Russia postpones deliveries of Superjet 100 for 12 months

Well at least this is not a story about Boeing for a change.

The Russian Sukhoi Superjet 100 Regional Jetliner that is going to be competing in a very crowded space with entries from CHINA/ARJ Canadair/Bombardier, Embraer, Mitsubishi alongside announced a delay of 12 months to launch customer Aeroflot. The latest delay signifies a delay of 12 months in total so far.

Lets hope things improve for them.

Cheers

Timothy

OK One for the Doom Merchants... a New Indicator - Luggage sales are way off

This one is from Professor Steve Zilinek - He of Flylite.com the Virtual Closet people.

I think he has a point. Luggage sales means people are simply not planning on travelling.

Here is the story and for the chart and full details (courtesy of Merril Lynch) check out the URL at the end:

Luggage sales fall off the carousel

David Rosenberg:
We track luggage sales as a barometer of travel plans – and they have fallen in two of the past three months and are running at a near-record 35% annual rate over the past six months. Either people intend to stay close to home (which requires a 'cocooning' theme) or those who do intend to travel are scaling back their suitcase purchases in response to the advent of these airline per-bag fees.
Why buy a bag that is only going to be another cash-flow drain? Simply wear everything you would have packed (not comfortable but a lot cheaper).
>
Source:
Empty suitcase: No Luggage Sales = No Travel Plans
David Rosenberg
Merrill Lynch, July 7, 2008

http://tinyurl.com/69s6hx

Direct from the BOOT... The US Airlines shoot themselves in the foot

This is the verbatim post from Tim Hughes Blog the BOOT.

Most of the major US airlines sent round an open letter blaming the skyrocketing oil prices and resulting economic consequences on
"Speculators [who] buy up large amounts of oil and then sell it to each other again and again" (here is the letter in full below)
They have even supported a very serious looking website called "Stop Oil Speculation Now (or SOS NOW)". The ludicrous argument by the airlines is that when speculators enter the market they sell the oil to each other with no intention of delivery with the only consequence is driving up the price. This is an absolute lie.

The airlines are the first to tell the markets about their financial genius when they successfully hedge against fuel increases and save $$$$ in fuel costs. Hedging can only occur because there are speculators in the market that are prepared to bet the other way. If you remove speculators, then hedging disappears and the airlines will have no facility at all for planning ahead of time for fuel purchases. They will have to do what you and I do - turn up to the pump and pay the price on the day. There is no one in the airline industry that wants to do this and therefore remove speculators and hedging.

If speculators disappeared then it would dramatically increase the uncertainty for airlines in fuel prices resulting in increases in prices rather than decreases.

This is a blatant and almost pathetic smokescreen to cover up efforts to beg for government support/handouts and set up someone else to blame when the chapter 11 bankruptcy filings start.



So if you support the airlines then go to the website. If not then write your favorite congressman and senator and tell them what you think

Cheers

Timothy


Dear United Airlines passenger....,

Last week, crude oil hit an all-time high of $146, and the skyrocketing cost of fuel is impacting our customers, our employees, the communities we serve, and the economy as a whole. United, and the majority of other major U.S. airlines, are asking our most loyal customers to join us in pushing for legislation to add more transparency and disclosure in the oil markets. Please see the attached open letter from the leaders of the U.S. airline industry.


An Open letter to All Airline Customers:

Our country is facing a possible sharp economic downturn because of skyrocketing oil and fuel prices, but by pulling together, we can all do something to help now.

For airlines, ultra-expensive fuel means thousands of lost jobs and severe reductions in air service to both large and small communities. To the broader economy, oil prices mean slower activity and widespread economic pain. This pain can be alleviated, and that is why we are taking the extraordinary step of writing this joint letter to our customers. Since high oil prices are partly a response to normal market forces, the nation needs to focus on increased energy supplies and conservation. However, there is another side to this story because normal market forces are being dangerously amplified by poorly regulated market speculation.

