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April 26, 2010 Issue No.

Weekly News Review Finance & Aircraft Environment Marketing & Sales Labor & Airports Routes & Networks Around the World
2-3 4 4 5 7 8 10-11

Lashed by Ash
The ash cloud is gone and
planes are flying above Europe again. Now its time to assess the damage. In a development shocking even for the hard-bitten, longsuffering airline industry, the volcanic ash covering Europe caused a flying ban that canceled more than 100,000 flights during the course of six days. After 9/11, by contrast, U.S. airspacewhich is used by fewer international airlines was closed for just three days. At one point, the volcano caused the cancellation of 29% of all scheduled flights worldwide, according to IATA, and affected about 1.2m passengers a day. HRG, a large U.K.-based travel management company, said that at one point 40,000 of its clients were stranded. In terms of financial losses for

Industry assesses fallout from Europes volcano crisis

where they belong. This process airlines, IATA pinned the total is expected to take weeks, durrevenue impact at $1.7b through ing which time carriers will April 20. That was offset somehave little ability to accommowhat by about $110m in daily date new bookings. In the meanfuel savings while aircraft were time, the impact of grounded but amthe crisis is reachplified by added See also: ing into many unexcosts for overtime Europes top foreign pected areas of the pay for workers, re- ...airlines, p. 9 business, including accommodating Loss estimates, p. 12 labor relations. passengers and Also in this issue: Pilots at American, providing them China and India: airline for example, exwith hotels, food ...financials side by side, pressed anger that and other provi...p. 6 the company wasnt sions. The industry compensating them for lost pay happens to have many fixed caused by canceled flights to costs as well, like worker salaEurope. In addition, new regularies and lease payments for tory questions need answers: planes and facilities. Those Will European airlines, for excosts didnt disappear. ample, lose airports slots, whose Nor is the financial damage availability at some congested finished. The airspace is now airports operates according to a open, but airlines are still mopuse it or lose it rule? Even on ping up the mess, getting planes, the operational side, airlines are crews and passengers back to

Jan. 2010 - March 2010 (3 months)

Delta: $256m net loss ($192m net loss)*
American: $505m net loss ($452m net loss)* Continental: $146m net loss ($136m net loss)*
Southwest: $11m net profit ($24m net profit)*

Alaska: $5m net profit ($13m net profit )* AirTran: $12m net loss ($17m net loss)* Hawaiian: break even Allegiant: $23m net profit
Air China: $319m net profit ($181m net profit)* Ch. Eastern: $116m net profit ($48m net profit)* Ch. Southrn: $218m net profit ($56m net profit)*

Pushing Back: Inside This Issue

Initial results from first quarter earnings season show a mixed picture for U.S. carriers. Some like Delta, Southwest and Alaska are doing better than a year ago while others like American and AirTran are doing worse. Continental, the carrier now in the merger spotlight, is more or less unchanged. One thing thats true for all carriers, though, is that demand and revenues are up and trending positively. US Airways wont report until tomorrow, but this much is clear: its merger dalliance with United is over. Doug Parker and company said talks were finished. A United-Continental deal, however, remains very much in play. Both are undoubtedly enticed by the revenue spoils their combined network would bring
but perhaps spooked by cost, complexity and labor concerns. Chinas Big Three finished reporting their 2009 results and also added Q1 figures. The bad news was that 2009 was another tough year, made tolerable only thanks to government subsidies. The good news is that early returns from 2010 look fairly good, especially for Air China. A few European carriers reported Q1 results as well, with wintertime losses universal but varying in degree. The big question now is how badly the infamous ash cloud hurt the regions carriers. Bullishness is very much the order of the day in East Asia, with no shortage of plane ordering and route launching. Cebu Pacific bought some new Airbus narrowbodies, and Singapores Tiger and Jetstar announced new markets. More earnings this week, and undoubtedly more UnitedContinental merger talk.

SAS: $99m net loss ($81m net loss)* Norwegian: $34m net loss Vueling: $8m net loss

Oct. 2009 - Dec. 2010 (3 months)

Virgin America: $19m net loss *ex special items
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Business travelers are clearly back on the road.

