What's Up

Industry - David Swierenga, chief economist for the Air Transport Association, feels that airlines in the U.S. should earn record profits in 1998, and surpass them next year. The analyst said that the major air carriers should realize about $5.4 billion in net profits this year, which is about $200 million more than the record earned in 1997, but far less than the estimate of $6 billion to $6.5 billion for 1999. Although he was unsure of the effect this will have on ticket prices, especially high-price business fares, Swierenga predicted that two groups, airline employees and stockholders, will strongly compete for their share of the prize. (Associated Press, Nov. 18)

British Airways still sees a future demand for the development of an ultra high-capacity airplane, a new 600-seat aircraft, which they have been urging Boeing and Airbus to build for years. Rod Muddle, general manager of fleet planning for BA, said his and other airlines want a superjumbo that can offer per-seat operating costs at least 15 percent lower than currently on the B-747-400. He also noted that increasing airport congestion and international traffic demand the use of such a plane on heavily traveled routes from London to Japan, South Africa, Southeast Asia, and Sydney. Engine makers General Electric and Pratt & Whitney see less demand in the future for the projected A3XX than Airbus estimates, while Boeing sees no justification for such an aircraft. Alan Mulaaly, president of Boeing’s commercial airplane group, said, "There is no business case for a large airplane. If there was, we would do it." (Airline Financial News, Nov. 17)

Aerolineas - Argentina’s flagship airline will expand and renew its existing fleet by investing more than $1.3 billion to acquire 12 Airbus A340 planes. In the first half of 1999 it will become the first Latin American company to operate that type of aircraft when it takes delivery of four 225-seat A340-200 and two A340-300, which seat 264. The other six planes, to be purchased at a yet to be determined date, will be A340-600s, which have a capacity for 309 passengers. (Dow Jones, Nov. 20)

America West - Flight attendants took another step toward a strike, which could have a devestating effect on the Christmas travel season. The American Association of Flight Attendants, representing America West’s 2,100 flight attendants, asked the National Labor Mediation Board to declare an impasse and release it from contract negotiations. Bill McGlashen, local union president, said, "We think that the company’s behavior in negotiations last week, the foot dragging and the stalling, is reason enough. The second reason is that the only time this company seriously sits down and negotiates is if they have the pressure on them in many, many ways." (Associated Press, Nov. 23)

America West will offer nonstop service between Phoenix and Monterey, Calif., starting February 1. America West Express will provide the service using the 50-seat Canadair Regional Jet. (The Wall Street Journal, Nov. 16)

American - The carrier plans to return to the San Jose, Calif. market after a five-year absence with its proposed purchase of Reno Air. Airline consultant Robert Mann of Port Washington, N.Y. said that American had left in 1993 during an economic slump, but gave its blessing to Reno to pick up the leases on its facilities and to participate in its frequent flier program. However, the alliance didn’t meet American’s expectations for customer loyalty, and Reno never grew enough to compete with the major carriers, Mann said. "They’ll be bringing it back in-house, and the American Advantage loyalty will be recaptured at the expense of others." (Dow Jones, Nov. 19)

Just weeks after the American/RenoAir merger announcement, analysis are looking at the prospects of a possible American/Alaska Airlines merger. American recently acquired RenoAir in hopes of establishing a stronger presence on the West Coast. An American/Alaska merger would bring American a very strong presence to the West Coast, the Pacific Northwest and Alaska markets. Code-share partners Alaska Airlines (ASA) and Northwest Airlines (NWA) have recently battled over the much sought after Seattle-Anchorage lane segments. ASA sources have expressed their strong disappointment with NWA’s recent announcement to provide B-747 service between Anchorage (ANC) and Seattle (SEA) which ASA has dominated for years. It came as an additional blow to ASA that travelers in the high volume market would also receive Alaska Airline Mileage Points if they flew the wide-body NWA jets. NWA had pulled out of the SEA-ANC market several years ago while establishing a code-share partnership with ASA as NWA continued to provide non-stop service from ANC to MSP and DTW. Yesterday, parent company, Alaska Air Group announced its intention to enter into a partnership between ASA and American Airlines. ASA also announced it had given notice to NWA of its intent to modify an existing marketing agreement. "Our aim is to find a mutually acceptable way for Alaska to continue to market cooperatively with Northwest," said ASA’s President Bill Ayer. "We are in talks with Northwest and we remain hopeful that we can maintain existing partner relations which have benefited both organizations." Analysis suggest that any ASA/NWA relationship would be contingent upon NWA pulling out the ASA’s bread and butter SEA-ANC market. Furthermore, analysis contend that a possible NWA/ASA merger is not beyond the realm of possibilities. NWA claimed it entered into fray in hopes of increasing its aircraft utilization due to the weak Asian economic situation. ASA serves more than 70 communities in eight Western states, Canada and Mexico. American serves more than 230 destinations worldwide. (AJN, Dec. 12)

