Airlines Deals

Low-cost airlines easyJet and Ryanair have backed moves by the European Commission to look into the operation of flights between the Italian mainland and Sardinia.

Both airlines have faced legal challenges to their plans to offer flights to the island, with Italian air travel regulators saying the routes are protected via Public Servicing Obligations (PSO) designed to guarantee continued service on routes deemed to be unprofitable and remote.

Earlier this year, easyJet’s inaugural flight from Milan to the island’s airport at Olbia was stopped from taking off and check-in desks were closed down. Passengers protested to the Italian officials.

Arnaldo Munoz, of easyJet in southern Europe, said: “We are very pleased with this decision and are confident that the investigation will restore competition on routes to Sardinia.

“The winners would be the Italian taxpayers, the flying public who will benefit from more choice, lower fares and better service as well as the region of Sardinia, which would benefit from a boost in tourism.”

Ryanair is also keen to see the restrictive measures taken down and claim that the price of a flight from Italy to Sardinia has gone up from €40 to €160 in the past few months.

Peter Sherrard, of Ryanair, said: “Sardinian consumers and visitors are being ripped off, denied choice and paying fares four times higher than Ryanair’s, solely as a result of the unlawful actions of the Italian authorities to block Ryanair’s flights and permit the routes to be taken over by high fare Italian airlines.”

easyJet currently flies to Sardinia from Gatwick, Geneva and Berlin, carrying more than 200,000 passengers to and from Sardinia since flights began a year ago.

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India’s first low cost airline Air Deccan has surpassed state-owned Indian to become the country’s number two airlines with a market share of 21.2 per cent as of June this year.
“Air Deccan has garnered a market share of 21.2 per cent in June, a rise of 1.8 per cent since May 2005 while the market share of Indian dipped to 20.8 per cent in the month of June,” a company release said.

“Air Deccan with its unconventional business model brought the luxury of flying to the common man in India. Dynamic pricing coupled with wide connectivity, rapid expansion of fleet and several other steps enabled us in becoming the second airline in the country within such a short span of time,” Capt G R Gopinath, managing director, said in the statement.

Air Deccan, which started operations in August 2003, has seen a very rapid growth having flown over 5.8 million passengers since inception.

Gopinath said that the rise of Air Deccan was indicative that the country had an appetite for low cost airlines.

“If we go by the current rate of growth we are witnessing, it won’t be long before we become the largest people carrier with the largest fleet offering the largest connectivity and the lowest fares,” he said.

Operating to 55 destinations across the country with a fleet of 14 Airbus A-320 and 21 turbo propelled aircraft, Air Deccan very recently placed an order for 96 new planes, which will be delivered over a period of 96 months.

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Passenger volume on low-cost airlines coming in to Málaga Airport has increased by 26.3% on figures for last June, with a total of 236,000 last month, according to newspaper reports.

Easyjet, who brought 80% of those passengers into Málaga from the UK, forecasts 2 million passengers for the whole year. Estimates made after the influx of tourists at Easter forecast that they and the two other main low-cost airlines operating at Málaga, Monarch and Air Berlin, would bring in 3 million passengers by the year end.

The three between them control almost half the aircraft arrivals at Málaga.

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It’s late in the 2006 session, and Congress is hurrying a bill to overhaul the nation’s employer-sponsored pension system.
Talk about a recipe for disaster.

The measure is supposed to ease the pressure on the debt-ridden Pension Benefit Guaranty Corp., the federal agency created to insure - read: bail out - underfunded private pensions.

But the PBGC’s own analysis claims that the bill’s three versions would aggravate the crisis instead by costing it $2 billion more in claims over 10 years than if Congress did nothing.

The agency is currently running a cumulative $22.8 billion deficit in the pensions of the 1.3 million people it is responsible for.

The three plans would require companies to contribute from $1.21 trillion to $1.23 trillion over the next 10 years, and would increase the agency’s deficit by roughly $15 billion. If there were no changes in the law, says the agency, companies would be required to pay $1.24 trillion and the deficit would rise by just $12.8 billion.

If that’s the case, Congress should stay out of the game.

Rumor has it that the final version of the bill, which is supposed to be released this week, will be tougher. It will include a requirement that all pension plans be fully funded within seven years (except the struggling old-line airlines, which would get 20), and that companies less than 80 percent funded limit new obligations.