Delta CEO Richard Anderson

the weekly skies

Five years ago, Delta was an injured airline victimized by repeated strategic missteps (remember Song and the purchase of Comair, for example) and headed for bankruptcy. Today its the largest airline in the world by traffic, the beneficiary of an impressively low and flexible cost base andmost importantly financially sound. Last week it reported a modest $256m net loss, or $192m ex special items, for the off-peak first quarter. Better yet, it reported a positive operating margin, ex special items, of 2%. Thats a far cry from last years Q1, a nightmarish one for all but LCCs, when Delta lost nearly $700m and suffered an operating margin of negative 6%. The turnaround came thanks to both revenues, which grew 2% y/y, and operating expenses, which fell 5%. Unit costs ex fuel, meanwhile, an important indicator to watch, increased a paltry 1% despite a 4% decline in capacity. The turnaround, so far the steepest of any carrier thats reported, owes a lot to an unquestionable and relatively robust demand recovery across all geographies and travel segments. International, corporate and premium traffic, although not where they were two years ago, are way up from last years depressed levels. And the trend continues to firm, with Delta expecting Q2 operating margin to be a hefty 8% to 10%. Europes ash cloud did cause at least $20m in damage to the airline, but Q1 suffered a $30m hit from weather cancellations. To an airline with almost $30b in annual revenues and a network not concentrated in any one area of the world, shocks like these are manageablehence one reason for the industrys renewed zeal for consolidation, with rivals surely taking note of Deltas estimated $200m in merger synergies last quarter, as well as its capture of $100m worth of corporate revenue share in the last 12 months. Flush with a strong cash position, low costs relative to longhaul peers, few new planes to finance, fuel hedges currently in the money, ongoing joint venture synergies with Air France/KLM, industry capacity discipline and a briskly recovering economy, Delta is not the airline it was five years ago. On the other hand, worries about fuel prices havent changed. On the opposite end of the spectrum is American, which posted downright dismal results for the first quarter. Despite the recovering economy, it reported a $505m net loss, or $452 ex special items, and a negative 6% operating margin. Remarkably, that was worse than its result during last years Q1 as revenues rose 5% but operating expenses rose even faster: 7%. Unit costs ex fuel rose 6% on 2% less capacity. During the carriers results presentation to Wall Street, analysts like Jamie Baker
Correction: Our Arabian Gulf chart on p. 12 last week indicated that Etihad does not serve Munich. It does.

quarterly profit, this time a net result of $11m, or $24m ex special items. Operating margin ex special items was 4%. If youll recall, Southwest actually had a net loss ex special items during last years Q1, the first time that had happened since the fall of the Roman Empire. Its been profitable ex special items ever since thanks to excellent revenue generation, topped off by last quarters spectacular 12% y/y rise despite a steep 6% reduction in capacity. On the other hand, unit costs ex fuel spiked an uncomfortable 10%. For now, Southwest is winning its game of finding more and more new revenue to offset higher and higher fuel and labor costs. The new revenue is coming from a host of places: new ancillary initiatives like Business Select fares ($21m in revenue last quarter), expansion in markets like Denver (which is doing very well), new markets like Boston and Minneapolis, changes to its schedule and revenue management, a resonant bags fly free campaign and of course resurgent demand. On that last point, shorthaul business markets are starting to see signs of life, and a fifth of all customers are now traveling on fullfare, unrestricted tickets. Longer term, Southwests ability to offset cost creep with revenue gains is challenged by a crowded and slowgrowing domestic market thats difficult to stimulate, in no small part because of high taxation. But its revamping its IT to fly internationally and still has some big domestic markets like Atlanta where it doesnt fly yet. Alaska Airlines, which had a better 2009 than Southwest, had another great quarter from January to March. It earned a $5m net profit, or $13m ex special items, marking its first profitable Q1 since 2006 and its best Q1 since 1999. Normally, Alaska makes big money in the summer but loses money in the off-peak winter. Helping to change that seasonal volatility is a major expansion to Hawaii, which helped revenues increase 9% y/y even as operating costs rose just 6%. Mainline unit costs ex fuel, impressively, were flat on 1% more capacity. Along with Hawaiian moves, Alaska has deftly shifted around its versatile B737-800s from weakening sub-prime markets like Southern California, Las Vegas and Phoenix to markets like Atlanta and Houston. In fact, its added 26 new markets in the past 24 months despite not having grown its fleet size. Ancillary revenues are helping, as is much-improved on-time performance, new codesharing with Delta and a strong balance sheet. Sub-prime markets are now recovering nicely, as is demand overall. Should LCCs, which tend to prosper during bad times, be worried about improving economic conditions? AirTran wouldnt quite put it that way, but it clearly was unable to repeat its outstanding performance of early 2009. Last