Twenty years ago, 21 percent of oil contracts were purchased by speculators who trade oil on paper with no intention of ever taking delivery. Today, oil speculators purchase 66 percent of all oil futures contracts, and that reflects just the transactions that are known. Speculators buy up large amounts of oil and then sell it to each other again and again. A barrel of oil may trade 20-plus times before it is delivered and used; the price goes up with each trade and consumers pick up the final tab. Some market experts estimate that current prices reflect as much as $30 to $60 per barrel in unnecessary speculative costs.

Over seventy years ago, Congress established regulations to control excessive, largely unchecked market speculation and manipulation. However, over the past two decades, these regulatory limits have been weakened or removed. We believe that restoring and enforcing these limits, along with several other modest measures, will provide more disclosure, transparency and sound market oversight. Together, these reforms will help cool the over-heated oil market and permit the economy to prosper.

The nation needs to pull together to reform the oil markets and solve this growing problem.

We need your help. Get more information and contact Congress by visiting www.StopOilSpeculationNow.com.



Robert Fornaro
Chairman,
President and CEO
AirTran Airways

Bill Ayer
Chairman,
President and CEO
Alaska Airlines, Inc.

Gerard J. Arpey
Chairman,
President and CEO
American Airlines, Inc.

Lawrence W. Kellner
Chairman and CEO
Continental Airlines, Inc.

Richard Anderson
CEO
Delta Air Lines, Inc.

Mark B. Dunkerley
President and CEO
Hawaiian Airlines, Inc.


Dave Barger
CEO
JetBlue Airways
Corporation

Timothy E. Hoeksema
Chairman,
President and CEO
Midwest Airlines

Douglas M. Steenland
President and CEO
Northwest Airlines, Inc.


Gary Kelly
Chairman and CEO
Southwest Airlines Co.

Glenn F. Tilton
Chairman,
President and CEO
United Airlines, Inc.

Douglas Parker
Chairman and CEO
US Airways Group, Inc.

Lufthansa facing troubles

Lufthansa has been doing a lot right lately. They are weathering the storm as a big player, their markets outside of Germany are growing. They purchased a nice cheap chunk of JetBlue... so what's to go wrong?

Actually it looks like labour troubles. Last Week Lufthansa Regional and one of its subsidiaries went on strike. Now the cabin crew and some of the front line staff have voted for a strike.

Things could get ugly.

Lets hope they can work it all out.

Cheers

Timothy

Poor Sun Country Airlines.

from Professor John).
The Minnesota based-carrier lost $43 million on operating revenue of $243 million in its most recent four quarters and the company is now asking for $50 million in state aid!
In the meantime, an employee admits to swindling the company out of $200,000. Some of that money was used for casino trips.
Sun Country might want to do a bit more in the way of background checks: according to the authorities, the swindler was convicted of stealing from another employer a few years back.

http://rickseaney.com/2008/07/09/time-are-tough-enough-for-the-airlines-without-this/
ooops.....

Oops Did Someone Drill the Wrong Hole on Fuselage #4

Boeing has announced that there is a slight problem with Prototype #4 of the 787 program. Apparently there is a small issue with them having to "repair" the fuselage at the Alenia factory in South Carolina.

Good practice for someone... but kinda scary that this sort of thing can happen. Shows that Boeing still has some work ahead of it to get the Supply Chain System running right

Cheers

Timothy

Tanker Wars Episode V: The Empire Strikes Back

So the USAF has been forced to re-open the bidding on the Tanker contract.

Bravo for the GAO for finding the errors. For those of you who believe in dark conspiracies - consider the following:

The US had to look like they were offering an opening to the international market for US military contracts. Now that they did award one contract (the Tanker to NG and EADS) they can go back to business as usual and give the real contract to Boeing.

No harm done? Not really - NG will be bent out of shape and the European will cry fowl. Too bad about Alabama.

The decision of course wont happen now until 2009 by which time there will be a new guy in the White House and occupying the DoD Secretary's chair.

So who cares?

We shall see.

BRAVO US DOT! No to holding onto unused authority

The US Dept of Transportation has for once been reading the tea leaves correctly and decided it would be un-catholic to let the holders of unused International Route Authority hold onto that while they tried to recover.

There are several urgent items out there.

