Company Watch September 2005.


Airlines face staggering jet fuel refining costs. The cost to turn a barrel of crude oil into jet fuel is soaring for U.S. airlines. Before hurricanes Katrina and Rita, airlines paid $11 a barrel to refine the oil into jet fuel. Now the price has climbed to $59 a barrel. The Air Transport Association estimates U.S. passenger and cargo airlines will consume 19 billion gallons of jet fuel this year. "The spike in jet fuel prices has made an already difficult situation all the more dire," said Victoria Day, spokeswoman for the Air Transport Association. The association called for a one-year suspension of the 4.3-cent federal tax on a gallon of jet fuel, which would save the industry $600 million a year. Sep 29, 2005

Airlines suffer from high fuel prices, analysts say. Soaring fuel prices and steep competition have pushed the commercial airline industry into one of the darkest periods in its history, aviation experts recently told a House subcommittee on aviation. One analyst said he thinks American Airlines and Continental Airlines can avoid filing for bankruptcy protection. However, competitive pressure on the two airlines could increase if bankrupt Delta Air Lines and Northwest Airlines are allowed to shed their pension plans. Sep 29, 2005

European Commission votes to put airlines in emissions program. The European Commission voted to include airlines in a trading program to reduce greenhouse gas emissions. Each company would get an emissions allowance, and companies that can reduce their emissions may sell their unused allowances. The commission said the program would have a modest financial impact on the airlines. The plan still needs approval from the European Parliament and European Union governments. It is part of the Kyoto Treaty. Sep 28, 2005

Mergers create more problems than they solve, analysts say. Airlines should not attempt to merge with each other as they struggle through the current financial crisis, some airline analysts said. Mergers have historically increased costs for carriers, said Michael E. Levine, a former airline executive. Merging work forces and corporate cultures also presents challenges for merged carriers, analysts said. Sep 27, 2005

Government regulations stand in the way of U.S. airlines' ability to compete, said United Airlines Chief Executive Officer Glenn Tilton. He said airlines could better withstand higher fuel prices and events like Hurricane Katrina if the government would allow meaningful consolidation. United expects to leave bankruptcy protection in a few months in a "much stronger position to seize growth opportunities as we move forward." Sep 23, 2005

Oil companies close Texas refineries ahead of Hurricane Rita: Oil companies began closing Texas refineries Wednesday ahead of powerful Hurricane Rita. Rita could exacerbate problems caused by Katrina, which damaged oil platforms and knocked out refineries. Damage from the storm could raise oil prices for airlines and consumers. Four Louisiana refineries still have not resumed operations. They account for 5% of U.S. refining capacity. Sep 21, 2005

U.S., Mexico to expand flights between countries. The U.S. and Mexico agreed to expand flights between the two countries, according to the Department of Transportation. Three commercial airlines from each country now may fly between any U.S. city and any of 14 Mexican cities. The agreement had extended to only two airlines from each country. It is not clear when the agreement will be implemented. Sep 21, 2005

Hubs or in the convoluted words of the European Commission, "airport capacity shortages", are to be investigated by that organization. It has launched a Consultation Paper on "airport capacity, efficiency and safety" addressed to airlines, airports, air navigation providers and all other stakeholders of the air transport industry. A recent study noted by the EC, revealed that if demand grows just below the current rate, airports would be severely constrained in 2025. By 2025 more than 60 (European) airports will be congested and the top 20 airports will be saturated at least 8-10 hours per day. This is because traffic demand will have increased by a factor of 2.5 from its 2003 level. Despite a 60% increase of airport capacity in the network, only twice the volume of the 2003 traffic will be satisfied, clearly saturation being reached. Stakeholders are asked to submit written contributions by 15 November 2005. Sep 19, 2005

Legacy carriers can't seem to recover from prolonged losses. This Wall Street Journal analysis suggests big U.S. airlines face a simple problem: They cannot generate enough revenue to cover their costs. The bankruptcy process exacerbates the problem because carriers are allowed to lower costs, making it difficult for rivals to raise prices. The federal government has also prevented the industry from restructuring by providing loan guarantees, preventing mergers and limiting foreign competition. Steep competition from low-fare airlines and strikes have also hurt large carriers. Sep 18, 2005

