Airline profits for overseas flying dries up

[Secret Squirrel]

http://www.thestreet.com/_yahoo/new...32419.html?cm_ven=YAHOO&cm_cat=FREE&cm_ite=NA

Now they are saying domestic will have the higher yield because all the airlines have thrown so much capacity at overseas markets.

 

[StopNTSing]

That plus the rise of all the Middle Eastern carriers that are making a major push into the long-haul international market, makes me wonder just how lucrative it will be going forward. Of course I only have this opinion since I work for a domestic carrier, so flame away! :nuts::bomb:

 

[jonjuan]

"European currencies also cratering..." (Art Cashin, CNBC)
Economic growth is weakening globally: Data abound indicating weakening of global economic growth. England is moving toward recession, Germany on August 14th is expected to post a negative reading for Q2 GDP, Japan is moving toward recession, and even China is showing signs of slowing.
http://www.iata.org/pressroom/pr/2008-08-04-01.htm

Date: 04 August 2008

Freight Volumes Contract and Passenger Growth Hits Five-Year Low
Geneva - The International Air Transport Association (IATA) released international traffic data for June that showed a continued slowing of demand growth for air transport. Cargo contracted by 0.8% compared to June 2007. Passenger demand growth fell to 3.8%, the lowest level since 2003. Passenger load factors dropped to 77.6%, 1.2 percentage points below the 78.8% recorded for June 2007.
“The global economic turbulence clearly shows in the 0.8% drop in freight volumes compared to last year. Although the passenger demand grew by 3.8%, this is the slowest growth that we have seen since the industry was hit by the SARS crisis in 2003. With consumer and business confidence falling and sky-high oil prices, the situation will get a lot worse,” said Giovanni Bisignani, Director General and CEO of IATA.
Passenger

• Global passenger traffic growth of 3.8% is well below the 5.4% recorded year-to-date.
• Capacity growth of 5.5% outstripped demand, pushing the passenger load factor down to 77.6%
• North American airlines saw demand growth drop to 4.4% (sharply down from the 8.2% growth recorded in May). Domestic traffic in the US contracted by almost 4%.
• European airlines saw demand drop to 2.1% (compared to 4.1% in May). Declines in business confidence and industrial production in key European economies may well drive this further down.
• Asia Pacific airlines saw their international passenger traffic growth fall to 3.2% in June from 4.5% in May, influenced by weakening long haul destination economies and inflation concerns.
• Middle Eastern carriers saw their traffic growth slow to 9.6% June from 12.8% in May. This is sharply down from the 18.1% recorded in June 2007.
• Latin American carriers turned in the strongest performance with 12.5% growth. Strong commodity-driven economic growth in Latin America is the driving force.

Cargo

• International freight traffic declined -0.8% in June. This is the first decline seen since May 2005 and follows several months of falling manufacturing sector confidence indicators.
• Asia Pacific airlines led the contraction with a -4.8% year-on-year decline for June traffic.
• Latin American airlines recorded the largest contraction (12.7%) as the region’s cargo sector continues to re-structure its capacity.
• European carriers saw freight demand growth fall to 0.7% in June from 1.4% in May.
• North American carriers also saw freight demand growth slow to 4.0% in June from 4.6% in May.
• Middle Eastern carriers delivered the strongest performance with 12.1% growth (up slightly from the 10.7% recorded in May).
• African airlines recorded a -1.9% year-on-year decline in June.

“The airline sector is in trouble. Losses this year could reach US$6.1 billion, more than wiping out the US$5.6 billion that airlines made in 2007. Falling demand and rising costs are re-shaping the industry,” said Bisignani. “To survive the crisis, urgent action is needed. Airports and air navigation service providers must come to the table with efficiencies that deliver cost savings. Labour must understand that efficiency is the only path to job security. And governments must stop crazy taxation and give airlines the freedom to merge and consolidate where it makes business sense.”

 

[Andy]

Who could have seen this coming?

http://forums.flightinfo.com/showthread.php?t=110404
http://forums.flightinfo.com/showthread.php?t=113671

I especially like the following exchange from March:

The new aircraft will be the next to go. Look for an order cancellation press release in the future.

Delta's management is being smart in making these cuts early. As demand falls (it is and will get worse), it's far better to not bleed a ton of cash while hoping that load factors increase.
There will likely be fare wars as passenger counts fall. Those flying aggressive schedules will bleed a lot more cash than those who have already reduced schedules.

The airline hiring music is about to grind to a halt, to be followed by furloughs.