US Airways new route authority to China.
United’s Moscow route and the withdrawl of Denver London
Northwest’s suspension of several European routes.

Of course with Open Skies the EU authority is not required but for Latam, Asia based routes this could be an interesting game.

Let’s see what happens next

Vegas Room Rates Tumble

The lowest in 5 years is how it is being reported. With traffic way off (see my entry from a few weeks ago), the Vegas Market is in trouble. I even say an ad for the Venetian which showed a room available for less than $159. The first time in years that an advertised rate has been that low.

Both major leisure destinations are in trouble, Orlando, and Vegas

This recession is biting hard chaps

It's that old "Truth in Advertising" thing again.

I think everyone would prefer that there is a real price that you can use to compare flights. This doesn't exist. So airlines do all that they can to obfuscate the final price you will pay.

I hate it - you hate it.

I recently looked at Rick Seeney's ancillary charges (see earlier post). I also looked at the way the airlines use fuel surcharges in many cases which while I applaud the use as a way of knowing what is not within the airlines' power - they still manipulate it.

Apparently the EC and various national bodies also think the same way. According to CAPA: Denmark's National Consumer Agency has published the names of six European airlines it stated are still using illegal marketing practices, despite warnings from the European Commission following a review last year (Reuters, 07-Jul-08). Ryanair, Air Berlin, Air Baltic, SkyEurope, Aer Lingus, Brussels Airlines and Internet travel agent, Seat24, were named by the agency. Their crime - hiding the real price.

So SkyEurope is trying to change the model:

“Our customers have told us it’s important to be completely transparent about the final price of their journey with SkyEurope… We have eliminated the complex structure of surcharges and fees and we have implemented one easy to understand price point,” Steven Greenway, CCO.

Let's hope they are successful

Cheers

Timothy

Tripso article

Over the past few weeks I have been reflecting on the contraction of air travel in the USA.

This morning stats from the Hawaiian Visitors Authority were published, they confirm my fears. The market to Vegas is similarly bad. And we believe that the Mouse Kingdom in Orlando will also be way off in the coming months.

There will be a very large contraction.

Please read my article at Tripso

Cheers

Timothy

http://www.tripso.com/today/10-tips-for-surviving-the-coming-air-travel-crash/

Even Moody's says there is a problem with the US Airlines Model

So finally someone else has the balls to come out and say what we have been saying for some time. The US Airlines model is unsustainable. DUH!!!

Here is the Release that came out via Marketwatch quoting The Times (of London)

Moody's: Many US airline business models 'unsustainable'

LONDON (MarketWatch.com) -- Moody's Investors Service, a unit of Moody's Corp., has described the business model of many U.S. airline carriers as "unsustainable," the Times in London reported Saturday, citing a note from the credit ratings agency.

The agency's analysts said U.S. airlines are particularly vulnerable to high oil prices and even large carriers could be forced into bankruptcy, according to the report.

Moody's said with many airlines seeing a more than 30% year-on-year increase in their fuel costs, with nearly 50% of an average ticket consumed by fuel, they are left with inadequate funds to cover other key costs such as labor, equipment rentals, debt service and overhead, the newspaper added.

"Without an ability to cover costs and earn an adequate return, the business model for most airlines cannot be sustained under current fuel price conditions," Moody's said, according to the Times.

The agency said airlines will not be able to cost-cut or capacity-reduce their way back to profitability, and long-term industry viability will depend upon a pricing environment in which airlines can adequately recover the significant costs of fuel, labor and capital investment.

So ...

What does this tell us. That the model is broken and needs to be fixed. Remember how the US and many other economists "fixed" the Cost of Living index? They took out Fuel and other elements from the basket.

So I have proposed several times now that we need to do the same. Fuel should become - at least for the short term a broken out and payable sum of money to the airlines in any ticket you buy. This then allows us to get round to solving the problem of the airlines business models themselves which are decidedly broken.

Thanks JohnS for the coverage of this note.

Chaps - get with the program - neither the government or IATA should get involved in bailing out the airlines at this point. But by regulating how prices are displayed can really help the issue and will force the airlines to address their real costs and their broken business models.

