations at the JPMorgan conference, senior Northwest, Continental, US Airways and Delta officials all emphasized what they believe to be their companies' more-than-adequate liquidity in light of triple-digit oil prices.
American Treasurer Beverly Goulet used a bit of humor to jab investors. Last summer and fall, she said, investors and analysts frequently questioned why her airline's parent, AMR, was building such a large cash balance and whether that was the best use of the company's money.
"The joke was that whenever people would look at the $5 billion-plus of cash on our balance sheet and ask (CEO) Gerard Arpey how much cash we really needed, his answer was always, 'More,' " she said. "Now, they're asking whether that's enough."
Contributing: Marilyn Adams
AIRLINE LOSSES GROW WITH RISING OIL PRICES
Airlines' 2008 estimated net income or loss (-), in millions, if crude oil prices average these amounts per barrel for the year:
Airline $75 $95 $100 $110
Alaska $104 $14 -$9 -$54
American $797 -$538 -$872 -$1,539
Continental $444 -$12 -$126 -$354
Delta $538 -$100 -$260 -$579
Northwest $488 $43 -$69 -$291
United $540 -$116 -$280 -$609
Total majors $2,913 -$709 -$1,615 -$3,426
AirTran $87 -$27 -$56 $0
Allegiant $47 $22 $15 $3
Frontier $9 -$48 -$63 -$91
JetBlue $66 -$45 -$72 -$91
Southwest $495 $467 $460 $445
US Airways $259 $19 -$41 -$160
Total industry $3,877 -$322 -$1,371 -$3,321
Source: Merrill Lynch Airline Research
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American Airlines Raises Fuel-Cost Forecast
ASSOCIATED PRESS
March 25, 2008; Page B4
Surging oil prices could leave American Airlines parent AMR Corp., the nation's largest carrier, with a much higher fuel bill than it anticipated just two months ago.
In a filing with the Securities and Exchange Commission, the company, based in Fort Worth, Texas, said it now expects to spend $2.98 per gallon on fuel this year, 12.5% more than its mid-January prediction of $2.65 a gallon.
The revised forecast will leave the company with a 2008 fuel bill of $9.29 billion -- more than $1 billion more than it was expecting earlier in the year -- assuming prices don't rise even further than expected. Last year, American spent $6.67 billion on fuel, spokesman Tim Wagner said.
AMR's forecast was based on assumptions as of March 14, when prices closed within a few cents of a record above $110 a barrel. Prices have declined since; light, sweet crude for May delivery fell 98 cents to settle at $100.86 a barrel on the New York Mercantile Exchange Monday.
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American sees revenue rise
Largest U.S. airline expects quarterly passenger business to increase nearly 7%.
March 24, 2008: 11:08 AM EDT
NEW YORK (AP) -- The parent of American Airlines, the largest U.S. carrier, said Monday its passenger unit revenue is likely to increase by nearly 7% or more during the first quarter.
AMR Corp. said it expects quarterly mainline and consolidated passenger unit revenue will rise 6.9 percent to 7.9%, compared with the same period a year earlier. Cargo and other revenue, meanwhile, is expected to "increase modestly," the carrier said.
The company also said it is reevaluating its 2008 capacity needs and will provide further capacity forecasts when it releases its first-quarter earnings next month.
AMR said it expects to end the first quarter with $4.8 billion in cash and short-term investments, and has 35% of its first-quarter and 29% of its fiscal-year fuel needs hedged. Prices for the hedged fuel are equal to crude oil at $74 a barrel in the first quarter and $76 a barrel for the year.
Fuel represents one of the carrier's biggest costs. On Monday, light, sweet crude for May delivery fell 19 cents to $101.65 a barrel on the New York Mercantile Exchange.
AMR shares rose 15 cents to $9.31 in early trading.
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Heater May Have Caused Cockpit Smoke
March 22, 2008
WEST PALM BEACH, Fla. (AP) — The crew of an American Airlines plane reacted calmly as they made an emergency landing in January because smoke was filling their cockpit, according to newly released Federal Aviation Administration tapes.
American Airlines Flight 1738 landed at Palm Beach International Airport on Jan. 30 during a flight from San Juan, Puerto Rico, to Philadelphia. Six people were taken to a hospital for treatment.
The newly released FAA audio recordings give the exchanges between the pilots, air traffic controllers and emergency officials on the ground.
Around 8 p.m., a Miami air controller notified officials at the Palm Beach airport that the pilot was reporting smoke in the cockpit, but a half-hour later the Miami controller told Palm Beach that the pilot didn't want emergency crews on the ground.
"Smoke in the cabin, and he does not want the fire crew standing by?" asked a controller in West Palm Beach asked.
"Maybe he'll change his mind as he gets closer," the Miami controller responded.
The pilot did change his mind, and within minutes the Miami controller reported the pilot wanted to descend to 10,000 feet "as quickly as possible so he could open up the window."
He also wanted paramedics there when he landed.
An inner windshield cracked as the plane approached the runway, showering the cockpit and pilot with glass. The pilot was among those treated for minor injuries; no one among the 139 passengers or seven crew members was seriously hurt.
American Airlines said the likely cause was a short in the wiring that heats cockpit glass to prevent fogging. A final report is not expected for months.
The NTSB noted five occasions from 2004 to 2006 in which smoke, and in some cases fire, was reported to have originated from window heating systems in Boeing 757s.
In September, the NTSB issued two safety recommendations to the FAA asking the agency to require the installation of redesigned window heating systems in all Boeing 747s, 757s, 767s and 777s.
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Airlines Cut Prices
On Overseas Fares
Looking for New Profits, Carriers Lure Fliers
To Business Class; A 50-Day Advance Purchase
By AVERY JOHNSON
Staff Reporter of THE WALL STREET JOURNAL
January 11, 2005; Page D1
With the domestic market in turmoil, airlines are increasingly looking to international flights for profits.
Even before Delta's dramatic fare restructuring last week, many airlines were quietly making major changes to international ticket prices. The big U.S. carriers are also adding capacity on international routes, where there is less competition from discount carriers.
In one of the most significant moves, airlines are offering deep discounts in business class for travelers who can book weeks or months in advance. The goal: Get more high-end leisure travelers to buy seats at the front of the plane, while still charging top-dollar prices to business travelers who book at the last minute.
On Continental Airlines, for example, a Newark-to-London business-class seat is priced at $1,920 round-trip for people who can book 50 days in advance -- or more than 75% less than the walk-up fare of $8,314, not including taxes and fees. Recently, Delta Air Lines started selling a Los Angeles-to-Buenos Aires round trip for $2,326 if booked 50 days in advance, a discount of about 80% off the regular fare. Los Angeles-to-Paris is priced at $2,020 with advance booking, compared with a last-minute price of $7,154.
It is happening partly because airlines have been aggressively adding seats on international flights as travel rebounds. In November and December, load factors -- the percentage of available seats that are occupied -- declined on international flights, according to airline reports, because the increased traffic didn't quite keep up with the added seats. In the past, business-class was generally full and as a result discounts were unusual.