of JP Morgan and Kevin Crissey of UBS excoriated management for the latest round of heavy losses, questioning whether the carrier needs more dramatic restructuring or capacity cutting. For their part, executives blamed much of the problems on uncompetitively high labor costs and scope clause provisions, a disadvantage they believe will disappear after the latest round of industry labor negotiations. They also cited alliance shortcomings, which will be addressed by pending joint ventures with British Airways and Japan Airlines. A third problem was a 14% y/y increase in fuel expenses, compared to an 11% drop for Delta, whose hedges last year were particularly onerous. There was cost pressure from maintenance and airport fees too, but oddly enough, labor costs were up less than 1% y/y last quarter. As for demand, American is seeing what everyone else is: a strong rise in overall yields and rebounding business travel, especially in key markets like New York and Los Angeles. But its once-mighty Latin America franchise is under heavy pressure from LCCs, not to mention currency chaos in Venezuela, while years of lingering in loss-making markets like St. Louis is only now being addressed in the current quarter. Transcontinental routes are under LCC assault as well, and a potential UnitedContinental merger could leave American scrambling to retain corporate travelers. New York is now a heavy focus, helped by a modest new partnership with JetBlue but hurt by serving fewer international destinations than either Delta or Continental. Speaking of which, Continental had a rather disappointing quarter too, albeit not quite so horrific. Its net loss for Q1 was $146m, or $136m ex special items. Operating margin was negative 1%, a bit better than last year. Revenues and expenses each rose 7% y/y while unit costs ex fuel rose 5% on flat capacity. Like American, Continental faces some challenges with respect to higher-than-average labor costs and pilot scope. But its problems last quarter are concentrated in one key figure: its fuel costs rose 16% y/y. Therein lies the great fear for the whole industry: that even a robust demand and yield recovery wont be enough to offset rising fuel prices, the great bane of the last ten years. Understandably, Continentals new CEO Jeff Smisek is racing to build revenues with new premium products like lie-flat seats and new ancillary charges for meals and preferred seats. He also decided to cut a bit more capacity for this year than originally envisioned. But the big question, of course, is will it or wont it merge? With US Airways out of the picture, Deltas merger proving successful, credit markets easing and the demand environment now reasonably healthy, the time seems to feel right. Surprise, surprise. Southwest earned another

quarter it suffered a $12m net loss, or a $17m net loss ex special items, with operating margin at positive 1%. That compares to 9% during last years Q1. The good news is that revenues grew 12% y/y, negating the notion that traffic is migrating back to legacy rivals as the economy recovers. The bad news is that operating expenses grew 22%, an unmistakable reflection of a mammoth 51% upward jolt in fuel outlays. Last year, remember, AirTran benefited more than others from the post-Lehman fuel price collapse because it didnt have the same legacy hedges. But there were also big increases in maintenance and distribution costs, leaving AirTran with a 5% increase in non-fuel unit costs despite a 6% rise in capacity. In addition, bad weather cancellations had a $10m impact during Q1, almost equal to the carriers net loss. But AirTran is nonetheless optimistic. Its happy with a small Q1 operating profit and expects to be solidly in the black this quarter. It competes successfully with Southwest in Baltimore, Orlando and other places and feels it can beat it and Frontier in Milwaukee as well. Its become less dependent on commoditized connecting traffic, may benefit from carve-outs linked to a United merger and sees strong demand trends. CEO Bob Fornaro made it clear, too, that AirTran is itself open to a merger one where its more likely to be acquired.

the weekly skies

21% from last years phenomenal 31%, management can hardly be embarrassed. The carriers unique business model involving lowfrequency MD-80 flights from small cities to big leisure centers continues to grow and thrive, with revenues up 19% y/y in Q1. Expenses grew faster (37% on 17% capacity growth) but nearly all of that was related to higher y/y fuel costs. Next up: a new aircraft type (B757s) flying to a new tourist hot spot (Hawaii). Cathay Pacific, Shandong Airlines and Air Macao. Even China Eastern and China Southern are growing closer thanks to the formers decision to join SkyTeam. Turning to Europe, where airlines are just now recovering from the ash cloud debacle let alone last years economic debacle, SAS had another rotten quarter. The strategically challenged airline lost $99m net in Q1, or $81m ex special items, while enduring a negative 7% operating margin (thats also ex special items). That was roughly Virgin America, though not publicly traded, similar to its results a year ago, when its revenues released results for the fourth quarter. Net and operating expenses were both 16% higher. losses continued, reaching $19m from October Relentless cost cutting helps, with unit costs to December and $81m for the full year. Oper- down 8% y/y, but problems like hub fragmentaating margin for the quarter and year were tion, excessive unionization, aging planes, LCC negative 7% and negative 9%, respectively. exposure and convoluted government ownership With a well-liked product, lack of legacy costs remain. Lack of longhaul exposure, moreover, and sufficient capital, it may eventually be able will prevent it from riding the economic upswing to grow its way to profitability, especially if to as great a degree as its more intercontinentalrivals continue to downsize. But Virgin is com- oriented rivals. Its Finnish Blue1 unit posted a peting on some of the highest-profile routes in negative 14% operating margin last quarter, so the U.S., and rivals of all stripes are defending not much help there, and Wideroe in Norway is their turf with fare wars, service enhancements profitable but under assault by LCC rival Norweand mileage bonuses. gian. Norwegian, however, had a rough quarter too. It suffered a $34m net loss last quarter, an off-peak one yes, but one for which losses last year were significantly lighter. This time, operating margin was a gruesome negative 15%, with management blaming fuel prices and competitive pressure. Ryanairs aggressiveness in Scandinavia may be partly to blame, but so might its own ambitious capacity growth. It grew 31% last quarter but revenues only rose 15%. Unit costs fell 11% thanks to the growth, but total operating expenses increased 20%. The airline admitted that it may need to moderate growth if trends persist. Spains Vueling, by contrast, had a better quarter this January to March than last. Net loss for the winter quarter was just $8m, while operating margin was negative 9%, down from negative 14% a year ago. Management still expects, moreover, that the company will make money for all of 2010 despite the ash cloud. The airlines merger with Clickair is certainly contributing to the better y/y performance, as does greater use of GDS distribution and cooperation with Iberia. Speaking of which, Iberia is now contemplating the resumption of longhaul flights from Barcelona, which Vueling will be well placed to feed. On the other hand, the Spanish economy is rocky and LCC competition in Barcelona is about as intense as it gets. One bit of news on the deregulation front: The U.S. and Israel signed an open skies agreement, eliminating restrictions on route rights and codesharing.

