Aviation industry’s woes deepened further as the air traffic touched its lowest in five years and Ryanair announced withdrawal from Spanish base over a dispute on costs.
Airline industry heralded global downturn after soaring oil prices led 30 airlines to bankruptcy. The latest traffic data from the International Air Transport Association (IATA) indicated that global downturn was turning heat on the industry.
Global traffic dropped 2.9% in September. According to IATA chief executive Giovanni Bisignani, alarmingly widespread and fast paced fall in traffic could lead to a bigger loss than £3.3bn deficit forecast this year.
A number of UK based carriers such as Zoom and Silverjet were grounded due to crippling fuel costs. Global recession was now posing a greater threat to the biggest airlines as passenger demand was falling sharply. The world’s highest revenue generating airline Air France-KLM also admitted that it would be very difficult for it to achieve its target of €1bn operating profit.
Bisignani warned that worst was still to come and the industry had a very difficult year ahead. He added that the increasing global economy crisis was deepening the industry’s crisis as well.
IATA informed that a proportion of sold seats per flight fell from 78.8% to 74.8%, confirming analysts’ apprehension that air lines were operating too many flights for too less passengers.
According to the chairman of CTAIRA consultancy, Chris Tarry, falling load factors were indication of excess capacity, the real issue for industry was how it could cut capacity speedily to keep up fares against market downturn.
The airport operator BAA will be putting Gatwick airport up for sale in November, hoping to get £3bn from the deal. An information memorandum is due to be sent to interested bidders before November 15.
BAA is under pressure from the Competition Commission to sell off Gatwick. A source close to BAA disclosed that this process would take a minimum of one year for completion. HSBC and Royal Bank of England are acting as advisers to BAA on the deal.
BAA is not inclined in lowering the price it is expecting from the deal with belief that a potential investor could strike deal with an aye on the rewards it may gain from Gatwicks acquisition over 20 to 30 years.
The source claimed that owning the UK’s number two airport was a rare thing and BAA would strive to ensure that it got reflected in the price.
The Competition Commission believes that BAA has acquired monopoly in South-East by owning Gatwick, Heathrow and Stansted and three airports in Scotland. It wants to prevent abuse of monopoly by BAA.
Two London airports and one more in Scotland are likely to be recommended for sale by the Competition Commission after completion of investigation into BAA in 2009. BAA, on the basis of preliminary findings, opted for sale of Gatwick.
British Airways finally fell in line with rival airlines following a steep fall in fuel prices BA announced levy cuts for economy class passengers on long-haul flights, leaving business class charges unchanged.
The surcharge on return flights with a travel duration of more than 9 hours- say to New Delhi and Cape Town - will drop from £218 to £192 per ticket for those travelling in the airplane’s back coach. It would reduce from £156 per return flight to £136 for less than 9 hours long journeys in case of long-haul economy class, for example Heathrow to Montreal or New York.
The premium economy passengers would pay £166, down from £176 for long haul return flights under 9 hours. The surcharge is reduced to £222 from £229 for more than 9 hours long return flights.
There is no change in surcharge for business class passengers and short-haul flights.
BA was criticised by Ryanair for keeping fuel surcharges unchanged in spite of drop in oil costs from $147 a barrel to $80 a barrel now. It accused BA of disproportionate charging for safeguarding profits during slowdown. BA had defended saying that gains of lower oil price were wiped out by the strong dollar value.
According to Douglas McNeill, BlueOar Securities’s analyst, when rival airlines announced cut in surcharges there was no option left for BA than to respond positively to keep fares competitive.
Ryanair has alleged that Air BP was profiteering by misusing its monopoly as the sole supplier of fuel. Ryanair chief Michael O’Leary revealed that the matter has been referred to the Office of Fair Trading for investigating a 50% hike in fuel charges at Prestwick and Belfast City airports.