Now that the airlines have a lot more seats to sell, leisure travelers willing to shell out a little more to ride up front can enjoy a unique opportunity. But there is a significant hurdle: The best deals require purchasing a ticket unusually early. AMR Corp.'s American Airlines recently instituted a 42-day advance-purchase discount for New York-London business-class seats, and UAL Corp.'s United extended a 42-day advance purchase from Chicago to London and New York to London. Northwest Airlines has a 50-day discount business-class ticket from Minneapolis to London for $2,020 round-trip. British Airways also has put in a 42-day advance between U.S. cities and the U.K., and today is expected to announce a promotion aimed at selling more premium-class tickets to North American travelers: People who buy those high-end international tickets get enough bonus frequent-flier miles for two U.S. domestic round-trips.
+++++++++++++++++++
GOING ABROAD
Some new business-class fares:
Delta: Atlanta-São Paulo
Old fare/New fare: $7,472/$2,400
Lead time: 50 days
American: New York-London
Old fare/New fare: $8,364/$2,821
Lead time: 42 days
United: Chicago-London
Old fare/New fare: $8,300/$3,336
Lead time: 42 days
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For consumers, all this means that booking early can mean a better seat on a longer-haul flight at a less stratospheric price. While the discounted business-class fares still don't approach advance-purchase economy fares, they are starting to approach walk-up coach seats, which can run around $1,100 from New York-to-London during the off-season.
The weak dollar may also eventually have an impact on international airfares as the busy summer travel season gets closer, although it hasn't been a factor so far. As travel has picked up in the past year or so, Americans have returned to Europe. In addition, travel agents say that travel in the other direction is keeping transcontinental business brisk.
Overall, major airlines are adding seats internationally much faster than they are domestically. By the end of this month, international seat capacity will have risen 12% from a year earlier, compared with a rise of only 2.3% in domestic capacity, according to an estimate by Michael Allen of Back Aviation Solutions.
United Airlines has even cut some domestic routes in order to beef up international service by 14%; it plans to add routes including Washington, D.C., to Zurich and San Francisco to Nagoya, Japan. In June it plans to add a second daily flight between Los Angeles and Tokyo.
In addition, US Airways will start flying to Venice and Barcelona this spring, while Continental will begin to service Hamburg and Berlin.
For U.S. airlines, the international market represents a little more than a quarter of total revenue -- but that number is growing more quickly than domestic revenue. The Air Transport Association says that the six traditional U.S. carriers made 29% of their revenue from international sales in the 12-month period ending in September 2004, up from 27% in the comparable period ending in 1995.
The recent turmoil in domestic ticket prices highlights the pressure on domestic carriers to look for profits elsewhere. Last week Delta lowered its domestic walk-up fares to $499, ended Saturday-night-stay requirements, and reduced some of its other fees, in the battle against discount carriers. Other carriers quickly followed suit.
Changes like these are sparking concerns that the airline industry's bottom line will take a significant hit in coming months. J.P. Morgan airline analyst Jamie Baker anticipates that other airlines adopting Delta's fare changes could drain up to $2.5 billion a year in revenue from the $70 billion domestic airline market.
The kind of fare simplification taking place domestically, however, is less likely to be seen on international routes soon. It is partly because low-cost carriers still aren't a threat. (Although airline consultant Bob Harrell predicts that low-cost carriers will fly across the Atlantic in three to five years.) In addition, fare changes must in some countries first be vetted by various regulatory bodies. Even airlines trying to match fare changes by competitors do so more slowly on overseas routes.
Still, on a few routes, US Airways is experimenting with simpler fares internationally. In recent months it has said it has simplified first-class fares to leisure destinations, eliminating early-booking discounts andpenalties for last-minute purchases. For instance, on the Philadelphia-to-Freeport, Bahamas, it is now charging a flat rate of $549 for a round trip, not including fees.
Write to Avery Johnson at avery.johnson@WSJ.com
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Getting to Europe Is About to Get Easier
By MICHELLE HIGGINS -- NY Times
Published: March 23, 2008
AIR travel to Europe is about to undergo a significant change, one that is likely to spell more choices and cheaper fares for travelers.
On March 30, the so-called open-skies agreement goes into effect, allowing airlines based in the United States and Europe to fly across the Atlantic between any two airports in each region. Before the pact, trans-Atlantic flights were governed by separate agreements between the United States and individual European nations. The pacts required airlines to take off or land in their native countries, and limited which airlines could serve certain airports.
For example, British Airways flights bound for the United States had to originate in Britain. And only two United States carriers were permitted to land at Heathrow Airport, near London: American and United.
When the open-skies agreement kicks in next week, those restrictions will be lifted, essentially letting the open market dictate all trans-Atlantic routes between the United States and Europe. For instance, Continental, Delta and Northwest will be able to serve Heathrow for the first time.
This year, San Francisco, Orlando and Washington all received their first scheduled nonstop flights to Dublin on Aer Lingus under a related transitionary arrangement. And Michael O’Leary, chief executive of Ryanair, the Irish no-frills carrier, has said he plans to start a new airline that will fly from secondary European markets like Liverpool or Birmingham to a half-dozen American cities like Baltimore or Providence, R.I., for a base fare as low as 10 euros, or about $16 at $1.59 to the euro.
“We don’t even begin to get a glimmer of the possibilities of open-market competition yet,” said Jerry Chandler, who writes Cheapflights.com’s travel blog and has been tracking the new open-skies flights. “There could be a lot of flourishing of routes in markets that currently don’t exist, especially from smaller U.S. cities to European hubs.”
The new pact is expected to be game-changing for Europe-bound travel. More routes are expected to open, and prices could fall thanks to the new competition. The agreement is also likely to encourage European carriers to compete more aggressively with one another across the Continent. Lufthansa, the German airline, for example, could set up a hub in Paris; or Air France could set up a hub in Frankfurt.
So far, though, most United States airlines are simply looking to open service to Heathrow — a strategic hub that offers connecting flights not just across Europe, but to the Middle East, Africa and Asia, too. Flights from the United States to Heathrow are expected to increase 31 percent, to 2,932 flights in July from 2,233 this month, according to OAG Back Aviation Solutions.
Northwest plans to add daily service later this year to Heathrow from Detroit, Minneapolis and Seattle. Beginning on March 29, the New York area will get four new flights a day to Heathrow: two from Continental out of Newark and two from Delta out of Kennedy Airport. Travelers in Atlanta will have a new direct flight to Heathrow aboard Delta (as opposed to connecting through Chicago or some other city), as will travelers out of Dallas-Forth Worth and Raleigh-Durham — both aboard American by March 30.
European carriers like KLM Royal Dutch Airlines are also getting into the act with new service between Dallas-Fort Worth and Heathrow. Likewise, Air France will begin operating a daily flight between Los Angeles and Heathrow on March 30. And Virgin Atlantic is starting a daily Heathrow-Chicago route and will expand its popular Heathrow-New York service to six flights daily.
For many travelers, a direct flight to Heathrow is long overdue. For instance, there are currently no nonstop flights between Dallas-Fort Worth and Heathrow, forcing many passengers to land at other London airports — like Gatwick or Luton — even if they have a connecting flight to catch in Heathrow. “It has been an absolute nightmare,” said Terry Denton, president of Main Street Travel, a Carlson Wagonlit agency in Forth Worth that specializes in missionary trips to Africa and elsewhere that usually require a connection through Heathrow.
Getting from Gatwick to Heathrow involves hauling luggage through passport control, taking a bus or cab across town and going through check-in and security anew — a process that could take three hours. The new routes will allow travelers to bypass that ordeal.