From an internal memo:

International expansion
Much of the protection against increased oil prices that we enjoy today is because of your good work over the last three years to transform Delta into a global airline. This summer more than 40 percent of our capacity will be dedicated to international flying where fares more readily cover higher fuel costs. We firmly believe that global expansion, and the network diversity that it provides, is key to our long-term success.

We are in our third consecutive year of record international expansion, including the important additions of Shanghai and Heathrow in the first quarter. Delta’s international growth will continue to be supported by investments in our fleet, including the continued delivery of 22 international-capable 737-700s, 757-200-ETOPS and 777-200LRs through 2009. Because of their importance in achieving our international growth, we have no plans to defer or delay the delivery of these aircraft. While we will make small adjustments to our international plans to ensure we are focused on the most profitable routes, we will still increase international capacity by more than 15 percent in 2008. Any adjustments to international flying will focus on reducing frequencies or eliminating select seasonal routes. For example, Delta will serve Edinburgh this summer from our JFK hub but will not reinstate seasonal flights from Edinburgh to Atlanta.

Yet again Andy, you are wrong.

Bye Bye--General Lee

Yep. Everything's blue skies and there are no problems ahead with international traffic growth.
So what happens to international traffic when domestic feed's reduced?
And I suppose that you don't see any problems in the credit markets either, eh?
Please remain blissfully ignorant; you have a reputation to uphold.

GL, looks like a big 'ol crow is on the menu for your dinner tonight.

 

[Superpilot92]

GL, looks like a big 'ol crow is on the menu for your dinner tonight.

How so? When did DAL defer new aircraft deliveries?

 

[Tanker Clown]

This article is obviously some sort of lampoon. The Genital promised that international routes were where the money/growth was. He's always right. He's the Cliff Claven of Flightinfo. Moderators: Please delete this thread. Especially the facts coming from independant news sources.

 

[Andy]

How so? When did DAL defer new aircraft deliveries?

GL stated that DAL was going to continue to grow internationally. If they do take that course of action, they'll grow right into bankruptcy.
As for the cancellations, give it a little time. Are you suggesting that DAL is going to continue to take delivery of 767s and 777s in this environment? Again, that's financial suicide.

 

[Superpilot92]

GL stated that DAL was going to continue to grow internationally. If they do take that course of action, they'll grow right into bankruptcy.
As for the cancellations, give it a little time. Are you suggesting that DAL is going to continue to take delivery of 767s and 777s in this environment? Again, that's financial suicide.

That's your opinion and many would disagree. Time will tell.

So far you assumptions are wrong. DAL has continued to add International routes and no deliveries have been deferred, in fact they have taken new aircraft and will be receiving the 777's in the next month or two. That combined with the 737's already being delivered and the 787s that NWA will be bringing to the party next year there will be quite the aircraft line up. So why should the General "eat crow tonight"?

 

[PeanuckleCRJ]

GL stated that DAL was going to continue to grow internationally. If they do take that course of action, they'll grow right into bankruptcy.
As for the cancellations, give it a little time. Are you suggesting that DAL is going to continue to take delivery of 767s and 777s in this environment? Again, that's financial suicide.

We're taking 767's? News to me....


The only plane's we're taking delivery of are a few 737-700's and the ULR 777's.

 

[FDJ2]

From DAL's 2Q report:

Delta continued to deliver strong revenue growth as a result of its international network investment, cargo and ancillary business revenue growth, and aggressive yield management. June 2008 quarter revenue improved 10%, or almost $500 million, year over year. Based on the most recently available ATA data, Delta achieved a revenue premium to the industry – its consolidated length of haul adjusted passenger unit revenue (PRASM) was 102% of industry average PRASM (excluding Delta) for the first five months of the year. Delta reached its goal of closing the PRASM gap to the industry a year ahead of schedule.

 

[Poahi]

It's the intersection of KoolAid and denial...

 

[upndsky]

Delta's international push is into niche markets, where there's little if any direct flights to the US. Places like Malaga, Lyon, Nice, Bucharest, Amman. Expect to see other "exotic" destinations in the future. I just did Dakar and Cape Town and the flights were completely full.

International growth for DL is not on the JFK-LHRs or JFK-CDGs. 1) Those routes are already saturated. 2) We don't have the right aircraft for it. Instead, we'd rather use the 767s and 757s for those smaller markets I mentioned. There's still a lot of world to be covered.