British Airways - Senior general manager scheduling planning Dick Wyatt said airlines should be able to sell slots to other carrrriers, and not just exchange them for free as at present. Wyatt said, "Airlines can exchange slots (free) one to one. We want slots to be transferred with secondary trading. We do not think this is reasonable without payment." The European Commission contends that such a sale was banned in the EU by legislation in 1993, and is firmly opposed to allowing BA to sell the 267 slots at Heathrow that it would have to give up under its alliance with American. (Reuters, Nov. 17)

Continental - The airline sent letters to both United Airlines and Denver International Airport requesting an immediate change in plans to limit carry-on baggage by the installation of templates or baggage sizers at x-ray security checkpoints at DIA. Mark Erwin, senior vice president of airport services, said, "The security function should not be confused by having security personnel serve as ‘bag cops’. As we saw in San Diego, having a sizer at the x-ray machine delays and inconveniences passengers — exactly the opposite result of good customer service." Continental hopes to avoid filing a lawsuit, such as the one it brought when Delta refused to voluntarily remove sizers at San Diego International Airport. (PRNewswire, Nov. 24)

Continental has placed an order with Boeing for planes to replace B-747s and McDonnell-Douglas DC-10s slated for retirement. The 10 B-767-200s, worth $880 million at list prices, are believed to have become available at attractive prices due to a slowdown in orders from Asian carriers, which left Boeing holding 36 aircraft in storage at the end of September because of non-delivery. (The Wall Street Journal, Nov. 20)

The carrier, planning for expansion in Latin America, will carry four million passengers between the region and the United States, according to a senior executive. David Grizzle, senior vice president for corporate development, said, "Four million passengers, this year, U.S. to Latin America, up 100 percent from four years ago. A lot of the profitability we’ve had since 1994 has been driven by our international business, our Latin American business in particular." He said that the growth has come despite declining economic conditions in the region, and that Continental was also looking at additional acquisitions or alliances with Latin American airlines in the next year. (Reuters, Nov. 17)

Delta - The airline disclosed plans to give pay raises amounting to about $130 million annually to non-contract employees below the mid-management level and pilots, beginning January 1. Delta president and chief executive officer, Leo F. Mullin, said it reflected a balancing effort to keep wages "at or near the top of the industry," while still maintaining competitive costs. The non-contract employees will get a two percent boost in their base salaries, and another six percent to replace an existing profit-sharing program. For the pilots, whose sagging morale the airline will try to shore up, a two percent pay "snap back" (from a pay cut in the four-year concessionary contract of 1996) will be moved up from May 1, 2000. (The Wall Street Journal, Nov. 19)

Delta President and CEO Leo F. Mullin expects a "slight" economic downturn ahead, but it will be less serious than predicted. Mullin told the Chicago Executive Club that airlines were "at the wall" financially during the last recession, with several major ones deeclaring bankruptcy in the face of excess passenger capacity in a shrinking market, but this time the airlines have reduced that risk. (Dow Jones, Nov. 18)

Delta began code-sharing with Aeromexico to the Mexican destinations of Culiacan, Oaxaca, and Zihuatanejo via Mexico City on November 15. Paul Matsen, senior vice president of alliance strategy and development, said, "Latin America is at the top of Delta’s priorities. We are taking the next step in a series of strategic moves to strengthen our Latin American system by offering more frequent Delta service to more cities." he added. (M2 Communications, Nov. 16)

Delta said that it has filed an application with the Department of Transportation to seek authority to fly daily, nonstop service between Atlanta and Rome. The airline plans to begin service on April 1 using B-767-300s with two classes of seats. (The Wall Street Journal, Nov. 16)

Frontier - The carrier announced that it has begun a relationship with the Denver-based investment banking firm of Hanifen, Imhoff, Inc. The advisory agreement will provide Frontier with strategic counseling and investment banking advice on various issues of corporate finance. Said Frontier President Sam Addoms, "We are very pleased to have Hanifen, Imhoff as a respected and knowledgeable resource for our company as we endeavor to enhance our institutional investor support from within our Rocky Mountain corporate home." (Business Wire, Nov.16)

LOT - Poland’s treasury ministry said that it plans to sell-off the national airline sometime next year. "Bids (for LOT) will be invited late in 1998 or early in 1999. It is forecast that the process of the company’s privatization will be completed in mid-1999." Although current law requires the treasury to keep at least 51 percent of LOT’s shares after the sale, some government officials said the legislation could be changed to allow an investor to acquire a controlling stake. Robert Ayling, chief executive of British Airways, said that his airline was interested in participating in the privitization. (Reuters, Nov. 19)