O’Leary claimed that BP was pushing prices at a rate much higher than the rate of inflation. Air BP is determined to abuse its monopoly and since no rational explanation has been given by them, OFT has been asked to inspect BP, added O’Leary.
He further blamed Air BP for gouging airlines and passengers by imposing a 50% rise on delivery charges at Glasgow and Belfast City.
According to O’Leary, delivery charges were already high and he did not accept Air BP’s explanation that the increase was inevitable due to business downslide.
He disagreed with the statement and reasoned that Belfast was the fastest growing airport in the UK and traffic at Belfast City was up 28%
O’Leary declared that at a time when consumer confidence was collapsing, blatant abuse of monopoly by the hugely profitable oil company was totally unacceptable.
BP spokesman denied indulging in profiteering and claimed that prices were mutually negotiated between airlines and fuel suppliers reflecting the current market and costs.
To celebrate Ryanair’s success of Belfast airports on 4 routes, O’Leary announced the release of one million £10 all inclusive seats for November to January travel.
Engineering giant, GKN, will be buying part of the Airbus factory in Bristol for £136m, as per a deal announced a few days ago. Manufacturing operations at the Filton plant, which produces wing components for Airbus, will be acquired by GKN.
The deal was hailed as “fantastic news” for British manufacturing by the union group, Unite. The union claimed that the deal would help in securing the UK aerospace industry for decades. Airbus was engaged in negotiations over the deal with GKN for months, amidst speculations that a final decision was getting delayed over price and commitment to provide future work to the factory on its pending A350 aircraft. The sale of the factory was mooted by the parent company EADS as part of its restructuring programme.
According to the GKN chief executive, Sir Kevin Smith, acquisition of wing components and the assembly facilities at Filton was an exciting development in GKN’s aerospace business. Sir Kevin Smith added that strategic logic and a strong order backlog compelled a long-term business partnership of GKN with Airbus. He remarked the position of the A350 XWB created prospects of future growth at the leading edge of composite manufacturing technology.
Filton has already acquired excellence in the manufacture of Airbus’s metallic structures and GKN intends to invest more in operations to transform Filton into centre for serving global aerospace market for composite wing structures.
The collapse of XL, the third largest holiday company in Britain has triggered fears of bankruptcy among airlines. The chief executive of British Airways warned that 30 more airlines are heading towards bankruptcy before Christmas due to soaring fuel costs and global economic downturn.
According to Willie Walsh, the travel industry is passing through the worst trading environment. He expressed concerns that a similar number of airlines which closed this year would be the casualties of bankruptcy worldwide, over the next 4 months. He announced 1,400 redundancies at British Airways.
The industry experts apprehend that smaller tour operators and airlines would be the worst affected and cautioned passengers to book only with those who could return their money in case of bankruptcy.
According to aviation consultant John Strickland, at JLS Consulting, the chances of failure in coming months were more with the UK carriers, which are not cash-rich like British Airways and Ryanair, to sustain the rising fuel costs.
This year was more difficult for the travel sector due to a big slump in sales, economic slowdown in the UK and the phenomenal rise in costs of travel companies and airlines due to the doubling of jet fuel prices. TUI Travel and Thomas Cook, the biggest tour operators in Britain have announced cutting of 8% in the number of holidays on offer for next summer. BA and Ryanair announced capacity reduction during winter season, but smaller players lack the resources to survive in the difficult period.
Four British Airways executives have been charged with price fixing in collusion with Virgin Atlantic. They can face five years of imprisonment for involvement in fixing passenger fuel surcharges. The executives charged for the grave offences include Martin George, former director marketing, Andrew Crawley, present head of BA’s sales, Iain Burns the former communications head and Alan Burnett, ex-in-charge for airline’s UK and Ireland sales.
BA was slapped with fine of £271.5m by the US authorities and the Office of Fair Trading last year, for fixing fuel charges for cargo and passenger flights. The four accused are summoned to appear on 24 September, before the City of London, magistrate court. This would probably be the most high-profile cartel trial in the UK.