 

[RJAA]

Bucharest is a proven failure. Nice job. So is Vienna. Nice is a question of how much longer with fuel price the way it is and the weak dollar.

 

[eatme]

Delta's international push is into niche markets, where there's little if any direct flights to the US. Places like Malaga, Lyon, Nice, Bucharest, Amman. Expect to see other "exotic" destinations in the future. I just did Dakar and Cape Town and the flights were completely full.

Well we all know that full flights are the harbinger of profitablity and good times..cough. Their are plenty of "exotic" destinations to fly to, Kabul, Tsibilisi, Sichuan, Myanmar...

 

[upndsky]

Not all destinations are going to be a success. You're right, Bucharest isn't hitting the margins (I don't know about Vienna). But other markets are. There's always going to be some trial and error. Even Southwest has to adjust its routes and schedules because it overestimated (gasp!) the demand for a certain market.

And a full flight internationally is different than a full flight domestic, where they give a seat away for $100 a pop.

 

[FDJ2]

It's the intersection of KoolAid and denial...

Or it's just the facts.

 

[General Lee]

GL stated that DAL was going to continue to grow internationally. If they do take that course of action, they'll grow right into bankruptcy.
As for the cancellations, give it a little time. Are you suggesting that DAL is going to continue to take delivery of 767s and 777s in this environment? Again, that's financial suicide.

Are we not continuing to grow internationally? I think we are. We were just awarded 3 new cities in Brazil (Manaus, Recife, and Forteleza), and we will start those in December. As far as NORMAL FALL/WINTER pulldowns, we are cutting our schedule back as normal, and will ramp up again in the Spring. The original article had quotes from Ed Bastain stating that a lot of our new INTL expansion is not hurting because we are mostly the only ones on the route, or we have one competitor.

Here is the part of THE STREET article I am talking about:

At the same time, much of Delta's summer expansion is in Africa and the Middle East, where expansion has been far slower than in trans-Atlantic markets, President Ed Bastian said. "We have a little bit of a different footprint," he said

Our pricing power is great on those routes. Now we are cutting back on a few routes (like BOM--JFK, which now will be routed nonstop to ATL), but the majority will stay, and we are not deferring any planes that I know about (still have 10 737-700s coming total--to new routes like Tegucigalpa, and 8 777s in the next year).


Now Andy, your United is deferring a lot of planes (49 A320s) and parking a bunch too. (94 others) But hey, at least you have your military gig. Make sure you use that Gov't issued sidearm to shoot down your own crow to eat it.


Bye Bye--General Lee

 

[General Lee]

Bucharest is a proven failure. Nice job. So is Vienna. Nice is a question of how much longer with fuel price the way it is and the weak dollar.

Nice job? How about Budapest? Malev just announced pulling out of all transatlantic flights--so no competition on that one. Vienna is a seasonal operation, it always has been. And Nice goes to part time (3 or 4 a week) in the Fall/Winter, and always has done that. Keep it up man, I will go up against your nonsense anytime. Just wait until you hear the changes (for the better) we will be announcing after the merger. You will be saying "Nice job....." and meaning it.


Bye Bye--General Lee

 

[RJAA]

Oh come on, you are happy about Budapest? You also made another airline very happy by bailing out of JFK-BOM non-stop. How long did that last?? I thought it was carrying all kinds of goodies on shiney B777-200LR. I mean, you gotta ask yourself why Delta bailed and the airplanes had to be sent to ATL to fall back on its connection feed when there are more B777-200LRs coming in just a few months to launch ATL-BOM at will. Nice Job! Good luck routing premium traffic back up to the northeast after 18 hrs of flying. It's a tough sell. They might just cross the river for the non-stop action.

 

[Sedona16]

Oh come on, you are happy about Budapest? You also made another airline very happy by bailing out of JFK-BOM non-stop. How long did that last?? I thought it was carrying all kinds of goodies on shiney B777-200LR. I mean, you gotta ask yourself why Delta bailed and the airplanes had to be sent to ATL to fall back on its connection feed when there are more B777-200LRs coming in just a few months to launch ATL-BOM at will. Nice Job! Good luck routing premium traffic back up to the northeast after 18 hrs of flying. It's a tough sell. They might just cross the river for the non-stop action.

I dont know about the rest of you all but this guy seems jealous hes on the wrong team. In the end he will have waisted his time trying to put down others while he should be updating his resume and looking for another dispatching job. My two cents FWIW.

PS- You should have never let your route planners get away.

