Global Growth Beckons Airlines

[Big Slick]

Global Growth Beckons Airlines

When low-cost carriers took over the airline industry in the decade's early years, legacy carriers couldn't even find shelter in their onetime fortress hubs. So they retreated to international markets, where low-cost carriers couldn't chase them.

This week, as first-quarter earnings reporting got under way, legacies could celebrate their revenge.


American reported a first-quarter profit for the first time since 2000. Continental reported a first-quarter profit for the first time since 2001.

Meanwhile, Southwest, the largest low-cost carrier, had a quarter so strikingly unsuccessful -- at least by Southwest standards -- that it immediately announced a transformation plan.

Details of the plan are sparse, but it is hard to resist the notion that once it is implemented, Southwest will look a lot more like its legacy competitors. Among the ideas CEO Gary Kelly mentioned on a conference call Thursday were assigned seating, international flying, in-flight entertainment and increased cargo sales -- underscoring the oft-repeated adage that there are no new ideas in the airline industry.

So far, the principal message of the first quarter's results is that domestic is not the place to be.

All you have to do is read the RASM numbers. American said international revenue per available seat mile grew 11.3%, led by the Pacific region, where RASM jumped 19.3%. Domestic RASM gained just 1%.
Continental said all of its international segments showed double-digit increases, led by a 14.4% rise in Latin America. Domestic RASM declined by 0.7%.

Southwest said its RASM grew by 1.4%. At least, Kelly noted, Southwest's domestic performance was better than its competitors'. And it should be noted that Southwest made a profit for the 64th consecutive quarter, something no other airline can say. But that profit fell by 48% from a year earlier.

On the Continental conference call, President Jeff Smisek cited "continued pressure on domestic pricing [that is] mainly driven by the growth of low-cost carriers and their pricing structure in the domestic market." But Smisek noted that "despite the yield degradation, we expect to continue to grow our domestic networks" in order to feed international flights. That's because 43% of Continental domestic passengers connect to international flights.

Continental CEO Larry Kellner said 47% of the airline's mainline passengers fly internationally, the highest international share for a legacy carrier. He said Continental realized a decade ago that international travel growth would follow growth in global telecommunications, in trade with China and in NAFTA-related trade. Now, Kellner said, "Travel seems to be growing at a pace ahead of global economic development.
"You're seeing a maturing of the global economy," he said. "Communications is helping to drive it. You're seeing benefits to the airline business from the globalization of other businesses."

Meanwhile, JPMorgan analyst Jamie Baker issued a "domestic warning" Thursday, noting: "Let's not stick our heads in the sand -- there is a growing body of evidence that domestic demand is deteriorating." As a result, he said, most airline stocks are overrated, even the ones that fly internationally.

Later in the day, Baker downgraded Southwest to underweight from overweight. JPMorgan has a business relationship with Southwest that includes providing investment-banking services.



Similar message:
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[Big Slick]

US-China Aviation Agreement In The Works

Mon, 16 Apr '07
None To Soon For US Carriers

Do you have plans to travel to China? You may have more flight options available when an "open skies" agreement liberalizing air travel with the US is formally signed by the end of the year, according to the Associated Press.
Transportation Secretary Mary Peters has been working with Beijing to discuss the agreement.

"We want to at least have the basic framework in place by May," Peters said.
According to Peters, the framework "open skies" agreement will be discussed at a May meeting in Washington during a high-level U.S.-China dialogue on trade relations.

"Both senior Chinese officials, as well as senior American officials, have indicated that a liberalized aviation agreement is something that we want to accomplish in the short term," she said.

Washington hopes to produce a formal agreement by the end of this year.
A liberalized aviation agreement could see the reduction of restrictions on trans-Pacific flights and later allow US carriers to fly through China to other countries, Peters said. She added it also would be expected to cover cargo flights later.

US carriers, which had aggressively lobbied for the one new route awarded this year, saw that route go to United Airlines, which used it to launch the first direct service between Beijing and Washington last month. Industry consultants say the route has a value of as much as $100 million in annual revenue.

"There was incredible competition for that flight," Secretary Peters acknowledged, "and I would see that type of competition between most all US airlines and Chinese airlines."

Northwest Airlines, American Airlines and Continental Airlines had also bid for the route.

The number of airline flights between China and the U.S. is limited by international agreement.

Despite strong demand from rapidly rising tourist and business travel, there are an average of only 11 daily non-stop flights between China and the US, said Peters. By comparison, she said, there are 55 daily flights between the US and Germany, which does have an "open skies" agreement with Washington.

Officials at American are interested in learning how quickly routes might be added between the two countries.

"Obviously, we'd be greatly in favor of seeing more frequencies open up," said American spokesman Tim Smith. "The markets between the United States and China are still greatly underserved."

Smith said the airline plans to bid for new China flights in the future, but has not determined specific routes.

Continental also supports the government's efforts to liberalize air travel between the two countries, said spokeswoman Julie King.

"Continental continues to be interested in additional flights to China, including New York to Shanghai," she said. Continental's proposal last year was a New York-Shanghai route. Delta Air Lines, too, is looking towards China, officials at the carrier said Friday. "Delta is keen to build our presence in Asia as a continuation of our international expansion," said spokeswoman Betsy Talton. "To this end, we've applied to provide the first and only non-stop service to China from the Southeast, and would certainly pursue additional US-China markets if negotiators agree to further liberalization."

FedEx Corp. recently obtained rights to operate 30 round-trip flights between the US and China, said spokeswoman Denise Lauer. The company broke ground last year on a $150 million hub in southern China at the Biyun International Airport in Guangzhou.

"FedEx has long supported the liberalization of the global air industry," Lauer said. "We believe a more open aviation regimen will lead to lower costs, more flexible and efficient services, commercial activity, and growth and development. We support it especially in the China market."

 

[The Victors]

Details of the plan are sparse, but it is hard to resist the notion that once it is implemented, Southwest will look a lot more like its legacy competitors. [/quote]


I haven't read anything that stupid in a while.