Wall Street Melt Down Hurts Airlines

Air carriers brace for downturn by (guess what?) cutting service

Viewed from a Wall Street-oriented buy/sell/hold point of view, Business Week commented that "High fuel prices are helping make airline travel a 'mid-priced luxury good' and could help the carriers by prodding them into restructuring, an industry analyst says... [Stifel Nicolaus & Co. analyst Hunter K.] Keay said that U.S. airlines prudently responded to high fuel prices by aggressively cutting capacity, dropping marginal routes, and retiring older, fuel-guzzling planes without placing big orders for new ones. The result, he said, has been better pricing power even though traffic growth as been modest or nonexistent. And there's room for growth in ancillary revenue." Positive mid-term news for investors by 2010, assuming that the whole economy has collapsed by then and that fuel prices remain stable or drop, doesn't do a darned thing for travelers who want to visit Grandma at Thanksgiving or take a ski or sun vacation this winter.

Airlines -- especially international carriers (including US carriers that also fly overseas) -- have long cozied up to their "best" customers, with front-cabin comfort, service and amenities. Now, reports Brett Snyder on BNET, a business site, these carriers are "already seeing premium cabin weakness internationally as the economy softens, and now the financial crisis is only going to make things worse. All those rich bankers in New York spend a lot of money sitting up front . . . or should I say 'spent.' (Can you say New York - London?) And as we all know, premium cabins count for most of the profit in the international world. This could get ugly very quickly, especially for airlines that rely primarily on their international premium cabins to generate their profit. Airlines like British Airways with their large transatlantic presence can’t be happy right now, but while US airlines get a smaller share of their business from that type of passenger, they’re still going to be hit hard."

Among the short-term news -- some good, some less so -- affecting air travelers:

• Passengers traveling on premium tickets (i.e., business and first class), which ere on a positive growth curve for the first half of 2008, fell by 1 percent in July. That may be just one percentage point, but it hit airlines hard at a time when jet fuel cost way more than it did in 2007.
• Trying to drum up immediate transatlantic business, American Airlines is offering a free companion ticket the 2008 flyers for a 2009 US-UK flight. The deal is: book and fly roundtrip before Deccember 31, 2008, and earn a free companion ticket for future travel to the United Kingdom or to the Caribbean between January 15 and December 15, 2009. The offer is valid for First Class, Business Class or on "select" Economy seats. And of course, there's fine print.
• Alaska Airlines, which earlier reduced its schedule by about 6 percent. announced that it will cut its winter flying capacity by 8 percent systemwide, and even more on routes to Mexico and Canada.
• United Airlines, which was unprepared for the initial run-up in fuel costs, has taken a second financial hit that could total $500 million quarter. United embarked on some ill-timed fuel hedges it adopted as protect from sharp price increases that didn't materialize. In fact, price dropped. Perhaps feeling a weakness in the "best customer" segment, United has finally loosened requirements for customers to upgrade to Economy Plus. Many of these extra-legroom seats had been filled by elite-level business travelers. Now, with that segment weakening, United is democratizing this service -- not that most leisure travelers, already slammed with baggage check fees, will cough up the extra bucks these days.
• Virgin America’s Main Cabin Select, which offers "first class amenities" to passengers paying extra for "premium coach seats (i.e., bulkhead and exit row), has been delayed. Originally set to launch on September 15, it now won't be bookable until October 6. Reservations system "technical difficulties" are cited as the cause of the delay.
• British Airways, while not immediately paring transatlantic service, is suspending some flights to eastern Europe beginning October 26, backpedaling on new routes originally due to start that same day to Spain and Portugal won't take off after all, and a new route to Hyderabad, India, will be delayed until December 6. "Other changes in capacity come from reduced frequency on multi-frequency routes and have limited impact on our network," said BA.