It’s not just Heathrow, however, that’s getting new service. British Airways is planning a subsidiary called OpenSkies that will skip London altogether, beginning with Brussels-New York and Paris-New York service as early as June. And some airlines, anticipating increased competition, are expanding their trans-Atlantic networks. Delta will begin flying from Kennedy Airport to Paris Orly on June 2, cutting out a three-hour-plus layover in Madrid, Nice or elsewhere.
KLM will start a daily flight between Dallas-Fort Worth and Amsterdam on March 30. Previously, Dallas passengers had to change planes in Memphis, New York or another city before arriving in Amsterdam. The new flight will cut at least two hours off the total flight time.
Besides saving time, the new competition should put pressure on airlines to reduce fares. A 2002 study by the Brattle Group, a consulting firm, estimated that an open-skies agreement between the United States and the European Union would generate a 10 percent increase in passenger traffic in formerly restricted markets, which could reduce fares 4 to 10 percent.
Routes to watch include Denver-Heathrow and Seattle-Heathrow, which were previously served by only one nonstop carrier: British Airways. But thanks to the open skies agreement, United will begin flying between Denver and Heathrow on March 30, with introductory fares starting at $570 round trip for travel before May 15. British Airways, by contrast, has been offering that same route for $1,461, according to an online search.
And Northwest Airlines will start flying between Seattle and Heathrow on June 1, with fares for $1,288, compared with $1,302 on British Airways, based on a recent online search.
But don’t expect a full-on fare war just yet. With the price of fuel so high, pricing on trans-Atlantic travel has been “pretty brutal,” said Rick Seaney, the chief executive of FareCompare.com. “Base prices are at an all-time low, but fuel surcharges are up.”
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US Air pilot's gun accidentally goes off on plane
Mon Mar 24, 2008 3:22pm EDT
CHICAGO (Reuters) - The gun carried by a US Airways pilot accidentally went off on a flight from Denver to Charlotte on Saturday, causing the plane to be pulled from service, the airline said on Monday.
No one was injured by the shot, and the aircraft landed safely in Charlotte. Flight 1536 had 124 passengers, two pilots and three flight attendants aboard, US Airways said.
The pilot was a Federal Flight Deck Officer, permissioned by the U.S. Transportation Security Administration to carry a firearm.
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Firing of Pilot's Gun
Subject of Investigation
Associated Press
March 24, 2008 5:40 p.m.
DENVER -- Federal authorities are investigating how a pilot's gun discharged on a US Airways Inc. flight from Denver to Charlotte, N.C.
No injuries were reported.
Greg Alter with the Federal Air Marshal's Service said the flight was on approach to land Saturday in Charlotte when an "accidental discharge" occurred. "We know that there was never any danger to the aircraft or to the occupants on board," he said.
Mr. Alter added that it was the first time a pilot's weapon has been fired on a plane under a program created after the Sept. 11 terrorist attacks to allow some crew members to use a firearm. The Transportation Security Administration's Federal Flight Deck Officer program allows eligible crew members -- including pilots, navigators and flight engineers -- to use a firearm to defend against any act of air piracy or criminal violence.
Mr. Alter said the TSA is investigating how the gun discharged, with the Air Marshal's Service's assistance. The TSA referred questions to the Air Marshal's Service.
Federal Aviation Administration spokesman Mike Fergus said his agency is also investigating the incident to make sure the plane is safe.
Airline officials, who didn't release the pilot's name, said Flight 1536 was not in any danger as a result of the incident, which occurred about 9:50 a.m. Mountain Daylight Time on Saturday. The flight had 124 passengers, 2 pilots and 3 flight attendants onboard.
"US Airways is cooperating with law enforcement authorities who are investigating the incident. The aircraft has been removed from service," the airline said in a statement.
Copyright © 2008 Associated Press
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Adding Up Those Flights of Frustration
By PHYLLIS KORKKI -- NY Times
Published: March 23, 2008
Trains are nice. It’s easy to move around on a train. A train is reassuringly on the ground at all times, and the scenery is varied. Planes are faster, it is true, but we as a society need to slow down.
Skip to next paragraph
These reflections are inspired by the Bureau of Transportation Statistics, which reported this month that United States airlines carried a record 769.4 million passengers (domestic and international) in 2007, up 3.3 percent from the year before.
Planes are too popular for their own good. The government also recently reported that the percentage of on-time flights fell last year and that more people complained about service and baggage handling. All of which makes a relaxing train ride seem that much more appealing.
But if time is of the essence, here is some advice: Go to Hawaii (not too accessible by train anyway). Last year, out of all the American carriers, Hawaiian Airlines and Aloha Airlines had the best records for on-time arrivals.
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Boarding pass on cellphone? Continental testing idea
By MICHAEL SANGIACOMO
Newhouse News Service
Published on: 03/25/08
Paper airline boarding passes may go the way of videocassettes and phone booths if an experimental program by Continental Airlines that e-mails the information to a passenger's cellphone succeeds.
Instead of handing over a paper boarding pass, the passenger shows an e-mail on a cellphone. The image is a two-dimensional bar code, which looks like a rectangle of TV screen "snow" and contains the flight information.
The information is impossible to forge or copy, said Transportation Security Administration spokeswoman Andrea McCauley.
Continental developed the system with the TSA to streamline boardings and increase security. The system is being tested at George Bush International Airport in Houston.
"The great thing about this technology is the convenience," McCauley said. "Security is an added benefit."
Unlike paper bar codes, the e-mailed ones have information that is scrambled, encrypted and can be read only by special scanners, McCauley said.
It cannot be copied or manipulated without detection.
Travelers still will have to show identification. And if there's a problem with the cellphone, a flier will be able to get a backup boarding pass from the ticket counter.
Mary Clark, spokeswoman for Continental, said the e-mailed boarding pass is a logical step.
"It's not meant for every customer," she said. "But there are many people who prefer to use their cellphones, BlackBerry or other PDA device, so it seems like a good idea."
For now, the e-mails can be used only on direct flights in the continental United States.
Clark said Continental Airlines plans to introduce the paperless boarding passes at other airports if the Houston trial goes well.
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Strong Business Sense Drives SkyWest
Mar 23, 2008
By James Ott -- Aviation Week
SkyWest Airlines ranks high in every industry insider's estimation, a regional carrier that has attained astonishing growth in its 36-year history, renowned for its money-making power.
The one-time puddle-jumper deposed American Eagle in 2006 from its long-held perch as the No. 1 regional airline. With aircraft departures increasing 12% last year to well over 600,000 and enplaned passengers topping 19.5 million, SkyWest is likely to become ranked among the leading carriers in the departure category, outshining even most of the mainline airlines on the Air Transport Assn. registry.
SkyWest is scaling these heights with the humble mission of providing local traffic feed for United Airlines, Delta Air Lines and Midwest Airlines. All 1,703 average daily departures are partnered, under contract even down to the Delta-connected Embraer EMB-120 flights from Salt Lake City to St. George Municipal Airport, situated not far from its corporate headquarters.
SkyWest is the lone commercial airline serving the city airport. Only the turboprop-powered EMB-120 from its fleet of largely Bombardier CRJs can use the 6,606-ft. runway. The asphalt pavement stretches fully across the top of an ironing board-shaped butte overlooking the vast dry valleys and rocky monuments of the Dixie area of southern Utah.
As SkyWest spreads its wings, along with parent SkyWest Inc. and stable-mate Atlantic Southeast Airlines - possibly by acquisition this year - so will St. George's airport.