Its how the rest of the world does it - and they can make money - so I have no sympathy for the airlines just because they refuse to address the pachyderm on the table!

Cheers

Timothy

T2 wishes all its US readers a Happy 4th of July

Normally the Brits - me included in this case - go into mourning on this day at the loss of the American Colonies.

However if you look back at the recent history of the US Leaders - perhaps the outcome was not a bad one for the United Kingdom after all ;-)

Happy 4th

Cheers

Timothy

R-r-r-regulation? A Solution perhaps?

The antidote to civilization is back....

The airlines want us to accept that the solution to their problems is regulation. The calls for this come from as different a quarter as the former acerbic CEO of AMR - Robert Crandall (he must have given up smoking because he has been pretty cranky of late), and the US airlines.

Well just like drugs... JUST SAY NO.

However, I have a proposal which just about everyone might buy into.

The airlines all say their woes are caused by high fuel prices. So lets seperate this out and then have a fee that shows the fuel surcharge. This has been successfully implemented in International airfares across the board. So for the sake of transparency lets impose a requirement for the airlines to use the SAME NUMBER for fuel. We could use a formula which in total approximates the real fuel costs. This would be driven by the following factors:

1. Class of service offered F/C/Y
2. Flight time - based on mileage, zones or actual flight time
3. Number of stops made - connections are more fuel inefficient
4. Airport - some airports are more efficient than others
5. Type of aircraft - probably impractical but simply give each airline a factor based on their fuel efficiency of their fleet.
6. Fuel incrementer - as the price of fuel rises or falls the incrementer is reset every month or every quarter as necessary. Peg the number at the price per barrel of $2.00 per avgas and then raise of lower the index.
7. Green effect - this would be a percentage based on certain green effects (eg use of bio fuel).

The Fuel surcharge would then be levied onto each ticket and clearly showed so the airlines can have the charge universally implemented. So it doesn't matter WHO charges the fee - it will be broken out. More efficient airlines would be able to lower their regular airline prices if they are better at handling say Fuel Hedging.

The benefits are self evident. No more will the airlines have to impose silly fees (unless they want to). All airlines will be treated equally on a point to point basis. Consumers would see which flights are more fuel efficient so their choices will be better and thus the airlines will be financially encouraged to operate more efficiently. Each airline can go back to competing on a common basis. The airlines will go back to raising or lowering their prices without the cost of fuel being an opaque item.

Rick Seaney and his crew at Farecompare have created a table of Fuel surcharges from the USA Transatlantic. This is interesting as it shows that certain airlines are charging more for fuel surcharges than others. This makes my case stronger because the airlines may or may not be more efficient. We need to know which airlines are fuel efficient.

Have a look and see if you can tell which airlines are better at this.

http://rickseaney.com/2008/07/01/flying-to-europe-latest-european-fuel-surcharges/

Clearly this would be a masterful approach to stop the whining by the airlines and the consumer can be better informed to make his decisions.

Of course the chances of this happening are zero because the GDSs wont like the coding they would have to do and the airlines wont like the transparency. They would be much happier to gripe about it than actually DO SOMETHING.

Oh yes and if you think this is bad - look at the taxes which are not being universally charged either!

Cheers

Timothy

A Home for all those 50 Seat RJs - Russia?

Russian authorities have thrown down what should be an interesting offer to anyone who owns and/or operates one of those largely surplus 50 Seat RJs. They are offering to forgo the heavy duty that is currently imposed on all external aircraft imports into the Russian Federation.

Why this and why now? Well the bulk of the Russian fleet of these types and sizes of aircraft are VERY OLD WW2 era AN2 biplanes and the outrageously expensive to operate Yak40/42s. There are no plans to build such a size aircraft in the near future but Russia - in the midst of an economic upturn - is keep to expand regional aviation domestically. Hence the offer.

Yevgeny Bachurin also noted that the proposal of Rosaviatsiya is only a temporary measure, until the Russian manufacturers will decide with the production of aircrafts with a capacity of less than 50 seats.

Interesting no?

Cheers

Timothy

OTAs to get reprieve for another year as Hotels hurt

You would think that with the airlines cutting back on flights that the OTAs will be in a world of hurt. Well apparently not so.Humour me here!