Beijings Air China and Shanghais China Eastern reported not just full year 2009 results last week (for more on that see page six) but also Q1 2010 performance. China Southern, There was a time when Hawaiian Airlines which reported full year results two weeks ago, wanted to merge with its then-rival Aloha. But stakeholders including unions rejected the deal, also gave Q1 results last week. All three had good first quarters, with Air China outperand Aloha died in 2008, paving the way for a forming with a $319m net profit (or $181m ex jump in Hawaiians profits that continues into special items) and a 10% operating margin, 2010. Last quarter it earned a net profit that was slightly above break even and an operating quite high for such an off-peak period. Longstruggling China Eastern seems to have turned margin of 2%. Unfortunately, however, this is well below last years level of success, hurt by things around with a $116m net profit ($48m ex items) and a 4% operating margin. Doing a 16% rise in operating expenses and a 14% rise in non-fuel unit costs. Revenues increased less well but still in the black was China Southern, whose net profit was $218m ($56m ex just 3%. items) and whose operating margin was 2%. Demand throughout China is rising rapidly as the economy expands, and links between airMake it 29 in a row for Allegiant. Thats its number of consecutive quarters of profitability lines are tightening in different shapes and forms. Air China, for example, now has control after registering a $23m net result in Q1. of Shenzhen Airlines and equity stakes in Though operating margin was down to just

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fleet & environment

Fleet Sheet
Aircraft Markets
Cebu Pacific of the Philippines, an LCC preparing for an IPO,
added seven more A320s to its existing order of 15. The first plane will arrive in October, configured with 180 seats in a one-class configuration. Deliveries will run through 2014. Born in 1996, Cebu Pacific grew traffic 30% last year and currently operates 21 Airbus planes and eight ATR turboprops. It serves 33 domestic cities and 14 international ones, including Shanghai, where its alone among foreign LCCs. international routes. It currently flies 11 older-generation Dash-8s, which complement its fleet of ten B737-700s, the plane its using to add flights to the U.S. (see page eight).

Colombias Aires ordered four Q400s for use on domestic and nearby

Boeings Q1 financial results revealed an impressive 9% operating

profit margin on $7.5b in sales at its commercial airplanes division. During its discussion of the figures, management said the market for air travel is clearly recovering, exhibited by the number of customers requesting deferrals trending downward and those requesting accelerated deliveries trending upward. Executives also addressed other big issues like B787 testing (going well and first delivery to All Nippon still scheduled for this year), B737 production (a decision on increasing rates will be announced this quarter), an all-new B777 (new technology is already available to make substantial improvements but no decision yet), a stretched B787-1000 (would be an alternative option to an all-new B777) and re-engine-ing its B737s (a decision will be made by the end of this year). Separately, Boeing scored another order for 12 B777-300ERs, though the buyer did not disclose its identity.

Farther south in the ASEAN region, Indonesias Garuda reached a

milestone by receiving its 75th airplane, a B737-800. The carrier is expanding aggressively and planning to double its fleet by 2014, all while pursuing its so-called quantum leap transformation plan. Like Cebu Pacific, Garuda is planning an IPO and seems more likely to wind up like state-owned basket cases that ultimately reformed (like Air France) rather than stagnated (Air India). It does, however, have tough competition with which to contend, including the likes of similarly ambitious Lion Air and AirAsia. But this is, after all, the everyone-makes-money ASEAN region.

Does Delta still plan on taking those B787s that Northwest ordered
before the merger? Technically, theyre still on the books, but CEO Richard Anderson said last week that hes negotiating with Boeing and all but stated that his intention is to cancel the order. Delta is lukewarm about buying new planes, preferring instead to refrain from too much balance sheet burdening capital expenditure. Instead, the carrier is doing things like extending leases on some B747-400s (at more favorable rates) and outfitting their premium cabins with flat-bed seats.

