Air Travel Up Slightly, but Revenue Still Lags

[chipmunn]

Last summer airline industry revenues were improving month-over-month; however, in September the revenue recovery stalled. At the time airline executives believed the September fall-off was due to fear of flying and the September 11 terrorist attack anniversary; however, revenue did not recover in October, November, and December.

This across-the-board industry problem has caused US Airways to not meet the revenue targets required in its RSA credit facility or the federal loan guarantee. Thus, to prevent the Arlington-based carrier from liquidating senior management reached TA's with its unions to cut costs another $200 million per year, imposed management concessions, obtained further other stakeholder cuts, and implemented additional operational savings for a grand total cost reduction of about an additional $500 million per year.

However, it the airline does not obtain ratified agreements from its unions, reach a retirement plan restoration funding agreement with the PBGC, and final loan guarantee approval, US Airways could be forced into liquidation proceedings by RSA.

Chip

 

[chipmunn]

Air Travel Up Slightly, but Revenue Still Lags
NEW YORK (New York Times) - Like the vanished vapor trail of a jet, the flush days of holiday air travel have disappeared.
For the last year, people working in the air travel industry had hoped — and analysts had predicted — that this holiday season would lift the industry. But while more people are flying this year than at the same time last year, when the aftermath of the Sept. 11 attacks kept many at home, the numbers do not nearly approach those during the holiday season in 2000, considered a boom year for the industry.
What''s more, the revenue pulled in by the industry each month since August has fallen below 1995 levels, a trend that will continue through the end of the year, industry economists say.
Nowhere are the industry''s deepening concerns more apparent than in major airports, like Ronald Reagan National Airport and Dulles International Airport here. At these airports and others nationwide, concourses have remained ghostlike in their emptiness over the last couple of months, at least compared with the 2000 holiday season. Shopkeepers have shaken their heads at the dearth of money in their cash registers. Passengers have marveled at some half-deserted plane cabins.
>From Nov. 1 to Dec. 15, passengers on seven of the eight largest carriers in the United States flew 58 billion miles, a 10.7 percent increase from the number in the period last year, but down 12.8 percent from 2000, according to the Air Transport Association, the industry''s main trade group. That pattern is not expected to change much when the passenger volume for the rest of December is calculated in.
And the airlines, with too many planes in the sky, are also having a tougher time making money on those passengers who are flying. The average revenue for each available seat mile, a standard industry measure, was 11.8 cents in November, down 1.7 percent from the figure in the month a year earlier. Many Wall Street analysts had expected an increase of nearly 2 percent.
Compounding the problem for airports are two airlines in bankruptcy court — United Airlines and US Airways — and a deadline on Tuesday to have cumbersome baggage screening machines in place.
The message is clear: Whatever turnaround people might have hoped for this season never materialized. Jamie Baker, an analyst at J. P. Morgan Chase, wrote in a recent investor''s note: Put more bluntly, industry trends deteriorated in November, having held largely stable (though weak) over the past several months. Frankly we''re surprised by the magnitude of deterioration.
At the two airports in the Washington area, the number of passengers is down tremendously from 2000. Last month, 1.1 million passengers went through Reagan National and 1.3 million through Dulles — down 21 percent and 14 percent, respectively, from 2000. It doesn''t feel like the holidays at all; right after Christmas, you expect this place to be packed, but it''s pretty empty, said Robert Wills, a 17-year-old basketball player who was waiting with his teammates at Reagan National, as he often does, for a flight to a high school tournament.
Moreover, Reagan National is a de facto hub for US Airways and Dulles serves as one for United, raising extra concerns for executives here, as well as for operators of other airports that serve those airlines.
When somebody''s filed for bankruptcy, it gets your attention, said James A. Wilding, the chief executive of the Metropolitan Washington Airports Authority, which runs Reagan National and Dulles. But while we obviously wish they weren''t in this circumstance, and you sleep with one eye open while they''re in this circumstance, I like our assets as they restructure.
Mr. Wilding thinks the landing rights and gates at his airports are important enough to US Airways and United that they will keep up their lease payments and levels of service. Ninety percent of passengers at Reagan National and 70 percent at Dulles start or end their journeys at those airports. Airlines that shift their operations away from those airports risk losing their share of that revenue.