Fuel now comprises almost one-quarter of airlines' costs. Jet fuel now accounts for 24% of airlines' costs, up 14% from five years ago. The world's airlines will pay $97 billion this year for fuel, according to the International Air Transport Association. Sep 18, 2005

Congress should demand high safety standards as outsourcing increases. Airlines and authorities cannot afford to neglect airline maintenance, equipment and training, writes Jim Hall, former chairman of the National Transportation Safety Board, in a USA TODAY opinion piece. Airlines are increasingly outsourcing maintenance work to lower costs and become more efficient. Hall believes airline customers and Congress should demand carriers maintain high maintenance standards. Sep 18, 2005

Low-fare carriers could profit from two bankruptcies. Low-fare airlines may benefit from financial problems at Northwest Airlines and Delta Air Lines. The two large carriers filed for bankruptcy protection last week. Both are expected to scale back domestic routes as they reorganize. Southwest Airlines, JetBlue and AirTran Airways could benefit, analysts say. Sep 18, 2005

Legacy carriers can't compete with discounters: Expensive union contracts and other high labor costs make it difficult for legacy airlines to compete against low-fare rivals, Slate's Daniel Engber writes. Bankruptcy allows the big carriers to void their labor contracts and devise a new business plan to pay off creditors. Lower operating costs could help bigger airlines compete with discounters. Sep 18, 2005

Airlines can't resist filing for bankruptcy. The airline industry would become strong and profitable if it stopped relying on bankruptcy to solve its problems, The Washington Post's Jerry Knight writes. Bankruptcy gave United Airlines and US Airways advantages over their rivals, including the ability to cancel their contracts, Knight writes. This system encourages other carriers to file for protection so they can compete with their peers. Sep 18, 2005

Airline bankruptcies hurt smaller firms. Small companies that do business with large airlines often suffer when carriers file for bankruptcy. Small businesses are usually unsecured creditors who hold no airline assets as collateral. After an airline files for bankruptcy, the unsecured creditors are generally repaid a fraction of what is owed to them.

Sep 18, 2005

Congress should phase out pension guarantees. Lawmakers should take some responsibility for recent airline bankruptcies and eliminate government pension guarantees, according to a Wall Street Journal editorial. Much of the airlines' financial troubles are rooted in high pension costs. In the 1970s, Congress created the Pension Benefit Guaranty Corp. to take over the plans if the companies failed. Some airline leaders warned about pension problems and asked for pension reform, the board writes. Eventually bankruptcy became an option to relieve the companies of the high pension costs. Sep 16, 2005

Some airline passengers are growing weary of big airlines filing for bankruptcy. Since 1978, almost two-thirds of the major carriers have filed at least once, and three did not survive. For their part, the carriers are tired of the forces that have caused them to file for court protection. "Actually, what we've grown weary of are the record-high fuel costs that have masked any of the gains we've made in efficiency," Air Transport Association spokesman Jack Evans said. If fuel prices had remained where they were at the beginning of 2004, "it would be a completely different ballgame," Evans noted. Sep 15, 2005

Future unclear for large U.S. carriers. Four of the nation's top airlines are now operating under bankruptcy protection, writes The Wall Street Journal's Scott McCartney. Carriers generally continue struggling after they emerge from reorganization, and bankrupt airlines sometimes merge with or are purchased by other airlines. Future projections for industry are difficult to make, McCartney writes, noting it is unclear if Delta Air Lines can survive independently and if United Airlines' reorganization plan will succeed. Sep 15, 2005

Airlines ask for break from federal fuel tax. Soaring fuel costs could force the airline industry to cut more jobs and flights, Air Transport Association President and Chief Executive Officer James May told lawmakers Tuesday. The ATA is asking for a yearlong waiver from a federal tax on jet fuel. May said the tax break would save the industry about $600 million. Without the sharp rise in fuel prices, the industry would be at or near profitability, May said. Some lawmakers were skeptical of the proposal, wondering if a fuel-tax holiday would help airlines that are filing for bankruptcy protection anyway. Sep 15, 2005

Contract talks continue between ATA, pilots union. ATA Airlines is continuing contract talks with the union representing its pilots and flight...

To continue reading