General Electric, the giant U.S. conglomerate, said its GECAS aircraft
leasing unit earned a $317m Q1 profit on $1.2b in revenue, good for a 26% margin. Its nice selling things to airlines rather than being one, isnt it?

GECAS rival ILFC had some good news to report as well, specifically
on the balance sheet side of things. The AIG subsidiary managed to raise about $8b in liquidity during the past seven weeks, a sign of ongoing improvement in the credit markets.

More broadly, Delta is reducing its overall fleet by 71 planes without cutting capacity. How does it pull off such a trick? By increasing utilization of the planes that remain. The departures include 50-seat RJs (the carriers least productive aircraft), Saab 340 turboprops and mainline DC-9s. At the close of Q1, Delta had a fleet of 966 planes, down from 1,015 a year earlier.

Another leasing giant, Aviation Capital Group (ACG), expressed confidence in current market fundamentals highlighted by a high percentage of lease renewals in Q1. Carriers extending existing leases with ACG last quarter included US Airways (B737-300s), Sun Express (B737-800s) and Cathay Pacifics Dragonair unit (A320s). The firm also took delivery of two new B737-800s, with one each going to Copa and Ukraine International.

Environment, Conservation & Fuel
Camelina-based bio-jet fuel enjoyed the spotlight on Earth Day as the U.S. Navy demonstrated that the renewable fuel can deliver supersonic
speeds. During the 45-minute flight, an F/A-18 Hornet, operating on a 50/50 blend of bio-fuel and petroleum-based jet fuel, according to Navy reports, performed just fine above and below mach 1. More than the broken sound barrier, the likely significance here is simply the U.S. militarys continued advancement of aviation bio-fuels. The U.S. military, which consumes five billion gallons of jet fuel per year, could singlehandedly launch the aviation bio-fuel industry. Few questions remain about the operational performance of aviation bio-jet fuel. The bigger hurdle is still market viability. But the military might be more interested in national security and less concerned about whether bio-fuels are as cheap as conventional fuelsomething that could be a deal breaker for airlines. Want to reduce fuel consumption by an impressive 30%? Replace that regional jet with a turboprop. That was the message from Bombardier on Earth Day as the plane maker celebrated delivery of its 300th Q400 to Toronto-based Porter Airlines, which now has 20 of them.

marketing & sales

The Backend
Sales, Distribution, Tourism & Corporate Travel Business travel, it seems, is back. Delta, for one, said its corporate revenue (defined by business linked to negotiated contracts between the airline and large businesses) is up 50% y/y. Though not quite at early 2008 levels, corporate revenue is now above where it was in 2007. The economic recovery is obviously the main driver, but Delta specifically noted the return of finance sector demand. In its own case, increased network appeal linked to the Northwest merger helped secure more than $100m of new corporate revenue share in last 12 months.


Marketing, Price & Promotion

Not since the Culture Clubs Boy George has the public been so
confused. Indias Jet Airways is now offering a semi-business class product on its low fare Konnect service called Konnect Select. It approximates business class on mainline flights, with meals, extra space and priority handling but doesnt go all the way. Jet, of course, still has an all-economy low-fare unit called JetLite. The latest move is a reaction to rising premium demand, the collapse of which last year led Jet to create Konnect service in the first place.

Republics Frontier Airlines became the latest carrier to adopt

Aircells Gogo inflight internet service. It will do so not on its Airbus planes, however (at least not for now), but on its 32 E170s and E190s. Theyll be outfitted by the end of this year.

After the big online travel agencies eliminated airline booking fees last
spring, most U.S. carriers denied seeing any major effect. But AirTran did admit last week that its seen a shift of a point or two away from its own website (its probably not the only one), with all the cost inflation that implies. But the LCC also added that consumer migration to OTAs wasnt the main trend driving its 26% y/y increase in distribution costs last quarter, far outpacing the 3% increase in the number of passengers it carried. The blame for much of that goes to higher credit card fees linked to a rise in average fares from $91 last year to $98 this year.

Alaska Airlines is tinkering with its bag fees. Charges for checking
a first bag will go up but charges for bags number two and three will go down. It expects $20m in extra revenue.

Charging for bags is not just a revenue strategy, of course, but also a
cost strategy. Continental said last week that since imposing bag fees, the number of first checked bags on domestic flights has fallen 17%, while the drop for second checked bags is 66%. It also added that second bag checks are down 52% on Latin America flights and 38% on transatlantic flights. All of this means less bag handling and fewer on-the-job injuries, though it also means people are cramming inflight cabins with more carry-ons.

American Express, in its Q1 earnings report, noted credit card transactions for U.S. airline tickets increased 14% y/y, with average fares up 5%. The numbers were 12% and 10%, respectively, for international tickets. Travel commissions and fees from its giant corporate travel agency, meanwhile, increased 6% y/y.