The value of the OTAs to the airlines whether content or zero content based has been diminishing over time. Now with capacity in the Domestic US market headed for a major cutback then the airlines "Don't Need No-BODY!!!!"

So they are not going to play ball on giving deals. This is rumbling in contract negotiations throught the market.

However the hotels are in a completely opposite situation. As the airlines cut back they need to fill the vacant rooms. It is a heck of a lot harder to handle cutting back capacity in a hotel than for an airline.

So the hotels will be desperately seeking new channels of distribution... headed straight for the arms of the willing OTAs.

For sure the period from the days immediately after Labor Day are going to be a lot different for the Hotel market than in prior years. First up - lets see what the rates are for Fashion Week in New York. Sure as heck anyone charging like last years rates will look a little silly. (If you are being asked those astronomical rates than contact me and I will give you some options you may not have thought about.

However what happens when capacity comes back in the airline market?

This is going to be interesting as we enter another phase of the evolution of travel distribution

Cheers

Timothy

Expedia and Microsoft finally seperate

And so the trend of separating from your families seems to be alive and well in the Travel Industry.

Not content with anything - Expedia has been kicked out of the UK and US portals of MSN Travel.

This has been coming for some time. First Farecast was purchased by Microsoft and now this.

In truth because the value of Expedia to MSN has been played out - this is understandable. Orbitz will do well with this.

Orbitz has become the preferred provider to MSN/USA and eBookers has become the preferred provider at MSN/UK.

So here is a question for you. If vendors and distributors change partners and show no allegiance to each other... how can we expect consumers to be loyal to brands?

That's my question/thought for the day

Cheers

Timothy

Biz Class Airlines Model RIP - L'avion purchased by BA

So the independent Business Class Airline Model has now bitten the dust for good. British Airways announced the purchase of the French Airline L'Avion, the last survivor of the class and will integrate into OpenSkies its new subsidiary.

Technically there are other airlines operating such as Al Khayala (now part of Kingdom Holdings) in Saudi Arabia but the model has clearly bitten the dust.

So over the coming weeks I will be looking at why the model failed and if there are other options to revive such a concept.

Cheers

Timothy

FOLLOW UP - BA to drop lower class services in OpenSkies

BA's future bookings on OpenSkies have ben strong in the front cabin and the Prem+ second cabin has been garnering rave reviews. However the back is - well same old stuff. So BA is looking to cut the back on offer either a full 2 class service or a single ClubWorld type product.

How did I miss this one - I live in a town with a real SLUT

Officially its a Streetcar - but they were calling it Trolley for a long time before it because that was a cooler name than a Streetcar.

So have a look here - nothing needs any explanation. But some folks in the City of Seattle have some red faces.

http://seattlepi.nwsource.com/local/332081_slut18.html

Cheers

Timothy

The US Government shows itself to be - well not very energy smart.

So at the risk of sounding like an anti-government person - which I am not - I have to point out ways that the US Government is doing a fine job of screwing up.

Since today I also showed some wonderful examples of EURO-screwed up-ness, I have to look at the US for a counter balance.

Lets consider Solar Power. I think everyone (except the current occupant of 1600 Pennsylvania Avenue NW DC and his neighbour at the U.S. Naval Observatory on Massachusetts Avenue), believe that renewable energy sources are a priority. Well the US BLM - Bureau of Land Management today put on a 2 year moratorium on building new Solar Power plants. DUH!!! Couple this with the removal of the tax credit on solar energy for the home and you have a rather stupid state of affairs.

So kick me if I am wrong but just at the time when America needs to encourage new forms of energy source and preferably renewable - the government comes along and kills it for you. I thought airlines were dumb but this shows they are not alone.

I have just come back from Greece where water and energy are a very scarce commodity. There are a whole host of homes and public buildings that take advantage of solar power to cool, power and heat their users. Units that are low cost AND unsubsidized.

This country - Greece - has power that is not always on in some of the Islands and fresh water is a really scarce resource. If they can do it on the cheap why not the USA?

Inquiring minds want to know.....

Cheers

Timothy