Even in bankruptcy, US Airways is fighting for six slots that were vacated recently at Reagan National by Midway Airlines and Spirit Airlines, Mr. Wilding said.
As for the leases of United and US Airways, there''s not going to be a renegotiation he said, adding, We expect United and US Airways to assume the leases and be about their business.
United and US Airways have the upper hand right now in contract renegotiations with their unions, vendors and aircraft lessors, primarily because of the soft market in air travel, but they do not have nearly as much leverage over large airports to renegotiate lease terms. That is because they need the landing rights, gates and other facilities to maintain their route networks.
If the airlines were to leave certain popular airports — like Reagan National, used by many US Airways business travelers, or San Francisco, United''s gateway for trans-Pacific flights — then rival airlines would almost certainly snap up their places.
We are very concerned about United and the airlines'' situation, said Michael McCarron, a spokesman for San Francisco International Airport, which depends on United for 27 percent of its annual revenue. But worst-case scenario, should United go away, it doesn''t mean San Francisco will lose business. We will attract tourists no matter what. And other air carriers have already expressed an interest in taking United''s place, should it come to that.
US Airways has already cut capacity in some markets, and United has said it intends to stay close to its current level of service for now, though industry experts say United will eventually have to scale back its flights or planes.
The Chapter 11 filings by the two airlines do bring certain pitfalls for airports. United, a unit of the UAL Corporation, and US Airways owe the Washington Airports Authority one month''s rent each — $2.7 million and about $500,000, respectively. The airlines skipped those payments as they were filing for bankruptcy protection, and the authority is now the 19th largest of United''s unsecured creditors. Various government and airport authorities in Indiana are owed $162 million by United, one of the airline''s largest unsecured debts.
Mr. Wilding also said there could be a marginal decrease in United''s use of Dulles for connecting flights between Europe and the United States because United''s flagship hub in Chicago is close enough to take up that role.
More than the bankruptcies, Mr. Wilding has been worried about the mad scramble this holiday season to meet deadlines set by Congress for new security measures. Soon after the Sept. 11 attacks, Congress ordered that the new Transportation Security Administration put in place machines to screen all checked baggage at 429 airports by the end of this year. Although government officials have said a reasonable handful of airports will have to use stopgap measures, Mr. Wilding said Reagan National and Dulles had all the machines in place, even if they were not all being used yet.
But like many airport executives, Mr. Wilding has disapproved of the way the large machines, which are the size of minivans, have been installed in his airports. At Reagan National, they sit in the lobby area, taking up valuable space, he said, while at Dulles they mostly sit in rooms out of sight of passengers. He said he would rather have had the time and the money to install the machines as part of the baggage conveyor belt systems, something that Logan International Airport in Boston did at a cost of $146 million.
I''m very anxious for that to happen, Mr. Wilding said. If you go down there and look at it right now, it''s kind of a fright. It''s not something we want to live with in the long term.
Some concessionaires have had their own complaints about security measures, especially when lines back up at the screening areas and passengers anxiously flock there rather than stopping at shops and restaurants.
As soon as people walk in here, they look at the security gate; they''re trying to decide, `Should I leave right now, or should I get something to eat?'' said Alex Lee, manager of Matsutake Sushi at Reagan National. There were a couple days in early December when the security line by his restaurant stretched back about 100 feet, he added, discouraging customers from stopping in.
The waits at the four security checkpoints at Reagan National usually last less than 15 minutes, Mr. Wilding said, although there are sometimes exceptions. Brian Doyle, a spokesman for the Transportation Security Administration, said waits at airports across the country had averaged less than 10 minutes during the holiday season.
But tighter security rules are just one of many concerns on the minds of concessionaires. Like others in the industry, they know that their problems are much larger, tied to the seemingly endless slump in air travel and the absence of a huge upswing in the last couple of months. And many concessionaires, from San Francisco to Chicago to the ones here, remain worried that things could get worse before they get better, especially if United and US Airways do not make it through bankruptcy.
If we lose two big companies, there will be less passengers, less business, said Mr. Lee, who has stopped accepting food vouchers issued by those two airlines. That won''t happen right now, but maybe sometime in the future.