Groundbreaking is to occur sometime this year on a new facility in the Dixie valley that will be equipped with a 9,300-ft. runway capable of landing regional jets, an air traffic control tower and a precision instrument approach system. The $170-million runway may open as early as 2011 and may be extended to 11,500 ft. The city is spending pieces of a $90-million FAA grant, arriving in increments through 2015, on land acquisition and to defray costs of the design and construction.
SkyWest has grown as a non-union foot soldier for the mainline airlines and now operates a fleet of 218 CRJs and 58 EMB-120s. Many of the 159 cities are small- to medium-size markets connected to eight West and Midwest airport hubs. Even as network operators reduce domestic capacity in this odd economy or "right-size" in the challenging year ahead, regional feed service "always proves to be valuable," says Russell (Chip) Childs, SkyWest president and chief operating officer.
That's understood, or should be, he adds, because regional jets meet the steady demand from local communities and usefully provide specialized services. In ski season, for example, SkyWest jets operate from Chicago, Denver, Los Angeles and San Francisco directly to Aspen, Colo., and offer frequent service for passenger convenience. Childs therefore ignores suggestions that the regional airlines' role may be changing, and boldly states that regional feed and the aircraft used in this service have a "permanent role" in the transportation system.
The 50-seat CRJ200 is criticized by some as operationally expensive and on its way to retirement, but it continues to be useful serving medium-size markets, particularly in the Western U.S., says Childs. SkyWest operates 136 CRJ 200s, 56 for Delta and 65 for United Express and 15 for Midwest, although the latter number may increase to 25 in the coming weeks. He adds that Embraer turboprops play a vital role in meeting demand for flights of 200-mi. stage length. SkyWest operates the 30-seat EMB-120s from smaller towns on the West Coast, and serves the San Diego-Los Angeles market with flights every half hour.
In a recent evaluation in which high fuel prices played a pivotal role, SkyWest decided to continue with Bombardier CRJ900s over Embraer 175s. Childs says the Embraer aircraft offer improved passenger comfort over the CRJ, but the Bombardier regional jets have demonstrated better fuel consumption rates. The four CRJ900s will wear Delta colors when they begin to be delivered later this year. However, the executive does not rule out Embraer aircraft for SkyWest's future.
Childs adopts a straightforward, business-like approach to his carrier's local service role. The network airlines set fares and work out details of partnerships based on the two-letter airline designator code, which links their flights in computer reservations systems. SkyWest provides airplanes and crews at a competitive price under long-term agreements - United to 2014, Delta to 2020 - and turns over their operating expenses, including fuel, to the mainline partner.
"Pricing and the code stuff is not our bag," he says.
In its servant role, SkyWest serves two masters between its partner airlines and the passenger. Childs says SkyWest has written contracts with the mainline operators, but he feels the need to rely on the strong, cooperative relationships with partners. Parent SkyWest Inc. took a risk at the beginning of February when it filed a complaint against Delta in a Georgia court, claiming that the mainline carrier had withheld $25 million from a weekly wire payment, money that was due SkyWest Inc. in payment of costs from irregular operations incurred chiefly by subsidiary Atlantic Southeast Airlines. The amount totaled the expected reimbursements for the cost impact of flight cancellations, diversions and their aftermath expenses, hotel and food bills over a two-year period (AW&ST Feb. 11, p. 17).
A Delta official would not comment on the claim.
SkyWest's suit against a partner reflects the no-nonsense tone of the company. A news release stated that Delta disagreed with SkyWest's argument that, under Delta Connection agreements, the expenses were reimbursable. When the companies failed to settle the issue informally, SkyWest said it had to seek legal remedies "to protect our contractual rights under our agreements."
Childs is not troubled by the year's challenges, though he calls it a year of unknowns. United is increasing SkyWest's available seat miles and Delta's will be off 2%. SkyWest is building with Midwest Airlines, taking over Midwest Connect service in the next few weeks and totally replacing Midwest's Skyway air operations.
The parent company makes no bones about the downside possibilities of its dependency on other airlines and the cyclical nature of the airline business. The most recent annual report lists about 10 pages of risks - high fuel prices, merger threats, parts availability, labor issues and fewer cost reimbursements than expected.
But Childs believes SkyWest's strategy will carry it through. He says it is rooted in its practice of hiring solid working people who are empowered to put together a high-quality, reliable product. "These qualities enable partnering," he says. And the proof is in the pudding. SkyWest touts a 99.3% flight completion rate. In 2007, SkyWest hired 4,000 employees and had an attrition rate of 25%, 10% for pilots.
Rather than dealing with unions and an organized workforce, SkyWest prefers what it calls the cornerstone of its success, an "open-door culture." In a November vote, SkyWest's pilots rejected for the third time an organizing attempt by the Air Line Pilots Assn. More than 900 of the 2,600 eligible voters cast ballots for ALPA but the remainder did not vote and the outcome fell far short of the required majority.
The bane of the SkyWest operation is the limitations imposed by scope clauses in mainline pilot contracts. The Delta agreement permits outside companies to operate up to 76-seat aircraft; United's is stricter at 70 seats. The Midwest contract has no restriction. If SkyWest were relieved of scope limitations, the airline most assuredly would buy additional large-capacity regional aircraft to take advantage of their efficiencies, says Childs.
He believes that as a partner carrier, SkyWest is able to focus management and employees all the more intensely on serving customers and dealing with practical issues such as aircraft reliability. H. Michael Gibson, a 19-year veteran and vice president of maintenance, which employs 1,084 people, says aircraft spend 2 hr. in maintenance for every hour in flight. Mechanics conduct line service inspections of each aircraft every fifth day and take preventive steps after checking pressures and levels.
Whenever a manufacturer issues a service bulletin on a part or component, SkyWest's proactive policy requires that the recommended work be carried out immediately, ahead of a potential and mandatory FAA airworthiness directive (AD). In a recent case involving the CRJ200s, where a problem developed in a washer between the flex drive and the flap actuator, maintenance had responded to service bulletins and cleaned and resealed the affected area. Still, the seal failed to "keep grease out and allowed it to migrate and at altitude, it freezes," Gibson says.
When the AD was issued, SkyWest found no problems on its aircraft, likely because of the routine care. SkyWest followed the FAA advisory, using greater torque and a Hylomar application to complete the seal and the fix.
Mechanics perform C-level checks every 5,000 hr. of aircraft operation or every 540 days. D-level checks are done by third parties. All mechanics are schooled in troubleshooting, including avionics. More recently, mechanics are being selected for specialized sheet metal work and avionics training. Nondestructive testing procedures are employed, and mechanics are being trained as specialists in eddy current and ultrasonic test methods.
Gibson's crew takes a modicum of pride in the fact that a SkyWest C-check found a crack in the forward pressure bulkhead of the CRJ avionics bay that became a major fix during the mid-1990s. He takes greater pride in the carrier's six-week maintenance training program that attracts tuition-paying FAA personnel.
Every new employee is required to attend a one-day course on SkyWest and its culture, during which officers are introduced and the safety-first philosophy of the carrier is examined. In its 36 years, SkyWest has had one accident listed by the FAA. It occurred on Feb. 1, 1991, when an air traffic controller cleared a Fairchild Metro I to enter a Los Angeles International Airport runway and then also cleared a US Airways Boeing 737 to land on the same runway. The Metro was struck and overrun by the 737, killing two crew and 10 passengers.