JetBlue did it. WestJet did it. Volaris did it. Is AirTran thinking of
upgrading to a more advanced reservation system? No, says its CFO Arne Haak, who told Airline Weekly last week that hes happy with Navitaires New Skies system. While its not as sophisticated as SabreSonic, it can handle codesharing and is a lower cost system still very popular with many LCCs around the world. Besides, as Haak pointed out, JetBlue made its decision based on the unique potential it has to cooperate with many other airlines at New York JFK.

Amex is one famous non-aviation company with a big stake in the airline business. Will Google become another? Rumors are swirling that the internet giant may buy ITA Software, the firm whose technology powers the fare search capabilities of many airline websites and online travel agencies. Google clearly sees an opportunity. The search giant is conspicuously absent from the airfare search space, whereas smaller rivals like Yahoo and Microsofts Bing compete for airline bookings.

Aeromexico purchased a number of different software solutions from

Sabre, including its popular SabreSonic CSS reservation system. It joins others like WestJet, JetBlue and its home country rival Volaris as new SabreSonic users, hoping like them to utilize the systems latest generation functionality for passenger processing, ancillary revenue generation, codesharing, customer relations management and multi-channel distribution. Sabres major competitors in the reservation system space include Amadeus, HP, Navitaire and SITA.

JetBlues founder David Neeleman, who also helped launch the forerunner to the New Skies reservation system, is now busy adopting a new outsourced revenue management system for his Brazilian airline Azul. The carrier chose software from Seattle-based Revenue Management Systems (RMS). Separately, Azul is also forming a unit to handle package vacations.

Spirits new A320sit previously had only A319s and A321s

have seats that either dont recline or are always reclined, depending on who you believe. Media reports this week, including one in the carriers hometown Fort Lauderdale Sun-Sentinel, featured passengers complaining of being more cramped than ever in the seats that everyone agrees cant be adjusted. The airline later released a statement saying the new featherweight seatsmanufactured by Brice Seatingare actually pre-reclined to a greater degree than the recline of its old seats, with the added benefit of passengers not having to be upright during take-off and landing. So whos right? Dont ask us. Wed have to fly Spirit to find out.

A key question, now that travel agencies and the GDSs they use are
becoming capable of selling ancillary items: How will they be compensated? discusses the matter with Travelport, which already has some deals in place with U.S. airlines based on varying payment models. They include revenue sharing (i.e., Travelport gets a cut of any inflight meal sales it makes via its GDSs), flat-rate transaction fees or the ability of agents to mark up ancillary charges and pocket the difference. The exercise can get tricky, especially in cases where, for example, elite fliers are exempt from certain charges. The issue is sure to be part of the upcoming round of GDS-airline negotiations.

by the numbers
Mainland China and India: Q4 and full-year 2009 financial results

Air China, like all major Chinese airlines, helped by economic growth and big government bailouts in 2009; clearly outclassing its Big Three rivals China Eastern, in the process of merging with Shanghai Airlines, has another terrible year punctuated by a terrible Q4 (things much better in Q1) China Southern hovers around breakeven amid train competition and early-year trouble in Pearl River region; Air China now attacking Shenzhen Hainan Airlines, not owned by the central government, has a good year; expanding in regional markets and eyeing business in Hong Kong Shandong Airlines, a smallish carrier within the Air China sphere of influence, solidly profitable Chinese airlines benefited from a large government bailout in 2009, as well as some big unrealized hedge gains. But it otherwise was a another tough year characterized by a collapse in international demand, fallout from the H1N1 virus and growing competition from high-speed rail service. On the other hand, domestic traffic surged as economic growth resumed its torrid growth late in the year. First quarter results for 2010 look pretty good, with some potential upsides later this year: a snapback in international demand, a traffic boost from the Shanghai Expo, gains from consolidation and the possibility of a stronger local currency. Air India replacing Alitalia as the metaphor for crappy airlines; big test is whether it can rein in runaway labor costs Jet Airways caught in the industry slump for most of 2009 but bounces back toward the end; added Konnect service and new shorthaul intl routes Kingfisher spills more blood in 2009 but slashes capacity and tones down grand ambitions; doing better now but still has a lot to prove SpiceJet, an LCC, emerging as the airline to beat; has a fantastic calendar Q4 and is now preparing to fly internationally with its B737s Indian airlines responded to aggressive industry liberalization in the middle of last decade by bulking up on capacity. That was fine until the global downturn hit, at which point massive downsizing was necessary. This difficult catharsis is now largely complete, with supply and demand back at more or less favorable levels. But the sector is still highly fragmented, crowded by Air Indias unwelcome lingering and non-public LCCs like GoAir andmost significantlyIndiGo. Attention now turns to international markets, with shorthaul ones getting crowded and longhaul ones possibly ready for a rebound in demand. The upcoming expansion of Delhi airport is also a notable development.
Oct-Dec 2009 (3 months) China Southern Air China China Eastern Hainan Airlines Shandong Airlines Air India Jet Airways JetLite combined Jet Kingfisher SpiceJet