Such special deals for the older airlines, which have underfunded their pension contributions for years, understandably drive competing low- cost airlines slightly crazy.

The latter tend to have defined-contribution plans as opposed to defined-benefit plans, and that makes the employees, not the companies and the government, responsible for their pensions.

United Airlines used its recent bankruptcy as an excuse to dump its pension plan onto the agency, and Delta and Northwest may do the same.

Bills of this sort are tricky even when Congress is pondering them at leisure. But when there’s deadline pressure they become especially susceptible to abuse by corporate lobbyists who have a precise knowledge of the issue and take advantage of harried lawmakers who do not.

We remain cautiously hopeful that something better than the status quo will emerge in the coming weeks instead of an expanded bailout. One possible version of the law would encourage 401(k)-type plans. Currently, they are opt-in, meaning the employee has to choose to participate. But the bill may make enrollment opt-out, thus encouraging many more employees to participate.

The measure would require employer matches of 50 percent or so up to a certain level of contribution. Meanwhile, the mandatory employee contribution would rise from 3 percent to 6 percent over three years.

But it’s still too soon to tell what will happen, and Congress tends not to take the hard road, especially in an election year.

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A new European Union proposal bans airlines from advertising airfares that hide fuel surcharges, baggage fees and other airline add-ons. Airlines are also prevented from charging passengers different rates in different countries.

The Internet has been credited with driving down airline fares by giving consumers the ability to compare prices easily. Some airlines are fighting back by making their fares less transparent to the public. A similar battle is being waged by major US airlines, according to an article published earlier this year in the New York Times.

US Travel consultancy PhoCusWright estimated that online travel sales in Europe totaled about $35.5 billion last year. Airline tickets accounted for the vast majority of these sales. According to the Denmark-based Centre for Regional and Tourism Research, airline ticket sales represented 56% of European online travel sales in 2005, with sales of hotels rooms and holiday packages running a distant second, both garnering 16% of total sales.

The emergence of low cost airlines has also helped reduce overall airline fares. However, budget airfares are harder to spot if the traditional carriers get their way and the ban is not enacted. No frills airlines have caught on in Europe as wellas the US. There are over 60 short-haul, low-cost carriers serving Europe, including pioneers Ryanair and EasyJet as well as more recent upstarts such as Hungary’s Wizz Air and Slovakia’s SkyEurope. In the UK travelers can choose from an exceptionally large selection of low cost domestic and foreign carriers. One consequence of this has been that it is now more affordable for UK residents to buy vacation homes in previously out-of-the-way places on continental Europe and this. Such purchases are on a steep upward trend.

According to a 2005 ACNielsen survey, Ireland, home of Ryanair, Europe’s largest low cost airline, has the highest percentage of Internet users who booked air travel as one of their last three online purchases. Other countries with a high percentage of online airline ticket buyers include Malaysia, India and Greece. It should be noted, however, that, to some extent, a country’s presence on this list indicates a lack of other products available for online purchase, thereby increasing the likelihood that airline tickets will be among an online consumer’s last three purchases.

For a wealth of information an analysys on the online travel market all over the planet, sign up to be notified when eMarketer publishes its Worldwide Online Travel report later this week

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An American financial group is seeking to invest in the HCM City-based Pacific Airlines, Viet Nam’s sole joint-stock air carrier, local media has reported.

The US company has proposed that it would pool some US$50 million to re-structure Pacific Airlines and turn it into one of the first low-cost airlines in Viet Nam, Sai Gon Giai Phong newspaper reported.

With such an investment, Pacific Airlines’ operation could cover domestic and regional routes.

The beleaguered airline has faced difficulties due to huge financial losses in recent years.

According to the carrier’s managing director, Luong Hoai Nam, in the 10 years ending 2004, the airline suffered losses of around VND360 billion ($22.5 million), nine times higher than its initial investment.

Established in 1992 with initial capital of VND40 billion ($2.5 million), it was initially run by Vietnam Airlines who owned more than 86 per cent of Pacific Airlines’ share.

In January 2005, the Government assigned the Ministry of Finance to deal with the debt and restructure the operations of Pacific Airlines.

In an interview with Tuoi Tre newspaper on April 2006, Nam said this was a task which has not been completed by the Finance Ministry.