SkyWest's "open-door culture" is also exemplified by its employee councils. Each department has one, comprising a dozen or so employees representing various skills. Lori A. Hunt, vice president for people, and other executives meet with these councils every other month or when the need arises. The meetings offer the opportunity for employees and management to exchange ideas, identify issues and work together. Individual employees can qualify for performance rewards.
A veteran SkyWest pilot, awaiting a deadheading St. George flight to Salt Lake City, remarked that the regional carrier produces profits even when other airlines fall flat. For this reason, he refers to SkyWest as "the Forrest Gump airline," always making money no matter what befalls the industry.
Aviation Week & Space Technology
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THE MIDDLE SEAT
By SCOTT MCCARTNEY -- WSJ
Leaving Las Vegas:
Fuel Costs Affect
Travelers' Options
US Airways Cuts Flights
From Popular Midnight Hub;
Stopover Gamblers Miss Out
March 25, 2008; Page D1
Skycaps were doing a brisk business and a line of travelers waited to check in at a busy Las Vegas airport terminal on a recent Monday. A monitor showed US Airways flights soon to depart to 29 different cities.
And yet, it was 11 p.m. Even though most all other airlines have shut down their operations for the night, save a few redeye flights, US Airways Group Inc. was operating a major hub operation in the middle of the night.
The full-scale "midnight hub" is unique in U.S. aviation, and for many fliers, including business travelers, this quirk of U.S. aviation is the only way to get from one coast to the other overnight. But now, the midnight hub at McCarran International Airport in Las Vegas is threatened because of high fuel prices -- a tangible sign of how airlines cut domestic service when finances turn sour, leaving travelers with fewer flight choices.
High oil prices have prompted US Airways to cut about 30% of its overnight flights in Las Vegas, trimming the schedule primarily on off-peak days (Monday, Tuesday, Wednesday and Saturday). Flights to nine cities have being suspended, including Cleveland, Raleigh and Denver. Miami ends April 5; the El Paso, Texas, late-night flight will be suspended May 3, US Airways says.
"The Las Vegas night system is vulnerable," said US Airways President Scott Kirby. "Flights that made sense at even $85 for oil are not making sense today."
The Las Vegas midnight operation is a microcosm of how high oil prices are affecting airline service. As oil prices rise, less-profitable flights become money-losers, and airlines eliminate them from schedules. Domestic flights are the first to go. That leaves smaller towns with fewer flights, and shaves late-night and early-morning trips from flight schedules because they are less popular with passengers. Travelers lose options and have to crowd onto fewer flights at higher prices, though an economic slowdown may curb demand for seats.
For airlines, the combination of high oil prices and recession can be devastating. Small carriers get pinched quickly -- Aloha Airgroup Inc., parent of Aloha Airlines, filed for bankruptcy protection last week, and Frontier Airlines Holdings Inc. struck a deal to sell four of its jets. Discounters Southwest Airlines Co., AirTran Airways Inc. and Skybus Inc. said they will slow their growth. Big carriers are moving rapidly to shrink. Delta Air Lines Inc. said it plans to shed 2,000 jobs and take 20 mainline jets out of service and ground another 20-25 smaller regional jets. UAL Corp.'s United Airlines said it will shrink its domestic flying by 15-20 jets.
Last week, jet fuel prices in New York were 147% higher than the previous year, reaching $3.30 a gallon. Airlines have pushed fares higher to cover some of the high cost, but haven't been able to pass all the increase on to travelers without sharply curbing demand for seats. Last month, domestic airfares were only 3.8% higher than in February 2007, according to the Air Transport Association.
Airlines now have to ground planes to stem losses, but even small cuts hurt the networks of hub-and-spoke airlines significantly. Take a planeload or two of passengers off a schedule of connecting flights, and other flights may lose a few passengers, making each of them less profitable. The entire system weakens financially -- one reason airline losses can start to pile up very quickly.
The Las Vegas midnight flights began 15 years ago when America West Airlines gambled that it could build a schedule around the 24-hour nature of "Sin City." The company found even more demand for flights on the East Coast after it merged with US Airways in 2005. Vacationers could gamble all day and into the evening at the casinos before showing up for their flights -- or arrive in the middle of the night and find hotel services and activities in full-swing. Visitors could even gamble right up to departure, parking themselves at one of the many slot machines at the airport itself.
"It's the one destination that people will fly even late at night to get there," said Mr. Kirby.
Operating the night flights can make financial sense for airlines since the extra flying just adds staff costs, some maintenance expense and jet fuel -- gates, airplanes, headquarters and other fixed costs are already paid for. Instead of being parked at airports overnight, planes fly. The economics allow airlines to offer cheaper ticket prices. About 80% of the customers using the nocturnal flights are leisure passengers, US Airways says, and many of them are drawn to the odd hours by cheaper prices.
Bill Keiser, a retiree from Detroit, flew home recently on a midnight flight so he could get an extra day of fun in Vegas. "The later the better," he said of the flight's schedule.
Amy Gall thought the overnight flight home to Chicago was a great idea, too, when she booked her trip. At the airport, however, she was dreading the trip -- and having to be at work in the morning shortly after her scheduled 5:30 a.m. landing. "If you were not coming off a Las Vegas vacation, this wouldn't be bad. But in Las Vegas, you're up all night anyway. I haven't had much sleep," she said.
US Airways' Mr. Kirby says Las Vegas is probably the only place a middle-of-the-night hub would work. The operation needs connecting passengers to fill planes, but couldn't exist without the local customers. Las Vegas is likely the only destination that could get so many people to the airport in the middle of the night.
But because fuel is a much bigger factor in each flight's total cost, those flights are more vulnerable to high fuel prices. "When fuel goes up, the night system's profitability is affected the most," said Mr. Kirby.
The operation remains profitable for now, he says. "But will it be profitable if oil stays at $102 a barrel? That's a much bigger hurdle."
Write to Scott McCartney at middleseat@wsj.com
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High Gas Prices Aid Prop-Plane Comeback
Monday March 24, 4:40 am ET
By Slobodan Lekic, Associated Press Writer
Jet Fuel Prices Spark Comeback of Unglamorous Turboprops on Regional Routes
BRUSSELS, Belgium (AP) -- As fuel prices soar to record highs and airlines struggle to maintain profitability, the unglamorous but fuel-efficient turboprop regional airliner is making a remarkable comeback.
The revival of the propeller-driven planes -- which typically consume a quarter to a third less fuel than equivalent jets -- marks a significant new trend in the industry. Until recently, many commuter airlines had been determined to consign the planes to history and convert to all-jet fleets, which offer greater passenger comfort.
Although the latest generation of turboprops has addressed some of the comfort issues by flying above turbulence and providing quieter cabins, analysts say the airlines' money worries about their bottom line now outweigh any passenger preferences.
With jet fuel prices 60 percent to 70 percent higher than a year ago, regional jets no longer offer good economics for short-haul flights, said Michael Dyment, an aviation analyst at Nexa Capital Partners, a Washington, D.C., corporate finance group.
"Nowadays, operating efficiency trumps any passenger considerations," Dyment said.
The world's remaining manufacturers of turboprops for commuter airlines, Canada's Bombardier and France's ATR, have ramped up production to 140 of the planes this year, after making 100 deliveries in 2007. This compares with only 26 in 2002.
"There has been a clear reversal of trends in the regional airline business over the past three to four years," said Richard Maslem, an editor of Airliner World, a British trade magazine. "Airlines that only a short time ago were championing the cause for the regional jet and suggesting the end of the line for turboprop models are now having to eat their words."