Operating revenues (m) Operating expenses (m) Operating income (Loss) (m) Operating income ex special items (loss) (m) Net income (loss) (m) Net income ex special items (loss) (m) Operating margin Net margin Operating margin ex special items Net margin ex special items

$2,237 $2,302 ($64) ($64) $10 $10 -2.9% 0.5% -2.9% 0.5%

$2,152 $2,047 $105 $105 $184 $83 4.9% 8.5% 4.9% 3.8%

$1,608 $1,794 ($187) ($187) ($104) ($223) -11.6% -6.4% -11.6% -13.9%

$615 $680 ($65) $21 ($1) ($1) -10.6% -0.1% 3.4% -0.1%

$211 $195 $17 $17 $4 $4 8.0% 2.1% 8.0% 2.1%

$837 $1,025 ($188) n/a ($320) n/a -22.4% -38.3% n/a n/a

$627 $570 $58 $58 $23 $15 9.2% 3.7% 9.2% 2.3%

$94 $91 $3 $3 $1 $1 3.4% 0.9% 3.4% 1.1%

$721 $660 $61 $61 $24 $16 8.4% 3.3% 8.4% 2.2%

$298 $327 ($29) ($29) ($91) ($91) -9.8% -30.7% -9.7% -30.7%

$142 $118 $24 $24 $24 $24 16.9% 16.7% 16.9% 16.7%

Jan-Dec 2009 (12 months)

China Southern

Air China

China Eastern

Hainan Airlines

Shandong Airlines

Air India

Jet Airways


combined Jet



Operating revenues (m) Operating expenses (m) Operating income (Loss) (m) Operating income ex special items (loss) (m) Net income (loss) (m) Net income ex special items (loss) (m) Operating margin Net margin Operating margin ex special items Net margin ex special items

$8,242 $8,361 ($120) ($120) $81 ($122) -1.5% 1.0% -1.5% -1.5%

$7,514 $7,243 $271 $271 $735 $271 3.6% 9.8% 3.6% 3.6%

$5,857 $6,306 ($449) ($471) $77 ($609) -7.7% 1.3% -8.0% -10.4%

$2,286 $2,193 $94 $180 $52 $53 4.1% 2.3% 7.9% 2.3%

$789 $712 $77 $77 $45 $45 9.7% 5.6% 9.7% 5.6%

n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a

$2,142 $2,113 $29 $29 ($99) ($138) 1.3% -4.6% 1.4% -6.5%

$316 $345 ($29) ($29) ($53) ($53) -9.2% -16.6% -9.1% -16.6%

$2,458 $2,458 ($0) ($0) ($152) ($191) 0.0% -6.2% 0.0% -7.8%

$814 $954 ($139) ($139) ($231) ($228) -17.1% -28.4% -17.1% -28.0%

$443 $436 $6 $8 $6 $7 1.5% 1.3% 1.9% 1.7%

Source: company reports and Airline Weekly analysis and estimates. Figures are converted at exchange rates prevailing when reports issued. Annual figures for fully reporting carriers are sums of quarterly results translated to US$. Chinese earnings are based on domestic PRC accounting and not IFRS, the figures for which are not presented quarterly

labor & airports

State of the Unions

Workforce Developments
Americans top executives received bonus stock options
last week andas sure as the sun rises in the eastlabor unions reacted with fury. The response was especially Hong Kongs airport traffic grew 7% y/y during both the first quarter and the heated this year because the bonuses coincided with awful month of March alone. Cargo was up a phenomenal 30%, reflecting a dramatic first quarter earnings, ones management partially blamed revival of world trade volumes, which fell off a cliff in early 2009. Back on the on high labor costs. In a separate but related matter, pilots passenger side, the airport said flights to and from the ASEAN region, mainland criticized management for not providing sequence protecChina and Japan performed particularly well in early 2010. And total passenger tion of pay for canceled flights to Europe due to the volvolumes are expected to surpass pre-crisis levels soon. Separately, Hong Kongs canic ash. The company did agree, however, to provide two runways are now able to handle 59 movements per hour, up from 58 before reimbursement of up to $100 a day to stranded crewmemMarch and on their way to 68 by 2015. bers. Abu Dhabis airport traffic grew 14% y/y in Q1, with March alone recording a At United, CEO Glenn Tilton earned nearly $4m in com13% rise. Interestingly, more than a fifth of the airports total traffic flew to or pensation last year. Thats more than double what he from just five cities: Bangkok, London, Doha, Manila and Bahrain. That takes in earned in 2008 and presumably less than what unions an diverse mix of longhaul, shorthaul, leisure, business and migrant worker traffic. think he deserves. Will a big merger bonus follow? The so-called tarmac rule takes effect for domestic flights in the U.S. this week, Mechanics at Hawaiian Airlines ratified a new four-year meaning airlines face up to a $27,500 fine per passenger if they hold enplaned collective bargaining agreement recently negotiated by the passengers on the ground for more than three hours. Airlines argue that theyll IAM, their union. have to preemptively cancel flights during irregular operations rather than risk Now that the economy is recovering, unions throughout getting caught for hours in a takeoff line. And DOT said no to five airlines rethe U.S. airline industry are hoping to win back pay questing a seven-month implementation delay at the three hyper-congested New theyve lost during the bankruptcy era, the fuel crisis and York airports (during which time one runway at JFK is inoperable) as well as the recession. But AirTran, for onewhose pilots are Philadelphia. It said their concerns can be resolved through more careful flight itching for a new dealreminds them that they havent scheduling. The two exceptions to the three-hour rule are 1) if a pilot determines taken any pay cuts, and all crewmembers that were furthe plane cant leave its position on the tarmac for safety or security reasons and loughed in 2008 are now back. It hopes this reality moder2) if air traffic controllers feel a planes return to the gate would significantly disate ALPAs demands. rupt airport operations.