To polish its image, in May 2005, Pacific Airlines cut its airfares by 10 per cent for tickets on the HCM City-Ha Noi route and by 12.5 per cent on the HCM City-Da Nang route.

The launch of the sales promotion forced Vietnam Airlines to follow suit.

In August 2005, Temasek Holdings of Singapore announced a plan to buy 30 per cent of the shares of Pacific Airlines.

The Finance Ministry at that time also received proposals from aircraft manufacturers, Boeing and Airbus, as well as some large foreign banks who wanted to buy shares in the airline.

But the ministry chose Temasek, reasoning that the State financial company had experience as it manages the Singaporean government’s investment capital in joint-stock firms in the field of aviation, transport, telecommunications and real estate. However, the plan has never been realised.

The US financial group also hoped that its investment could help turn Pacific Airlines into a low-cost airline in Viet Nam.

This was proposed by its stock-holders when Pacific Airlines was reshuffled in January 2005.

The US company would like to see Pacific Airlines’ services cover domestic and regional routes.

In the last two years, low-cost airlines from neighbouring countries such as Singapore’s Tiger Airways, Malaysia’s AirAsia, Indonesia’s Lion Air, and Thailand’s Thai AirAsia, have opened services to big cities in Viet Nam.

Under a plan mapped out by the US company, the airlines’ fleet would be expanded to 20 airplanes, comprising Boeing 737s and Airbus 320s after five year’s operation.

According to the plan, Pacific Airlines could become profitable three years after the reshuffle.

Sai Gon Giai Phong said after three years Pacific Airlines could issue stocks in the local securities market for capital expansion.

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Malta has missed out on the chance to increase its tourist arrivals after low cost flights operating from the UK appear to have slipped by for the summer season. Official figures show that the number of tourists for 2006 visiting Malta could be lower than those of 2005, while Air Malta a drop of over 2% in the number of passengers it carried in the year from March 2005 to March 2006.

newswire Today! reported how Maltese travel guide YourMalta.com said that “potentially millions in lost revenue will be lost this year because of delays in agreeing to allow the low cost airlines to fly into Malta.”

The travel guide added that in today’s world Malta has to compete with new destinations in Europe as well as Spain and her islands. It insisted that cheap Malta flights aren’t in themselves enough to sustain tourism at reasonable levels anymore, and that the trick of sustained tourism is to have repeat business. “Unless Malta attracts new first time visitors then repeat business is an impossibility,” continued the travel guide.

Real estate business could also be affected by the drop in the number of tourists. According to Tribune Properties Managing Director Michael Johnson, many Malta property buyers do so after visiting the island on holiday, and liking it so much they want to move to the island full time.

In turn, others opt to buy a property they can use for their holidays in Malta. The Managing Director Michael Johnson explained that with less people taking holidays in Malta, the number of potential buyers will fall too.

Earlier this week the Government issued a call for proposals from low cost airlines to operate new and underserved routes to Malta

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The main Spanish stock market index, the IBEX 35 is now the IBEX 33 and will be so until at least the 27th of the month. The reason being that the phone book company TPI and Telefónica Moviles both leave the listings. The Mapre corporation will be added to the list shortly and it still unclear what the effects of a possible take over will be on steelmaker Arcelor.

Low cost airlines have seen a 15.9% increase in passenger numbers in Spain over the first six months of the year compared to last, while the traditional companies have seen lower growth at 5.1%.
Tomorrow Tuesday Iberia is to announce the name of its new low-cost carrier – already leaked to be clickair. Low cost airlines now control 31.7% of the international flights in Spain, with most popular airports for the new carriers being Palma de Mallorca, Málaga and El Prat in Barcelona.

Media Group PRISA has announced reduced profits down 8.3% for the first half of this year compared to last. The numbers came in at 67.3 million €, below market expectations where a 2% fall had been forecast. The reduction did not affect the shareprice however which rose over 1% on the news.

The Banco Pastor has announced a profit jump of 32% to June, compared to the same period last year at 84 million €.

The old administrators of one of the two Stamp trading companies which have been intervened by the authorities two and a half months ago, Afinsa, are today presenting an appeal against the decision of the mercantile judge to declare the company insolvent.