Six more former employees of BA, including Gareth Kirkwood who was removed over Terminal 5 opening fiasco, are facing investigation by the US department of justice. BA ‘s reputation which had nose dived after the Terminal 5 incident would be embarrassed further, but the scandal would also expose Virgin Atlantic for its involvement although it escaped prosecution and won immunity from punishment. Two of its former executives, Willy Boulter and Paul Moore have been named in the lawsuit in the related case.
BA chief Willy Walsh wants Virgin Atlantic’s role in the scandal to be exposed, since people deserve to know the whole truth. Fuel surcharges are the levies on tickets imposed to cover fuel cost. Millions of passengers in Britain pay up to £20 for a return journey.
British Airways has put the blame on doubled fuel costs for a sharp decline in profits, stating the airline industry is now facing the ‘worst trading environment ever’. The carrier reported pre-tax profit of £37m in the latest quarter compared with a whopping £298m profit made in the corresponding quarter a year earlier. This means there is a huge 88 per cent drop in profits.
British Airways added it would cut 3 per cent of flights this winter for reducing overheads. BA earlier this week announced it was holding merger talks with Spanish airline Iberia.
BA stated its fuel bill was slated to be close to £3bn in the year (to the end of March), the equivalent of around £8m per day. It insisted it was ‘well prepared’ to deal with the crisis with a focus on controlling operational costs. BA chief executive Willie Walsh stated, “We are operating in the worst trading environment that the industry has ever faced. The combination of economic slowdown, weaker consumer confidence and unprecedented oil prices has led to substantially lower first quarter profits.”
The economic slow down and rising oil prices have not diminished public’s spirit for enjoying weekend holidays on low-cost airlines. EasyJet witnessed huge traffic on budget flights last month. Nearly 38 million passengers travelled by Europe’s second largest carrier last year. It reported a rise of 19.5 per cent in travellers in June to 4.1 million. The increase to some extent was due to the growing fleet and recent acquisition of GB Airways. But the main contribution came from passenger load factor which was much higher in the short-haul flight market. The load factor was 86.9 per cent in June.
Increased demand is blessing in disguise to the airline industry which is already reeling under the pressure of soaring oil prices which threaten to push the sector into a whopping loss of more than £3bn this year.
According to analyst’s estimates, EasyJet and RyanAir, currently the most profitable carriers in the world cannot continue making profit if the oil prices do not come down below the existing levels.
EasyJet’s director of communications, Toby Nicol, informs that fuel costs have gone up from £10 a passenger last year to £20 today. He feels that despite generating good revenues in next few months, airlines will not be able to cover the rising costs.
Gert Zonnefeld, analyst at stockbroker Panmure Gordon, says that load factor is the important factor in the performance of low-fare airlines. Budget carriers fly as much as possible while filling them with maximum number of passengers. He adds that EasyJet will not be able to sustain higher fuel costs once the peak summer season is over and its profits will suffer badly.
British Airways fliers will have to shell out £30 per flight as the airlines announced increase in fuel charges on all the flights. This is the third time in the current year that BA is passing the higher fuel costs on to its passengers. The aviation industry is passing through a crippling situation due to unending surge in fuel prices. It is forced to resort to desperate measures like levying new surcharges, slashing expenses and cancelling routes. American Airlines, the largest global carrier is even planning to levy fee for baggage checking.
The industry is losing a grim battle against two fronts, the rising fuel prices and the dwindling number of passengers. According to the International Air Transport Association, there is a sharp increase in the number of empty seats on flights since last three months. Willie Walsh, BA’s chief executive is unsure of making a profit if oil prices remained above $125 a barrel. According to him every rise of $1 in oil eats away £16m of BA’s profit.
BA already announced rise by £3 each way on fuel surcharges effective June 3. The rise in surcharges will be £15 for long-haul flights of up to nine hours, and £30 for flights longer than nine hours.