The regional sector as a whole experienced something of a boom, with traffic growth estimated at almost 8 percent in 2007, ranging from 3.1 percent in the U.S. to more than 9 percent in China.
While jets such as the Embraer E-series still topped the delivery list, the upsurge was led by turboprops, which accumulated 210 orders from clients worldwide.
The 1950s-era Fokker 27 was typical of the first generation of short-haul airliners with gas turbine engines driving propellers, which acquired a reputation for fuel economy and ruggedness.
Passengers, however, hated the propeller noise, vibrating cabins and susceptibility to turbulence at low altitudes.
As the next generation was entering service in the 1980s, many feeder airlines favored speedier and quieter 30- to 70-seat jets, such as those produced by Brazil's Embraer. This sparked predictions that they would eventually replace the turboprops.
By the beginning of the millennium, several turboprop manufacturers -- including Fokker and Saab -- had either declared bankruptcy or abandoned production of turboprops, leaving Bombardier ATR as the only major turboprop manufacturer.
But tight economic times have revived demand for the propeller craft over the past couple of years. A recent report by the market research firm Forecast International attributed this to the need by regional airlines to cut costs and reduce fares in the face of competition from low-fare carriers.
Jet fuel now averages US$3.70 (euro2.40) a gallon (for 3.8 liters) in the U.S. -- nearly double the price a year ago. Local airlines, which generally are run on very slim margins, already routinely resort to fuel-saving measures such as taxiing out on a single engine and coasting to landings by idling the engines.
With market interest growing, Bombardier is evaluating lengthening its existing 78-seat Q-400 to 90 seats, and its French rival is considering launching a totally new aircraft rather than extend its existing 70-seat ATR-72.
The new models would also have advanced noise and vibration suppression systems and would fly at higher cruising altitudes than their forerunners, offering in-flight comfort levels comparable to jets.
The stakes are high for both companies, because analysts predict a requirement of nearly 1,500 regional aircraft from 2007 through 2016 to keep up with projected demand.
"What has happened with new-generation turboprops is on short flights and with a smaller capacity they can open up or sustain markets that jets cannot. So you get the best of both worlds -- comfort for passengers and financial viability for the airline operator because of the 30 percent lower per seat costs," said John Strickland, director of JLS Consulting, a London-based aviation consultancy firm.
Strickland also pointed to the widening use of turboprops among partner subsidiaries of such companies as Lufthansa, Alaska Air, Air France and Quantas, where they feed traffic to the carriers' jet routes.
Luxembourg's airline Luxair typifies the turnaround.
In 2000, the carrier decided to discontinue the turboprop fleet it had operated since the 1950s and replace it with commuter jets. But as fuel prices skyrocketed, the airline turned to the more economical propeller models, and placed orders in 2006 for a fleet of new Q-400s.
Among other orders in recent weeks:
-- Seattle-based Horizon Air, a subsidiary of Alaska Air Group Inc., ordered 15 of the Q-400 turboprops from Bombardier, with options for 20 more, in a deal worth nearly US$400 million.
-- SAS, the joint flag carrier of Sweden, Norway and Denmark, reversed its decision to discard its fleet of Q-400s after a series of landing gear incidents. Instead, it reached a compensation agreement with the planemaker that included orders for 27 new aircraft of an improved model with options for 24 more -- a potential value of US$1.75 billion.
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Green Transport
Carbon Offsets Take Flight
Many airlines now offer passengers the option of compensating for carbon emissions via tree-planting and other programs. Should they just fly less?
by Pallavi Gogoi -- BusinessWeek.com
March 24, 2008, 12:01AM EST
For as little as $2, an eco-conscious passenger flying on Continental Airlines (CAL) can cancel out the damage they may be doing to the ozone layer. That's how much it costs to purchase a "carbon offset" to pay for planting trees. Or, they can contribute $50 or more toward a renewable-energy project such as solar or wind power. Both options are provided to passengers when they book through the airline's Web site. "Our customers tell us they want to minimize their impact on the environment, and we want to give them the tools," says Leah Raney, managing director of global environmental affairs for Continental.
A whole host of airlines, including Continental and Delta Air Lines (DAL) in the U.S. and Virgin Atlantic, Lufthansa, and Qantas internationally, are offering customers ways to offset their contribution to carbon dioxide emissions when they fly. And why not? Reducing one's carbon footprint seems to be de rigueur these days.
Last year, Vatican City accepted an offer to plant trees in a Hungarian national park, making it the only "carbon-neutral" state. "In the last eight months Delta passengers have bought offsets that paid for us to plant 102,000 trees," says Jena Thompson, director for the Go Zero program at the Conservation Fund, an Arlington (Va.) nonprofit whose primary objective is land protection. The group manages Delta's carbon offsets program. "Those trees will suck up 64,000 tons of carbon dioxide in their lifetime, which equals what would be produced by 29,000 Americans in a year."
Sounds simple and high-minded. But these programs are actually quite complex, and the payoff is being questioned by a growing number of people.
Codes of Standards
As the demand to reduce carbon footprints grows, many largely unregulated companies have sprung up to offer carbon offsets. These companies in turn plant trees in forests or algae in oceans, or invest in wind and solar power plants. Critics point out it is difficult to tell exactly the quality of work these companies perform. "The quality and standards of voluntary offset companies vary widely," wrote Anja Kollmuss and Benjamin Bowell in a report about offsets for the Tufts [University] Climate Initiative. The authors also noted some of the companies that sell offsets might see it as a way to promote their own environmental or humanitarian missions, and as "a financial opportunity."
No wonder, then, that several codes of standards have emerged. One of them is the Voluntary Carbon Standard, launched in November. It offers quality assurance checks from the Climate Group, the International Emissions Trading Assn., and the World Business Council for Sustainable Development. There are at least three other international standards including the Gold Standard, a Swiss nonprofit backed by several environmental groups that offers a quality label to offset projects such as renewable energy.
"Whim of Nature"
It is also difficult to judge the actual benefit produced by carbon offset companies. Take tree planting, for instance. It works in theory because trees absorb carbon dioxide from the atmosphere—including, presumably, that which is spewed from jet engines. However, environmental experts point out that trees absorb carbon at different rates depending on whether they are planted in temperate or tropical climate zones. Besides, they are susceptible to disease and natural disasters, and if they don't last their lifetime they aren't offsetting the carbon people pay for.
"With trees, your offsets are at the whim of nature and that's pretty questionable since we're having this conversation because of climate change," says Bill Burtis, manager of communications and special projects at Portsmouth (N.H.)-based Clean Air-Cool Planet, a nonprofit that advises corporations, communities, and campuses on ways to reduce greenhouse gas emissions.
Burtis and other critics also wonder about the point of offsets. They say offsets are like buying environmental indulgences for someone's supposed eco-damaging sins. Doing so doesn't lead to any change in behavior, which is what environmentalists would prefer to see. "We want to see people try to reduce energy first in how they live and then think about offsets," says Burtis. He says the same people who are concerned about the environment and buy an offset for a plane ticket would affect far more change by reducing the size of their houses, refrigerators, or cars.