 

[lowecur]

Just wait until you hear the changes (for the better) we will be announcing after the merger. You will be saying "Nice job....." and meaning it.


Bye Bye--General Lee

The merger will be a good thing, no doubt....and there better be lots of pulldown in international flying and a strategic bump in some domestic. Watch for CVG and MEM to all but disappear as hubs in the next few years.

1. The news you will be hearing the last half of this year will be how the world economy is going into recession. China's economic bubble is about to pop, and the rest of the world is hurting from a poor US economy.
2. Russia is re-exercizing it's military might and will continue to try and reign in some lost territory. Let's not forget they are a police state run by the old KGB.
3. The stock market will continue to crumble as institutional investors sell into these traders rally's.

You got some smart people leading DL, and you are positioned to be nimble enough to make these moves. I see NWA just wrote off the $200M Midwest Investment. That not working out for AAI was a blessing in disguise, as they should be able to make continued inroads as the old Midwest is dismantled.

Looks like oil is headed down to the 70-90 bbl until the world economy heats up again. That's a good thing for the airline industry, and continued contraction is mandatory. It's also good for the low cost carriers and bad for most legacy's that will have a hard time shrinking fast enough to remain profitable.

imp: ​

 

[RJAA]

I dont know about the rest of you all but this guy seems jealous hes on the wrong team. In the end he will have waisted his time trying to put down others while he should be updating his resume and looking for another dispatching job. My two cents FWIW.

PS- You should have never let your route planners get away.

Who is putting who down? Are you that deep in the cool aid to see not everything Delta does prints money? You didn't even respond contructively to what I said. ICN is down to 3 times a week. I hear China is also not so hot lately, and that goes for everyone. Look at your PVG. The costs are way up. See what sticks. Trial and error I guess, sounds like a great planner, and keep your Delta propaganda up. And no, I wouldn't be looking for another job. Delta is not the only international airline in the U.S. Ciao.

 

[Frank Lorenzo]

I just did Dakar and Cape Town and the flights were completely full.

Irrelevant.

What were your YIELDS?. (and how do you know? Are you, as a line pilot, privy to the inner workings of the yield management team?)

I'm sure Skybus had a lot of full planes too.

BTW, you are ASSuming that no other airlines will start up service to some of your "winners." You think other airlines like UAL, AA, or CAL don't know what kind of LF or yield you are pulling down on some of those markets? You are the lab rats. Anything that pans out as a winner over the course of a few months will soon be invaded by at least one if not all competitors.

When this merger is done, it will start shrinking like George Costanza fresh out of the cold pool. I can't wait to hear the spin job...

"Shrinkage is actually GOOD for us. Delta's management actually knows that shrinking this airline is unparalleled genius...."

Pure entertainment.

 

[General Lee]

Oh come on, you are happy about Budapest? You also made another airline very happy by bailing out of JFK-BOM non-stop. How long did that last?? I thought it was carrying all kinds of goodies on shiney B777-200LR. I mean, you gotta ask yourself why Delta bailed and the airplanes had to be sent to ATL to fall back on its connection feed when there are more B777-200LRs coming in just a few months to launch ATL-BOM at will. Nice Job! Good luck routing premium traffic back up to the northeast after 18 hrs of flying. It's a tough sell. They might just cross the river for the non-stop action.

You obviously have never been to Budapest. Beautiful city, especially compared to Bucharest. Regardless, this obviously shows one thing though, if a city is not doing well, we will and can abandon it quickly, whereas in the olden days we would have stayed and incurred more losses.

Did you know about the competition to BOM from the NYC area? CAL goes nonstop to DEL ad BOM. Air India does the same, and Jet Airways does one stop service through BRU from JFK and EWR also. Sounds a bit crowded. Apparently our nonstop had mostly ATL connections anyway, and since ATL is the busiest airport in the WORLD, we thought it would be better to allocate our resources towards that. Our plane can do it, and the people wanted it. That's called being fexible. It's great that you think ONLY people in NYC go to India. That's the same thing people said about our initial nonstop Tel Aviv service from ATL (which is doing very well). Oh yeah, we recently added 767ER service too from NYC..... Did I just hear a "nice job" from you? Yes, yes I did. Thanks.

Bye Bye---General Lee

 

[General Lee]

Irrelevant.

What were your YIELDS?. (and how do you know? Are you, as a line pilot, privy to the inner workings of the yield management team?)

I'm sure Skybus had a lot of full planes too.

