17 October 2007

Detla and Air France announce new Atantic JV

Delta Airline and Air France have just announced the first major foray into the transatlantic Open Skies venture. By making it a JV they resolve any issues about how it will be operated.

Initially covering JFK-ORY, JFK-LYS, and of course JFK-LHR and ATL-LHR. 3 new slots at LHR will be accomodated by Air France surrendering some of its slots to Delta who will operate the service.

Reported by both CNN.com and USA Today - the deal has been in the works for some time and will start in March 2008 and run for 8 years. It will eventually the joint venture is expected to increase revenues, competition and customer travel choices on key routes across the Atlantic.

The first phase will begin April 2008 and will include all non-stop flights operated by Air France and Delta between Air France's Paris-CDG, Orly, and Lyon hubs, and Delta's Atlanta, New York - JFK, Cincinnati and Salt Lake City hubs. It will also include flights operated by both carriers between London-Heathrow and the U.S.A combined 19 daily flights and more than 4,500 seats per day -- a 45% increase -- are expected to be part of the first phase of implementation.

Specifics about the SLC-LON service has not yet been clarified.

Earnings season starts - Delta posts great results

Delta just reported its first full quarter of results - ok so its the best quarter of the year but still a pretty good result. But this is nothing to crow about and there is a lot to do.

Delta Air Line Inc.'s third-quarter net income more than quadrupled to $220 million as the company's planes were fuller than ever during the summer. In its first full quarter since emerging from bankruptcy, the carrier also saw revenue increase 10% to a quarterly record of $5.23 billion.

FOR MORE INFORMATION, please see: http://www.wsj.com/earnings

But what about the other guys? Our analysis shows it will be a mixed season. The results will in general be good across the board. However there will be a few players who are already under-performing. Dont be surprised. One carrier to watch will be Skybus but since they are private not likely to see any financials.

It will be interesting!!!

787- Bair out, Shanahan in as Boeing struggles

Boeing has reshuffled its Commercial Airplanes group as a result of the retirement president-Boeing International Laurette Koellner.

However we all know that the real reason is that someone had to take the fall for the 787 delay. Mike Bair is that guy, moving over from running the 787 to the new VP-business strategy and marketing for Boeing Commercial Airplanes. BCA's president/CEO Scott Carson made the changes before he himself got the big heave ho. However if there is any other delay - you can rest assured Chicago will be looking to push out one of its own.

The "new guy" is however an experienced hand at Boeing. Pat Shanahan previously led the 757 and 767-400ER programs.

One thing about Boeing though is that they have a very deep pool of managerial talent with wide experience. Airbus on the other hand has had more specialist experience but in the past promotion or experience was gained as a result of your nationality not necessarily your skill set.

16 October 2007

Air Travel - the New Sin Tax

Following the success of the various fees and fees being charged in various jurisdictions – the governments are beginning to use Air Travel as a tax revenue source, sadly with little relevance to the use of the funds.

So let’s look at the issues – it is not very simple. In fact its REALLY complicated.

The facts:

1. Governments need more money
2. Environment is a bigger issue now than it has ever been (thank you Al Gore)
3. Air infrastructure is creaking
4. Post 9/11 security demands are enormous
5. Growing demand (with increased spending) is moving faster than GDS growth
6. Prices of air travel has fallen and continues to fall
7. And one to come….

So with these background facts it is only natural that taxes/fees or other charges are going to be due to be paid by someone.

The US originated much of this via the various post 9/11 fees and as well the allowing of mandated PFCs (Passenger Facility Charges) which allowed individual US airports to levy fees for airport usage. But perhaps one of the most interesting issues is that the US traveling population has been paying into a fund which has been funding the feds nicely every year. It was intended for the things like new airports new runways etc etc. None of which it ever funded.

So the Brits jumped in and started charging the now infamous APD. No pretence – it’s a tax. The French however wanted to charge several taxes for things like saving Africa and the environment. But they got smart about it and actually show how much the fee is for “eco”.

Next up the Dutch… the Secretary General of IATA is now pretty pissed.

So is everyone going to do this? Probably we are going to see all manner of fees and charges emerging over the next few months and years.

You remember my 7th point above…

It’s the Chicago convention. It is supposed to be used to exempt airlines from paying taxes on international travel. Specifically it bans the taxes on fuel. In the past it has been used as logic for avoiding all taxes on international travel as agreed by the Chicago convention which also set up ICAO as a UN Agency. The latter is important because it transcends national laws.

So bottom line… all bets are off and air travel is now a full open source for new taxes. Despite what Mr O’Leary might say – they are here to stay. We should only hope that some international rationalization of the tax regime is put into place. The only way to do that is to file a notice under GATT or some other convention. Otherwise its going to get REALLY messy. Watch for this its going to run and run.


Here is the text of the IATA Press Release

Dutch ticket tax proposal is ineffective and inappropriate- breaches international obligations -
GENEVA -The International Air Transport Association (IATA) condemned the Dutch Government's plans to impose further taxes on air passengers. The government is planning to tax passengers departing the Netherlands by air as much as€45 citing environmental reasons."This passenger tax is ineffective, inappropriate and it breaches international obligations.It is a thinly disguised tax grab that does nothing for the environment. If anything, it is counter productive as it limits airlines' ability to buy newer, more fuel-efficient aircraft," said Giovanni Bisignani, IATA Director General and CEO."Airlines are making great strides to improve their environmental performance. Last year we saved 6 million tonnes of CO2by shortening 350 routes globally. We have improved fuel efficiency 70% over the past 40 years and forecast a further 25% improvement by 2020. The Dutch Government should be looking at what it can do to help airlines limit emissions. It can start by working with other EU governments to implement a Single European Sky that would save 12 million tonnes of CO2each year. It should also look at tax credits as an incentive to improve environmental performance rather than counterproductive taxes," added Bisignani.The passenger tax also breaches resolutions of the International Civil Organisation (ICAO) and Article 15 of the Chicago Convention on International Civil Aviation. "I am surprised that the Netherlands, as an ICAO Contracting State, chooses to ignore its obligations and trample over international agreements," Bisignani commented."We are seeing a worrying trend across Europe with governments cynically taxing air passengers for environmental reasons then failing to use the revenues for environmental purposes. These taxes are blunt instruments that just damage tourism and impact the competitiveness of European businesses. We urge the Dutch Government to rethink this ineffective, inappropriate and misguided proposal," concluded Bisignani.