At Home vs. Away
Of course, the point of many of these offset programs is one of convenience—it is, after all, much easier to click a mouse button and donate some money than to go without that SUV or recreation room. In a world that has become increasingly globalized, travel is hardly likely to decrease, no matter how guilty travelers feel about it. The World Travel & Tourism Council has seen international travel grow in recent years at a 6% annual clip, which is a faster pace than the 4% pace of growth in the 1990s.
Typically, the airline offset programs provide a Web calculator that estimates a traveler's carbon dioxide emissions from the flights they book. They use a formula that takes into account the distance traveled and how much fuel is burned during that flight, which determines the amount of carbon emitted. (Of course, different airlines have aircraft fleets that are old or new, so different airlines emit varying amounts of carbon for the same route.) The airlines offer passengers the option to buy offsets from environmental groups the airlines have signed as partners. At Continental, that's the nonprofit Sustainable Travel International.
Continental says it conducted a third-party review before deciding to partner with Sustainable Travel. "We were also attracted by the variety of projects we could offer our customers—since our European customers preferred to fund projects in developing countries while our American passengers wanted to contribute to projects in their own backyard," says Continental's Raney.
Gogoi is a contributing writer for BusinessWeek.com.
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FAA Orders New Checks on Boeing 737s
By ANDY PASZTOR -- WSJ
March 25, 2008; Page A2
U.S. aviation regulators ordered new checks on Boeing 737 jetliners and inspections of fuel-system components inside propeller-driven general-aviation airplanes, both affecting thousands of aircraft in the U.S. and world-wide.
The separate orders from the Federal Aviation Administration aren't related to lapsed inspections at Southwest Airlines Co., which have drawn criticism of the agency and prompted stepped-up efforts to ensure safety compliance at airlines. But they come as the FAA finds its practices under scrutiny.
U.S. aviation regulators called for new safety checks, repetitive inspections and potential repairs affecting some 650 older Boeing 737s to detect and correct loose or missing parts that could puncture fuel tanks. Though the FAA's directive applies only to the U.S., regulators in other countries typically follow suit, meaning world-wide it could affect more than 3,500 Boeing 737s, a workhorse of the global airline industry. A similar directive was previously issued covering some 2,000 newer Boeing 737s.
The Boeing 737 orders are the result of an investigation into the explosion of a China Airlines plane in Okinawa, Japan, in August. All 165 people aboard escaped seconds before the plane was destroyed. Regulators have blamed a design that permits maintenance mishaps. At the time, plane manufacturer Boeing Co. said its engineers were looking into changing the design of certain bolt assemblies to reduce chances of a fuel-tank rupture.
A spokeswoman for Boeing said the agency directive, which piggybacks on an earlier Boeing safety alert, is intended to make sure the entire global 737 fleet is checked. "As soon as we have a redesign approved" for the parts and it is approved by the FAA, she said, the special inspections will terminate.
The directive that goes into effect April 8 focuses on the mechanism that controls the slats, or movable panels on the front of the wings. It requires operators to verify that bolts, nuts and other parts are properly assembled and in working condition.
The checks involving general-aviation aircraft, one of the agency's most sweeping, affect roughly 5,000 propeller-driven planes in the U.S. and thousands of hobbyists and weekend fliers.
The defective parts, which also are installed in about 1,000 small planes operated overseas, can result in "substantial loss of engine power and subsequent loss of control of the airplane," according to material released by the FAA earlier this month. The agency also has mailed letters alerting aircraft owners nationwide, warning them to perform the special checks before their next flight.
Under the checks, the fuel-injection systems must be checked before their next flight. The parts that prompted the alerts are gaskets, manufactured by Precision Airmotive LLC of Marysville, Wash., that can degrade and shrink at engine-operating temperatures. The result can be fuel-injection system malfunctions that could cause engines to run rough or lose power. Roger Hall, the general manager of the company, said Precision Airmotive issued two earlier safety bulletins of its own.
The FAA said it received reports of 18 instances in which a part of the fuel-injection system had loosened or vibrated out of position. At least one serious accident was caused by the defective part, according to an FAA spokesman, but no fatalities.
The affected parts are used on two of the most popular families of propeller engines sold in the U.S. Pilots will have to recheck the parts after every 50 hours of flight time.
Write to Andy Pasztor at andy.pasztor@wsj.com
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Pilot Error,Faulty Device Caused Indonesia Adam Air Crash-NTSC
DOW JONES NEWSWIRES
March 25, 2008 12:53 a.m.
JAKARTA (AP)--An investigation has blamed pilot error and a faulty navigation device for a jetliner crash in Indonesia last year that killed all 102 people on board.
The National Transportation Safety Committee said in its report Tuesday there had been 154 recurring defects in the Boeing 737's navigation system in the months before the crash and that the airline had failed to properly address the complaints.
The plane was operated by Adam Air, an Indonesian carrier that last week had its license revoked because of its poor safety record.
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Clinton, Obama Split Up Airline Union Causes
Ted Reed -- TheStreet.com
03/24/08 - 10:08 AM EDT
Democrats traditionally have organized labor's support, a pattern that continues this year with presidential candidates Hillary Clinton and Barack Obama both winning major endorsements as they reach out to airline workers.
But labor politics can be tricky, as the case of the Teamsters drive to organize the 9,300 mechanics at UAL indicates. A representation election began Feb. 26 and ends March 31.
Obama, the senator from Illinois, has the backing of the Teamsters, the country's second-largest union with about 1.4 million members, including 43,000 in the airline industry, and he is getting behind the organizing effort at Chicago-based United.
Clinton, a senator of New York, has the support of the International Association of Machinists, which has about 110,000 of its 700,000 members in the airline industry, where it is the largest union.
Just as the two candidates don't much like each other these days, the two unions aren't exactly the best of friends either.
United mechanics were IAM members until 2003, when they left in the midst of a round of industry cost reductions to join another union, the Aircraft Mechanics Fraternal Association. Subsequently, AMFA suffered a severe blow to its image after staging a disastrous 2005 strike against Northwest. Most of its Northwest members lost their jobs as a result.
Even though it previously represented United mechanics, the IAM has not attempted a new organizing drive at the carrier. Union spokesman Joe Tiberi said that because several thousand United workers are on furlough and could fail to vote, the Teamsters run the risk that fewer than 50% of the bargaining unit would participate, which would result in a union decertification.
"We didn't want to put the workers at risk of having no union," Tiberi said. But Teamsters spokesman Galen Munroe said: "We are confident in the Teamsters Union's ability to unionize the workers at United."
As part of the organizing effort, Teamsters question United's rapid move to outsource maintenance since 2000, a result of rising cost pressures on the airline industry and of an AMFA contract with fewer restrictions on outsourcing than the predecessor IAM contract had.
United outsourced about 45% of its maintenance in 2007, up from 16% in 2000, according to the Bureau of Transportation Statistics. An undisclosed share of the work, including heavy maintenance of widebody aircraft, is sent overseas.
However, AMFA points out that at Continental, where Teamsters represent mechanics, about 48% of maintenance work is outsourced, roughly the same percentage as in 2000.
At US Airways, where the IAM represents mechanics, around 43% of maintenance is outsourced.
In a letter to the Teamsters this month, Obama wrote: "The practice of outsourcing aircraft maintenance overseas raises security concerns and pits our skilled mechanics making a middle class living against less skilled, less well protected workers abroad. I strongly support moving to reform and establish guidelines related to any foreign outsourcing of aviation mechanic work overseas."
Meanwhile, Clinton has voiced support for the IAM's strong stand against industry consolidation, particularly the possibility of a merger effort by DeltaDAL and Northwest.
