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Delta Views New Terminal as Symbol of Modern Age of Air Travel

May 9, 2013 by Leave a Comment

Rather than compete on the lowest fares — a race to the bottom over the last decade that just weakened them — the airlines are now seeking to lure passengers with better amenities and service. That new strategy points to the improving financial health of the industry, a turnaround that can be traced to both the string of mega-mergers among the big carriers and the industry’s single-minded emphasis on cutting excess capacity since the depths of the recession.

Delta, the first of the major carriers to go into a merger — with Northwest in 2008 — is also in the strongest position to reshape its goals. And the $1.2 billion investment in a new terminal in New York, which will replace two 50-year-old grim, 50-year-old and woefully inadequate terminals at the end of the month, is the latest and most visible sign of its new approach.

The airline has already been flexing its muscles. In the last two years, it has focused on improving its balance sheet as well as its operations, expanded its global partnerships, invested in airlines like Virgin Atlantic and even bought an oil refinery. On Wednesday, it said it would reward shareholders with $1 billion in quarterly dividends and share repurchases over the next three years.

“The airline industry has been broken for decades,” Edward H. Bastian, Delta’s president, said in a recent interview. “It was fragmented. People worried if the airlines were going to make it or if they were going to be bankrupt. Today, everybody has scale, customers have choices and people have seen that service matters.”

In this new world of fewer airlines and less capacity, airline executives hope to achieve a level of stability that has eluded them since the federal government deregulated air travel in 1978. While Delta’s merger is complete, more work remains on United Airlines’ merger with Continental Airlines and Southwest Airlines’ tie-up with AirTran. American Airlines and US Airways, which announced in February that they would merge, are just starting the process. But most have begun putting Wi-Fi and individual TVs aboard their planes, installing more comfortable seats for business passengers and investing in mobile technology that gives passengers more control over their travel plans.

Not all the changes have been welcomed by travelers. Airlines charge more fees than ever, requiring passengers to pay for services that were once free, including checking bags or booking seats with more legroom. These fees are also rising and account for a bigger share of the airlines’ revenues. In the latest of these, United increased its ticket-change fee to $200 from $150, a move that was matched by most airlines this month.

Airline executives argue that the industry needs to be profitable for service to improve. Fares have risen in recent years, but they remain lower than they were in the 1990s when adjusted for inflation.

Delta, which left its 19-month bankruptcy in 2007, has also been financially conservative, reducing capital expenses and using cash to cut debt. The carrier posted a net profit of $1.6 billion last year, up 30 percent from the previous year, giving it four years of rising profits despite high fuel costs.

The company said on Wednesday that it would start to pay a quarterly dividend of 6 cents a share and buy back $500 million of its shares in the next three years.

The airline also said it would continue to reduce its debt in the next three years, to $7 billion from $17 billion in 2009. In the next five years, it also plans to spend $2 billion to $2.5 billion a year on its fleet, airports and technology.

Paying a dividend is rare in an industry with losses of $60 billion in the last decade, although there have been exceptions. Southwest Airlines now pays a quarterly dividend of one penny a share, while Alaska Airlines and Allegiant Air buy back their own shares.

Delta’s shares rose more than 3 percent to $18.66 a share on Wednesday. They have gained 70 percent in the last 12 months, outpacing United and US Airways but trailing Southwest.

Hunter Keay, an airline analyst with Wolfe Trahan, said investors were looking at the airline industry with more interest since airlines merged and cut their combined capacity substantially.

“Delta is clearly establishing itself in a leadership role in terms of cash generation, returning cash to shareholders and profit margins,” Mr. Keay said.

Article source: http://www.nytimes.com/2013/05/10/business/delta-views-new-terminal-as-symbol-of-modern-age-of-air-travel.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

American and US Airways May Announce a Merger This Week

February 11, 2013 by Leave a Comment

A merger would expand American’s domestic network, particularly in the Northeast and the Southwest, and create a more formidable competitor internationally. The combined airline would jump ahead of United Airlines and Delta Air Lines, both of which have grown through mergers of their own in recent years.

The combination would probably bring to an end the wave of consolidation that has swept the industry. Since 2001 there have been five large mergers, reducing the number of airlines to three main carriers, along with a handful of low-cost carriers like Southwest Airlines and JetBlue, and regional carriers.

These mergers have led to cuts in service to many smaller cities around the country. But they have also created healthier and more profitable airlines that are able to invest in new planes and products. Faced with rising fuel costs, and losing tens of billions of dollars in the last decade, airline executives argued that the only way to survive was to consolidate capacity.

American, which has been in bankruptcy protection since November 2011, is currently the nation’s third-largest airline with domestic and international flights; US Airways is the fourth.

The boards of both carriers are expected to meet some time this week to approve the combination, which then needs to be approved by a bankruptcy judge in New York. A deal could be struck this week or possibly next week, as talks are continuing. A union also requires the approval of federal regulators and antitrust authorities. But analysts expect regulators to approve the deal since there is little overlap between the two networks and no hubs in the same cities.

Even if the deal clears all these hurdles, the merged airline still faces a range of challenges. Airline mergers are often rocky — involving complex technological systems, big reservation networks as well as large labor groups with different corporate cultures that all need to be combined seamlessly. United angered passengers last year after a series of merger-related computer and reservation mistakes, and late and delayed flights.