Lufthansa - Although the German flag carrier has seen a 64 percent rise in pre-tax profit to 1.6 billion marks for the first nine months of the year, share prices took a tumble because of a downbeat market forecast for next year. Lufthansa’s group chairman and chief executive Juergen Weber said that falling average yields could be expected on all markets, precluding an automatic assumption of further increases in earnings next year. "In view of the deteriorating market growth, raising productivity and lowering unit costs remain the primary objectives of the Lufthansa group." (Reuters, Nov. 17)

Northwest - Philippine presidential Executive Secretary Ronaldo Zamora said in a radio interview that Northwest is better suited than Cathay Pacific for a tie-up with Philippine Airlines. "The fit of PAL and Cathay Pacific does not seem right because they are competitors here in the Asian region." Doug Killian, a spokesman for Northwest, said in New York that the talks with PAL did not necessarily mean there would be an agreement. "We’ve had some discussions with Philippine Airlines, but we’ve had discussions with a lot of carriers. We talk to a lot of airlines. We have nothing to announce." (Reuters, Nov. 25)

Northwest will begin new service to Houston’s George Bush International Airport from both Minneapolis/St. Paul and Detroit on January 31, 1999. The new service will begin with three daily nonstops from each airport flown by DC-9s. These flights will be in addition to the three daily nonstops each from Detroit, Memphis, and Minneapolis/St. Paul to Houston Hobby Airport. (PRNewswire, Nov. 24)

In 1999 Northwest plans to add a weekly round trip between Anchorage and Tokyo. Northwest will operate two weekly roundtrips from May 30 until October 3, after having offered one weekly flight between the two cities on June 18 through the summer travel season. (Dow Jones, Nov. 20)

Southwest - The carrier plans to offer daily nonstop service from Austin, Texas to both Los Angeles and Tampa, beginning on February 5. On the same date, Southwest will also begin daily nonstops from Kansas City to both Orlando and Seattle. With receipt of B-737-700s scheduled for early next year, Southwest will begin long-haul service. The airline also announced Saturday-only nonstops beginning January 14 from Las Vegas to Baltimore, Cleveland, Orlando, St. Louis, and Tampa. (The Wall Street Journal, Nov. 17)

Trans States - After five months of unsuccessful negotiations with airline management, the ALPA unit representing Trans States Airlines’ more than 600 pilots has asked the National Mediation Board to intervene. Captain Don Hall, chairman of the TSA pilots’ MEC, said, "Throughout these past five months, management has canceled almost half of scheduled contract talks and has failed to respond to 14 of the 21 section proposals made by the pilots." TSA serves more than 53 cities in 19 states, providing feeder service under various code-share and marketing arrangements to Alaska Airlines, Delta Air Lines, Northwest Airlines, TWA, United Airlines, and US Airways. (PRNewswire, Nov. 19)

TWA - Stock prices soared by more than 14 percent on volume of 3.3 million shares, which analysts attributed to rumors that Virgin Express Holdings PLC is interested in acquiring a stake in TWA. Officials at TWA declined to comment. (Dow Jones, Nov. 18)

United - UAL Corp. will pay former president John Edwardson more than $2.5 million in a lump sum severance payment on January 4. Edwardson had resigned as president and chief operating officer after the pilot and machinist unions expressed reservations over the possibility of his succeeding CEO Gerald Greenwald. (Reuters, Nov. 16)

UAL Corp. stated in its 10-Q filing that fully distributed earnings in 1998 will "slightly exceed" those of last year. The company also said that it is uncertain whether its Pacific operations, which account for about a fifth of its revenue, will be profitable for this year. Because of expected industry capacity increases in international markets and difficulties in the Asian economies, UAL anticipates a negative impact on international revenue. (Dow Jones, Nov. 17)

Virgin Atlantic - Although majority owner Richard Branson wants to start a U.S. domestic air carrier, U.S. laws on airline ownership stand in his way, and he will not settle for a stake in a U.S. airline, according to a Virgin official. Under U.S. law, foreign corporations can only own 49 percent of, and voting control of 25 percent of, a U.S. airline. David Tate, Virgin’s executive vice president who runs North American operations, said that their company will not be associating itself with another airline by acquiring a position in TWA or any other U.S. carrier in the near future. "We can’t be assured of maintaining service quality and minimum service level. With the Virgin brand on it, we must have control." (Dow Jones, Nov. 27)