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Delta Sees New Terminal as Symbol of an Air Travel Makeover

May 10, 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 megamergers 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 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 televisions 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 have gained more than 60 percent in the last 12 months, outpacing United but trailing Southwest. On Thursday, they closed at $17.70.

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

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Southwest Logs $152 Million Profit, Topping Estimates

January 22, 2012 by Leave a Comment

Service cuts, fare increases and the retirement of less fuel-efficient planes have aided airline profits even as high oil costs and economic uncertainty have threatened demand for flying.

Southwest, which is based in Dallas, forecast strong passenger revenue for the current quarter.

“The industry has set itself up to continue to grow in 2012, but the wild card here is the general economy,” said Matthew Jacob, an analyst with ITG Investment Research. “We’re not seeing any indication that demand for air travel is slowing at this point.”

Southwest, the traditional low-fare leader among major American airlines, acquired AirTran last year and gained entry to East Coast cities, including Atlanta. Southwest-branded flights will start in Atlanta next month.

Southwest is also upgrading its planes. It reached a deal late last year to buy 208 Boeing 737s, including 150 of the soon-to-come 737 MAX planes that will have new engines. Southwest said this week that it would upgrade cabin interiors and add six seats to more than 350 older planes.

The AirTran purchase “is going to be a major game changer for them,” said Helane Becker, an analyst with Dahlman Rose Company. Still, she said Southwest’s biggest challenges were managing merger expenses and higher energy costs while keeping worker productivity high.

Fourth-quarter net income at Southwest was $152 million, or 20 cents a share, compared with $131 million, or 18 cents a share, in the period a year earlier.

Excluding items tied to fuel contracts and acquisition costs, net income was $66 million, or 9 cents a share, Southwest said. Analysts expected 8 cents, Thomson Reuters said.

Revenue rose 32 percent, to $4.1 billion. Operating expenses were up about 37 percent, with fuel and oil costs up 59 percent from the period a year earlier.

Southwest’s shares rose 3 percent, to $9.30.

Article source: http://feeds.nytimes.com/click.phdo?i=0b5bfa3a69fc25c5f8b2fd41bfe79a65

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Airlines Battle Back to Profit, a Fare and a Fee at a Time

October 18, 2011 by Leave a Comment

After a decade of losing money because of cutthroat competition, slumping traveler demand and volatile fuel prices, the industry has found a way to regain control of its fortunes — and make money — and that is by shelving its 1990s strategy of aggressive growth. Despite the weak economy, most domestic airlines will have their second consecutive profitable year in 2011, after losing $55 billion since 2001.

The one notable exception is American Airlines, which is set to report another quarterly loss on Wednesday. Once the largest airline, American has lost its top perch and is struggling with high costs and debt, and acrimonious labor relations.

American has become a distant third after being left out of the major mergers that have consolidated the industry, starting with the purchase of Northwest by Delta Air Lines in 2008 and followed last year by the merger of United Airlines and Continental and the purchase of AirTran Airlines by Southwest Airlines. The mergers allowed the biggest airlines to cut service to many smaller markets, ground unprofitable flights and focus on their most profitable hubs. With fewer airlines competing to make their seats the cheapest, carriers were able to increase fares. The nation’s top five airlines, including joint figures for United-Continental and Southwest-AirTran, accounted for 85 percent of all domestic seats in 2010; that compared with a 64 percent share for the top five in 2000, said Hunter Keay, an aviation analyst at Wolfe Trahan Company.

“This has been an incredible picture over the past three years,” Mr. Keay said. “It’s not rocket science. Airlines finally understand basic economics. It’s supply and demand. It’s fear-based discipline.”

Just looking at the number of seats available, domestic airlines’ capacity peaked in 2005 and has generally been falling since. But the cuts have been even steeper when the number of seats is compared with the size of the economy, said John Heimlich, the chief economist for the Air Transport Association, the industry’s main trade group. That ratio is at its lowest since 1979. “The industry’s survival over the past decade has necessitated a substantial degree of shrinkage,” Mr. Heimlich said. “It’s a combination of how oversupplied and under-demanded we’ve been and how tough the decade has been. That’s an unfortunate result. Most businesses would rather see an entity grow profitably rather than shrink profitability.”

With fewer scheduled flights, planes are now fuller than they have ever been. The percentage of filled seats on each flight has risen to a record high of 82.2 percent in 2010, compared with 71.3 percent in 2000, according to figures compiled by the Bureau of Transportation Statistics. And that number does not fully capture how full most flights are to the most popular destinations at the most desirable times.

Meanwhile, the flight experience has worsened, as the big airlines cut back their service and stopped providing free meals or even blankets and pillows on their flights. Legroom shrank on many of the low-cost airlines. Spirit Airlines, for instance, is now flying Airbus A320s with a seat pitch — or the distance between seats — of 28 inches. (A typical pitch at the other airlines is 31 inches.) That allows it to pack 178 passengers on these planes, 28 more than JetBlue, which flies similar planes, according to Matt Daimler, the founder of SeatGuru.com.