The IAM represents about 11,000 agents and ground service workers at Northwest, but there is no assurance that would continue in a merger with Delta, whose agents and ground service workers do not have union representation. Such a merger could "de-unionize the transportation labor movement," IAM General Vice President Robert Roach has said.
"If carriers decide to combine in order to cut costs and increase their market clout, we will have to take a hard look at the potential effects on workers and consumers," Clinton said in January, in a prepared statement, adding that it is important to preserve choice, competitive pricing and jobs in the airline industry.
The Teamsters, meanwhile, have left some wiggle room. The union says it opposes a merger of United and Continental -- which has also been discussed as a possibility -- unless it benefits workers at both airlines. Looking at two hypotheticals, a victory in the United election could give the Teamsters a stronger hand were there to be such a merger.
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Piece of Plane Dislodges Over Md.
Monday March 24, 9:06 am ET
Piece of US Airways Jetliner Dislodges Over Maryland
ANNAPOLIS, Md. (AP) -- US Airways says a small part of a jetliner's wing dislodged and hit a passenger window as it flew over Maryland.
The airline says no injuries were reported aboard the Boeing 757 twin-jet airliner traveling Saturday from Orlando to Philadelphia with 174 passengers and six crew members aboard. The plane landed safely in Philadelphia.
Anne Arundel County Fire department Division Chief Michael Cox says a fax from US Airways' security office indicated that the 17.5 square-inch piece of a wing cover might have fallen somewhere in Prince George's or Anne Arundel counties or near Kent Island.
The airline says it has taken the plane out of service and is investigating.
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John, Could you please post this with your next newsletter?
Thank you, Joe Caola
March 19, 2008 Council 44 Meeting for Recall of Council Representatives
For those of you who don’t know me, I am an Atlanta 767 Captain and I would like to present my perspective of the recent meeting to recall our representatives. I have never worked for ALPA or management and I have no political motivation for this message. I only have a desire to see this pilot group get back on track to where it deserves to be. Although I did not participate in organizing the effort to recall the Atlanta reps, I was in agreement with everything they were doing.
I’m writing this because some of the posts made on the DALPA forum were so disturbing, especially when it came to discussion of Robert’s Rules.
I am not an expert on Robert’s Rules, and I only became interested in learning the rules when I unsuccessfully tried to introduce a resolution at a meeting in Atlanta several months ago. Following that meeting, I approached my reps and expressed my frustration. I was made to realize that I needed to learn the rules for debate.
I spent the next several months reading books on parliamentary procedure. One of the first things I learned was that the most important thing to understand about parliamentary procedure is that it is not about memorizing rules. It is about understanding what is fair in a debate. By fairly debating an issue, we can discover the best course of action for the group.
The first time I met Mike Stark was at the Doubletree Hotel the morning of the council meeting when I asked Mike if there is anything I could do to help during the meeting. He asked if I would be willing to present one of the resolutions and I agreed.
When the meeting began in Atlanta, the chairman, Tim Parker emphasized that he would not put up with any “parliamentary witchcraft” when it came to Robert’s Rules. He dramatically announced, “The merger is dead” and followed with a summary of accomplishments of Council 44 and the MEC. He then began a speech about the resolutions for recall which were about to be introduced and how they were motivated by the politics of a select group of individuals. He made many other comments which, from my observation, were intended to influence the members against the upcoming resolution. Mike Stark and John Malone wanted to allow him to continue but after hearing other similar speeches by other Council 44 officers, it became clear that he was not abiding by Robert’s Rules and I could not take it anymore. I called a “Point of Order” where I pointed out that Robert’s Rules does not allow discussion of the resolution before it is introduced.
I was overruled. I then made a motion (an appeal from the decision of the chair) to allow the members present to decide if his ruling should stand. He said he would not take a vote of the membership. I pointed out that it was within my right to challenge his ruling and asked if he intended to follow parliamentary procedure. Things were allowed to get out of control when a group of individuals began shouting for me to sit down. No direction was made for the meeting to come to order so I sat down. It was humiliating.
The rest of the meeting proceeded with what I observed to be deficiencies in knowledge of Robert Rules. It was obvious to me that Tim Parker was not interested in allowing me to point out the errors. Strangely enough, the rules were always biased against the recall. I believe it is that bias that caused the recall to fail. As an example, after a period of debate, a member made a motion to “call for the question” which would stop debate. Since this motion limits the rights of the members, a two thirds vote is required. During the meeting, only a majority vote was taken and proxies were counted in that vote. The result was that debate was stopped. Robert’s Rules (p.408) states, “It is a fundamental principal of parliamentary law that the right to vote is limited to the members of an organization who are actually present at the time the vote is taken in a legal meeting, although it should be noted that a member need not be present when the question is put.” Proxies should not have been used to decide if the question should be put because it limits the rights of those who took the time to come to the meeting.
It is interesting to note that Roberts Rules recommends against allowing proxy voting except in the case of a stock company where stocks, and therefore votes, are transferable. It goes against the principles of deliberative assembly where members attend with open mind to hear both sides of an issue and then put it to a vote. Proxy voting, with respect to ALPA policy, almost always favors the group of incumbents and is not fair to the minority.
The entire meeting was a circus from the beginning. It was disheartening to see our elected representatives ignore Robert’s Rules after telling me to learn them. I don’t think Tim Parker should have presided over a resolution for his own recall as he was allowed to exploit the decorum of the meeting in his own favor. The following paragraph illustrates why this was out of order and why it was out of order to speak against the resolution before it was introduced.
This excerpt is from “The Guerilla Guide to Robert’s Rules” which was written by a parliamentarian with over 27 years of experience: “The role of the presiding officer is to objectively facilitate the meeting process. As long as the presiding officer stays in the position of meeting chair, she must not enter into the debate and should not let any of the members know which side of the issue she favors. The more controversial the issue, the more important it is that the presiding officer remains neutral. The neutrality of the presiding officer is frequently the difference between a lively, orderly meeting and a fiasco. If you are to be the presiding officer of a meeting and know that you cannot remain neutral, Robert’s Rules allows you to remove yourself from the chair and have the next-in-line person take your place so that you can sit out with the other members and participate as any other member.” The precise rule that prohibits discussion of the resolution beforehand is on page 32 of Robert’s Rules of Order Newly Revised.
The reason we use Robert’s Rules is to prevent a group of influential people from running roughshod over the little guy. It has been accepted as the parliamentary authority by somewhere between 80 and 95 percent of all organizations in the United States.
The purpose of these council meetings is not to pay tribute to our elected officials, but to provide an opportunity for all pilots to participate in the decision making process of our union. If we can’t conduct a meeting in a structured format which is fair to all members, then we have some serious problems with this union.
We must protect the rights of every individual in our union, especially during a time in which critical decisions governing our quality of life are being made without a vote from the membership.
It is alarming to see such a blatant disregard of the rights of union members in good standing, especially from individuals that claim to have our best interests at heart. It is also alarming to hear individuals talk about doing away with Robert’s Rules.
In my opinion, we should call for a special meeting of the local council in order to address the recall of our reps and Tim Parker should remove himself as chairman for the meeting.
In closing, I cannot overemphasize the importance of line pilot attendance at these council meetings. Through the proper application of Robert’s Rules, greater attendance by line pilots will eventually lead to our voices being heard loud and clear.
Fraternally, Joe Caola
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