BTC Alert

American Airlines parent AMR Corp. reported full-year 2007 net income of $504 million, more than double the $231 million earned in the prior year, despite a fourth-quarter net loss of $69 million that it attributed largely to "record fuel prices." The quarterly loss was reversed from a profit of $17 million in the year-ago period and ended the carrier's streak of six straight quarters in the black. But Chairman and CEO Gerard Arpey noted that AMR posted back-to-back profitable years for the first time since 1999-2000 despite "enormous challenges from unprecedented weather disruptions, air traffic control problems and record fuel prices."

Air France-KLM could provide strategic or financial help in Delta Air Lines' pursuit of a merger with another airline, a newspaper reported on Thursday. A US congressman on Wednesday said Delta has begun merger talks with Northwest Airlines, and media reports have said it was also talking to United Airlines parent UAL. The Wall Street Journal report, quoting people familiar with negotiations, said Northwest was more likely to emerge as Delta's "preferred partner" and that Air France-KLM may back up that bid.

Airline stocks rallied last week on news that Delta Air Lines was mulling a takeover of either United Airlines or Northwest Airlines, suggesting that many investors think airline mergers are a brilliant idea. Airline Merger Match-Up The rally was an especially strong endorsement of mergers because it was broad — all the big carriers’ shares rose, on the assumption that one merger would lead to another. But close scrutiny of the business rationale for airline mergers suggests that any improved profits from consolidation will likely be short-lived, at best.

Washington area travelers will soon be able to speed more quickly through airport security if they are willing to pay a fee, provide personal information to the government and allow their fingerprints and eyes to be scanned at checkpoints. The Metropolitan Washington Airports Authority, which operates Reagan National and Dulles International airports, awarded a contract yesterday to a company that operates the federal government's security program, which is known as Registered Traveler.

The EC's proposals to de-regulate GDSs in Europe without naming Air France, Lufthansa and Iberia as parent carriers were "bizarre." The charge was made by Bryan Conway, head of EMEA for Travelport. He told 110 delegates at the Focus Partnership Meeting (the group representing independent UK agents) that the EC had drawn up a new code of conduct with safeguards which required all airlines and GDSs to participate equally. But he added: "There appears to be some confusion as to the take up of parent carriers. It suggests that the code regarding parent carriers might not apply to Air France, Lufthansa and Iberia which own nearly 47% of Amadeus."

easyJet was accused of ripping off agents by charging €12 for return bookings made through the Amadeus and Travelport GDSs. The accusation came from the UK Guild of Travel Management companies (GTMC). It said one suggestion from its member was to boycott bookings of the low cost carrier on the GDS and "screen scrape" instead. "That will mean extra work, and there will be a cost to our clients, but it won't be anything like the €12 rip-off that is currently being proposed," Philip Carlisle, the Guild's ceo, said.

Air passenger rights is a hot topic in the travel industry, especially as airport and air traffic congestion trigger lengthy delays, but a federal government request for public comment on customer service rules thus far has not drawn a commensurate response. A seven-point proposal from the U.S. Department of Transportation published in the Federal Register on Nov. 20, 2007 at press time had garnered about 170 public filings, most of them a form letter coordinated by the Coalition for an Airline Passengers' Bill of Rights. Interested parties have until Jan. 22 to provide feedback.

Date: November 3rd 2009

PRESS STATEMENT

For Immediate Release

Optimizing NextGen Investment

Airline Passenger-Rights Legislation Can Help

Radnor, PA, November 3, 2009--Business Travel Coalition (BTC) today issued the following statement in response to U.S. Department of Transportation (DOT) Inspector General’s October 28, 2009 Congressional testimony regarding concerns over achieving mid-term goals for the Next Generation Air Transportation System (NextGen) to address airport congestion problems currently impacting airports, airlines and customers, particularly in the New York City (NYC) area.

From the IG’s written testimony: “NextGen is an important initiative to enhance capacity, reduce delays, and fundamentally change the way air traffic is managed in the United States.”

BTC STATEMENT
A substantial NextGen implementation risk is not addressing the congestion-problem holistically. Sub-optimal results will likely be evidenced if NextGen technology is merely overlain on the unworkable architecture of over-scheduling of flights and associated airline policies, processes and practices at these congested NYC airports. Pouring scores of billions of dollars of new technologies on irrational scheduling practices is akin to “paving the cow paths,” i.e. step-change improvements in efficiency and innovation would not be possible. Incremental improvements are certainly achievable, but true reengineering must take place to secure the greatest return possible on NextGen investment.

BTC believes that pending legislation in the U.S. Senate (S.213) and House (HR 674) that would phase in a requirement that passengers be given the option of deplaning at 3 hours of an extended ground delay would provide the catalyst for such overall reengineering efforts, especially at NYC-area airports. The specific 3-hour concept is central as an agent-of-change.

While NYC-area and Philadelphia airports can typically amount to some 12% of the Operational Evolution Partnership (OEP) 35 operations, they can cause more than 45% of the delays and 48% of the delay minutes throughout the National Airspace System (NAS) resulting in material financial, lost-productivity and environmental costs for all stakeholders.

The delays are chiefly caused by over-scheduling of flights where the demand exceeds capacity at critical times of the day; using many regional jets (70 passengers and below) instead of fewer larger jets; and increasing non-air carrier operations, such as private jets.

Solutions for the over-scheduling problem at NYC have been (1) politically unpalatable, such as DOT-sanctioned slot auctions, (2) impossible to develop and implement because of antitrust laws, or (3) competitively unfeasible because airline “A” would not unilaterally reduce its schedule only to have airline “B” fill in and increase its market share, and in some cases raise airport-costs for airline “A.”

A Congressionally-mandated passenger-deplanement rule in excess of 3 hours (preferred by most airlines) would likely encourage airlines to ignore the consequences of potential DOT fines in order to maintain market shares at NYC, and elsewhere. Alternatively and very importantly though, according to industry experts a 3-hour rule could only be workable for NYC airports if airlines drew down their schedules and reengineered operations to better match the capacity-limitations of the airports.

If they did not, negative media publicity and resultant political pressure from so many “illegal” delays would be a weekly event with attendant calls for further Congressional intervention. Airlines would have very strong unilateral incentives to right-size their NYC airport operations during the hopefully generous time before such legislation were to become effective.

Interestingly, reduced NYC-airport airline flight schedules may not necessarily negatively impact airlines' bottom lines, especially if a single flight operated with larger equipment can replace several small regional jets. Additionally, an improved pricing environment from reduced capacity would be an offset as would significant operational benefits from more efficient system-wide operations across the U.S.

With airline industry capacity and operations declining, now would be an opportune time to both economically model and test this hypothesis before demand returns in full force.

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CONTACT

BTC || Kevin Mitchell | 610-341-1850 | mitchell@BusinessTravelCoalition.com

About BTC
Founded in 1994, the mission of Business Travel Coalition is to bring transparency to industry and government policies and practices so that customers can influence issues of strategic importance to their organizations.

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