BTW, you are ASSuming that no other airlines will start up service to some of your "winners." You think other airlines like UAL, AA, or CAL don't know what kind of LF or yield you are pulling down on some of those markets? You are the lab rats. Anything that pans out as a winner over the course of a few months will soon be invaded by at least one if not all competitors.

When this merger is done, it will start shrinking like George Costanza fresh out of the cold pool. I can't wait to hear the spin job...

"Shrinkage is actually GOOD for us. Delta's management actually knows that shrinking this airline is unparalleled genius...."

Pure entertainment.

That's not what a lot of us have heard (but you, being a washed up airline exec have heard differently). And, with oil going down, it may be a total reversal. I have heard that our budget next year is based on $140 a barrel oil, and if it sinks and we can take advantage of some hedging, then I think you will be wrong, again...... Sorry Frank.

Bye Bye--General Lee

 

[upndsky]

Irrelevant.

What were your YIELDS?. (and how do you know? Are you, as a line pilot, privy to the inner workings of the yield management team?)

I'm sure Skybus had a lot of full planes too.

BTW, you are ASSuming that no other airlines will start up service to some of your "winners." You think other airlines like UAL, AA, or CAL don't know what kind of LF or yield you are pulling down on some of those markets? You are the lab rats. Anything that pans out as a winner over the course of a few months will soon be invaded by at least one if not all competitors.

When this merger is done, it will start shrinking like George Costanza fresh out of the cold pool. I can't wait to hear the spin job...

"Shrinkage is actually GOOD for us. Delta's management actually knows that shrinking this airline is unparalleled genius...."

Pure entertainment.

I'm aware of all those issues. But your Skybus analogy is weak. Delta doesn't sell $10 tickets to Cape Town. International fares, especially on thin routes, are traditionally higher than domestic and therefore are going to have better yields. Enough to make money? That I don't know, but it's going to be better than domestic.

One reason you don't see others expanding into some of these international markets is that they don't have the equipment. By happenstance, Delta just happens to have a large fleet of 767s and 757s that could be quickly converted from domestic to international to serve those markets. It wasn't too long ago that most of our 757/767s were doing nothing but domestic. We had the "luxury" to have a fleet that we could adapt to a changing market. Companies like UA, US and NW didn't.

 

[Frank Lorenzo]

That's not what a lot of us have heard

Oh, so it falls under the "I heard" category. Nothing more reliable and accurate then the line pilot's "I heard" grape vine.

Shocking to see that a bunch of airline executives trying to do a sell job on a merger would try to vet an uber-rosy scenario to the rank and file.

 

[RJAA]

You obviously have never been to Budapest. Beautiful city, especially compared to Bucharest. Regardless, this obviously shows one thing though, if a city is not doing well, we will and can abandon it quickly, whereas in the olden days we would have stayed and incurred more losses.

Did you know about the competition to BOM from the NYC area? CAL goes nonstop to DEL ad BOM. Air India does the same, and Jet Airways does one stop service through BRU from JFK and EWR also. Sounds a bit crowded. Apparently our nonstop had mostly ATL connections anyway, and since ATL is the busiest airport in the WORLD, we thought it would be better to allocate our resources towards that. Our plane can do it, and the people wanted it. That's called being fexible. It's great that you think ONLY people in NYC go to India. That's the same thing people said about our initial nonstop Tel Aviv service from ATL (which is doing very well). Oh yeah, we recently added 767ER service too from NYC..... Did I just hear a "nice job" from you? Yes, yes I did. Thanks.

Bye Bye---General Lee

Spin, spin, spin. Something went wrong there. Are you saying Delta left because it was not competive enough in NYC? I just fell out of my chair. Delta clearly got their ass handed to them in the NYC, which is the largest market to India in O&D. Delta has been serving India for at least 10 years longer than Continental. They should have a better market penetration, but clearly don't. Thanks, others will enjoy higher fares. Delta has a handful of 200LRs coming online in a few months to launch new stuff out of ATL to India. Why change so sudden? Being flexible? You mean try something new and cut it often? How is that LA thing going? Try telling that to business traffic who depend on reliable service. ATL being the businest airport in the world does not equate profitability. You would brag about the new Brazilian authority. AA will print money from MIA with their new authority. 2nd tier Brazillian stuff from ATL will face some challenges. Oh, and I have been to Budapest, not on a tiring layover but on a vacation. It's one of my favorite places in Europe.

 

[Superpilot92]

YAWN, just another classic example of some disgruntles pissing on everyone else's parade. What a joke....