Domestic fares, which have risen in recent years, last year averaged $337. Adjusted for inflation, they are still nearly 30 percent lower today than they were in the mid 1990s, but the fare is only part of the price passengers now pay.

The airlines are now generating extra revenue from passengers by charging for everything from checked bags to priority seating to onboard items like food, television and blankets.

The fees can be confusing, with little consistency across airlines. American, Delta and Continental, for instance, all charge $25 for the first checked bag, while AirTran charges $20 and Southwest and JetBlue charge nothing as yet.. Some airlines charge extra for exit row seats or to sit in the first few rows of coach. Some apply cancellation charges. Some provide satellite television free; others charge for it.

Article source: http://feeds.nytimes.com/click.phdo?i=7bf6fb1c719f7a5a416ee4c2a421761f

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I.H.T. Special Report: Aviation: Aircraft Makers Not Put Off by Excess Capacity

June 21, 2011 by Leave a Comment

Although it raised its estimate for earnings last year to $18 billion from an earlier estimate of $16 billion, the forecast of an even steeper than expected fall in airline profitability makes a gloomy backdrop for the 49th Paris air show at Le Bourget airfield this week.

The carriers are being squeezed between high oil prices — expected to average $110 per barrel this year, against $96 in 2010 — and an overly rapid expansion of capacity relative to demand. Global airline capacity this year is slated to rise by 5.8 percent, while demand is expected to expand by only 4.7 percent.

“But with a dismal 0.7 percent margin, there is little buffer left against further shocks,” I.A.T.A.’s director general, Giovanni Bisignani, said at the annual meeting, referring to the $4 billion profit on projected revenue of $598 billion.

In the U.S. market in particular, unemployment data and consumer sentiment indicators suggest that a bigger buffer might be welcome.

Positioning themselves for a slackening market, JetBlue and AirTran airways, focused on budget-sensitive personal travel, have already announced promotional low-fare programs for the September post-holiday season, offers not usually made until late July or early August, according to Helane Becker, airline analyst at the investment bank Dahlman Rose.

Yet even as airlines face the prospect of excess capacity, Airbus and Boeing say they are increasing production of their A320 and 737 airliners to meet an expected wave of new orders. Boeing is also stepping up production of its wide-bodied 777.

Even taking into account strong growth in emerging markets and the attraction for the carriers of fuel-efficient offerings such as the A320 New Engine Option or Bombardier’s C Series — which has just notched up its 100th order — are the manufacturers at risk of getting out of sync with the economic cycle?

Michael J. Richter, co-head of aerospace business at the investment bank Lazard in Los Angeles, says he takes a relatively optimistic view of the outlook for the manufacturers.

“The aerospace industry is in a better position than last year at the time of Farnborough,” Mr. Richter said, referring to the British air show that alternates annually with Le Bourget. “Paris this year should be a vibrant deal-making environment.”

Mergers and acquisitions business has been fairly active this year and is likely to continue, reflecting a greater availability of financing, he said. “While the aerospace industry remains vulnerable to economic cycles, there are numerous hot spots globally at present.”

While “ultimately, consumer demand drives air traffic,” Mr. Richter said, “Asia-Pacific retains bright prospects, although the Japanese earthquake/tsunami/nuclear meltdown has naturally caused problems and disruptions. Private equity has re-emerged in the aerospace industry to finance strategic acquisitions, while buyers already in aerospace are executing fill-in purchases to cover gaps in their structures or product lines.”

Lazard’s forecasts show commercial aircraft production rising this year over 2010 and rising again in 2012, then holding steady into 2013.

James F. Albaugh, chief executive of Boeing’s commercial airplane unit, said his company would raise the production rate of the 737 model to 35 aircraft per month from 31.5 early next year, to 38 in the second quarter of 2013 and finally to 42 in the first half of 2014, to service a backlog of 2,100 orders.

Together with increases of the much larger 777 family, Boeing is raising its overall aircraft output rate by 40 percent in the next three years. Airbus similarly announced in May it was stepping up production of its A320 family.

Looking ahead over the next 20 years, Mr. Albaugh forecast global demand for 33,500 new commercial aircraft, worth nearly $4 trillion, of which $1.7 trillion worth would be in the 100- to 200-passenger 737/A320 size range.

“Now is the time for us to commit to a new program,” Mr. Albaugh said. “We are leaning toward the New Small Airplane, to be in service by 2019 or 2020 with 20 percent better fuel efficiency than today’s 737.”

Alternatively, the current model 737 could be re-engined. A decision between the two options should come this year.

Article source: http://feeds.nytimes.com/click.phdo?i=9b0738ff8f6a418d1991b1c7604303cf

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