A deal would be a major victory for Doug Parker, the chairman of US Airways, who began pursuing a merger with the bigger carrier soon after American filed for bankruptcy. His argument — that American could succeed against bigger airlines only if it combined networks with US Airways — swayed American’s creditors, who have a critical say in the company’s future.

The carriers have been discussing a deal for months. In recent days, both sides have moved much closer, but were still trying to figure out how much the merged carrier would be worth and how management positions would be split.

Tom Horton, American’s chairman, who was opposed to a merger for much of the last year, was offered a position as chairman, said a person familiar with the matter but who asked not to be identified because the talks were still under way. US Airways shareholders could end up with about 28 percent of the new airline, and American’s creditors would have 72, this person said.

A merger could be structured to take effect as American exits bankruptcy. The airlines are working for a deal before Feb. 15, when some nondisclosure agreements with American bondholders are set to expire. The timing of a possible deal, however, remains flexible.

The merged company would be called American Airlines and be based in Fort Worth. It would have a combined 94,000 employees, 950 planes, 6,500 daily flights, nine major hubs, and total sales of nearly $39 billion. It would be the market leader on the East Coast, the Southwest and South America. But it would remain a smaller player in the Pacific and Europe, where United and Delta are stronger.

Article source: http://www.nytimes.com/2013/02/11/business/american-and-us-airways-are-expected-to-announce-merger-this-week.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

787’s Grounding Leaves Airlines With Uncertainties

January 26, 2013 by Leave a Comment

Aviation analysts said on Friday that the carriers faced even more uncertainty after investigators in the United States and Japan reported that they had not made much progress in figuring out why two planes experienced serious problems with their volatile lithium-ion batteries.

Without a clear understanding of what happened, all 50 of the 787s delivered to eight airlines over the last 14 months will remain grounded.

The airline with the most at stake, by far, is All Nippon Airways, which bought the first 787 and operates 17 of the planes. It has canceled 459 flights since Jan. 16, affecting more than 58,000 passengers. The airline has used substitute planes or rebooked many of those travelers.

Most of the cancellations were for flights within Japan. But All Nippon also dropped its service between Narita International Airport in Tokyo and San Jose, Calif., and cut in half the number of flights from Tokyo to Seattle. Its latest block of cancellations on Friday included flights for Tuesday through Thursday.

Japan Airlines also said on Friday that it had extended its cancellations to include its flights between Tokyo and Boston on Feb. 2 and 3.

United Airlines, the only American carrier with 787s so far, has been able to maintain its flight schedule with substitute planes.

Most airline executives continue to support Boeing publicly. United’s chairman, Jeffery A. Smisek, said again this week that he thought the fuel-efficient 787 was “terrific” and added that he believed Boeing would come up with a fix soon.

But Richard L. Aboulafia, an aviation analyst at the Teal Group in Fairfax, Va., said officials at some of the airlines had become more nervous in private.

He said the industry’s worries about how long it would take to find the problem and fix the planes increased on Thursday after the National Transportation Safety Board’s briefing on the status of its investigation.

The board’s chairwoman, Deborah A. P. Hersman, said repeatedly at the news conference that a fire should never break out on a plane, as one did on a 787 parked at Logan International Airport in Boston on Jan. 7.

Ms. Hersman’s statements underscored the gravity of the potential hazards for travelers. But Mr. Aboulafia said some aviation officials also interpreted her stark comments as a sign that Boeing faced significant political and public relations hurdles in proving that it could make the planes safe.

“There is an increasing focus in the industry on the risks of politicization,” Mr. Aboulafia said.

He said aviation safety and technology experts believed “there’s still a decent chance of a fix that takes a couple of weeks” if the cause can be clearly identified. If not, he said, “it could become something of a lengthy slog requiring some kind of system redesign and more certification work that could take six months or longer.”

Still, the airlines have few attractive alternatives in the long run and little choice but to wait for Boeing to fix the planes. Thanks to its carbon composite structure and new electrical features, the 787 promises significant savings for airlines that are desperate for ways to cut their fuel bills.

Airbus, Boeing’s big European competitor, is working on a rival to the 787, the A350-XWB. But that plane is not scheduled for delivery until mid-2014, and the program has already had some delays.

As a result, Boeing has not faced any major defection from the airlines, which have around 800 787s on order. United has six of the planes now and two more scheduled for delivery later this year.

“Safety is obviously very important,” Mr. Smisek told analysts on Thursday. “History teaches us that all new aircraft have issues, and the 787 is no different. We continue to have confidence in the aircraft and in Boeing’s ability to fix the issues, just as they have done on every other new aircraft model they have produced.”

But there have been some dissonant voices. Officials with Poland’s national carrier, LOT, have said they will seek monetary compensation from Boeing. Hours before the 787s were grounded worldwide, LOT flew its first commercial flight from Warsaw to Washington. The plane was not allowed to return, however, after the Federal Aviation Administration and European aviation authorities grounded the planes..

Other operators of 787s are Air India, Ethiopian Airlines, LAN Airlines of Chile and Qatar Airways.

While problems are common with the introduction of jet models, analysts said Boeing needed to keep travelers from losing confidence in the plane.

The battery problems have already created buzz on online forums. One comment, on the Cranky Flier blog, noted: “Let somebody else play the guinea pig for a while first. When commercial airlines manage to operate 787 flights on a daily basis for a month or two without significant mishap, then I’ll consider it safe.”

Article source: http://www.nytimes.com/2013/01/26/business/787s-grounding-leaves-airlines-with-uncertainties.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,