The management of the Braun company and the unions have reached a pre-agreement on the conditions for the closure of the company’s factory at Esplugues de Llobregat. It will mean the loss of 761 jobs at the plant. The agreement needs to be ratified by the workers in September but offers early retirement packages for the over 50’s and a transition plan for those aged 48. The company has undertaken to pay 50 days pay for each year worked, split into 42 monthly payments, put an initial 4000 € per worker and an extra 900 € for each year worked.

Risk capital company Permira and the Ballvé family are now the controllers of the Telepizza company, and have agreed a new 75 million € investment plan to open 546 new outlets in Spain and Portugal. For the first time towns with less than 30,000 population will be considred by the company, which now also plans to see more products and establish a new central call centre

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That the group of five start-ups, Air Deccan, Kingfisher, SpiceJet, GoAir and Paramount, have together cornered 38.5% of the domestic air travel market in June is no surprise, as the underlying trend has been visible since last year. And it is the low-cost airlines (LCCs) that are leading the way, even as passenger carriage for full service carriers is still high. For the industry in a demand-led expansionary mode, price competition is the key strategy. But with an estimated two-thirds of its operating expenses (fuel, landing & navigation charges, lease and maintenance) external to the business, the pressure from these fronts must be checked proactively, else the low-cost model may start crumbling.
As DGCA (directorate general of civil aviation) data shows, LCCs now account for over 30% of the market. But, the aggressive pricing strategy, which is making serious inroads into the latent market, is becoming a pitfall. With more low-cost airlines waiting in the wings, and arduously competing full service players, existing LCCs are fast accumulating losses. The current phase is one of financing expansion and waiting to break even. Yet, funding is not proving to be easy, given players’ high cash burn.

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It is here, that government has to more proactively ease the industry’s operating cost environment, which growth in traffic won’t be able to cushion for too long. Rising prices of the single largest operating cost component (over 30%)—fuel—exert serious load on margins, as full pass through (surcharge) is strategically implausible. Worse, high sales taxes (39% in some states) and levies on aviation turbine fuel (ATF) create a 50%-plus differential for domestic carriers above international levels. Planes waste precious fuel, while queuing for up to 30 minutes for landing or take-off, and high landing and navigation charges etc. inflate costs.

ATF, therefore, should be brought under the declared goods list, capping sales tax at 4%. Fuel hedging through forward contracts for domestic airlines should be allowed; government has allowed hedging of 10% fuel demand for international operations. (Southwest, even the otherwise efficient LCC in the US, could maintain profits mainly thanks to fuel hedging). Air traffic control modernisation will improve fuel efficiency. The route categorisation policy, which forces airlines to fly unviable routes, needs prompt correction. And, with the market already facing growth pangs due to low airport capacity, the Mumbai and Delhi airport stories warped by arbitrariness must not be repeated for other airports.

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The common practice of airlines, including those in Malta, of advertising cheap flights without including associated costs like taxes and fuel surcharges may soon come to an end following the publication of new proposals by the European Commission last week.

The proposals, unveiled by Transport Commissioner Jacques Barrot, will make it impossible for airlines to advertise fares which do not cover the real cost to the consumer.

The proposed regulations lay down that fares advertised by airlines should include all applicable taxes, charges and fees.

This measure completes the Unfair Commercial Practices directive which requires that information on prices should include taxes as of December 2007.

Commission sources told The Sunday Times that the purpose of the regulations was to make it easier for consumers to compare fares and not to be misled. The proposals also prohibit price discrimination between passengers solely on the basis of their place of residence within the European Union.

The new proposals come at a time when Europe is facing an aviation revolution particularly with the mushrooming of low-cost airlines, which has substantially brought down travelling prices.

The Commission said that during the past 10 years, air transport in Europe has experienced unprecedented expansion at affordable fares.

The number of airlines has risen and there has been a general increase in the amount of traffic and competition on routes. Since the full liberalisation in 1997, the number of routes has increased by more than 60 per cent and more cities are now covered.

Commissioner Barrot said that Europe needs to consolidate its success in this sector by removing all restrictions to the free provision of air services and ensuring fair competition between airlines.

“Citizens must enjoy the benefits of the single market and have the possibility for more choice and quality. They must be able to easily compare fares between airlines”.

The rules also clarify the criteria for the granting and validity of a licence to operate in the EU. Such criteria include the financial situation of the air carrier and the ownership and control of the company.

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