routes & networks

Whos Flying Where

AirAsia begins flying this week from Penang to Chennai, the first of six new India routes starting this spring and summer. But its not alone. Rival LCC Tiger Airways is similarly interested in the busy market between India and the ASEAN region, with plans to add its third route to India from its base in Singapore. This fall it will add Tiruchirapalli, or Trichy, to Bengaluru (aka Bangalore) and Chennai (aka Madras). Tigers Chennai route, meanwhile, will also get extra frequencies, bringing schedules up to twice daily. Both AirAsia and Tiger use A320s on their India routes, though AirAsia X will handle the larger, longer-haul markets Delhi and Mumbai with widebody A330s. Jetstar, another LCC with a base in Singapore (and one which is forming a loose partnership with AirAsia), couldnt make an experiment with India flights work a few years ago. It tried flying to Bangalore in 2006 but promptly withdrew. Nor has it revived any Indian ambitions, instead focusing on East Asia. Its latest new route is to Osaka via Taipei with A320s, a service that will begin in July. Its the latest example of low-cost carriers creeping into northeast Asia, which has thus far seen far less LCC activity than southeast Asia. Its also the latest example of Qantas, which owns Jetstar, trying to become more than just an Australian carrier. Back in the ASEAN-India market, Indian carriers themselves are expanding. The soon-to-be oneworld member Kingfisher is now flying to Bangkok from both Mumbai and Delhi with A320s, offering connections to and from other cities in India. Separately, it also launched DelhiKathmandu and Delhi-Dubai flights. In the slower-growing U.S. market, unusually fast-growing Virgin America announced the launch date for its San Francisco and Los Angeles to Toronto routes: June 23. Toronto is notable for the absence of Virgins close rivals Southwest, JetBlue and Alaska. The carrier expects to announce at least three more cities, not including Orlando, which will begin in August. At least one Mexican destination is reportedly among them. JetBlue, for its part, confirmed plans to serve Hartford, the capital city of Connecticut. Twice daily A320 service to both Fort Lauderdale and Orlando will begin in November, taking on Southwest in those markets. AirTran, by contrast, does not serve Hartford. Though not exactly booming, the city is home to a large insurance industry and Connecticut, the state of which Hartford is the capital, is home to giant companies like General Electric and Pratt & Whitney (whose engines JetBlue uses). Could it be? More Hawaii flying for Alaska Airlines? Sure enough, this fall its starting year-round San Diego-Maui flying and seasonal flying between Portland and Kona, having only two weeks ago announced Portland-Honolulu. The airline expects Hawaii, where carriers like Delta and Continental have withdrawn some service lately, to represent about 15% of total capacity soon. Alaska isnt stopping with Hawaii. Its also adding San Diego-Puerto Vallarta service (though it recently exited Cancun) and domestic flying between San Jose and Los Angeles operated by its regional unit Horizon. The Seattle-based carrier hasnt grown much overall in recent years but is constantly adding new markets as it dynamically shuffles around planes from weak markets to high-potential ones. Republics Frontier Airlines began service from Denver to the smallish markets of Louisville, Ky.; Green Bay, Wisc.; and Branson, Mo., as well as from Milwaukee to the much larger markets San Francisco and San Diego. Frontier is the self-described fastest growing major carrier in the U.S., with ASM growth of 7% planned for 2010 and 17 new markets coming online this spring and summer. The carrier, by the way, is also adding a third daily frequency in the busy Denver-New York LaGuardia market, one in which United is the leader. The first quarter came and went, but Air Arabia still hasnt launched operations in Egypt yet. Its perhaps unsurprisingly still waiting for its operating license from the Egyptian government, which isnt exactly Singapore when it comes to moving quickly. The new joint venture that Air Arabia is planning will be based in Alexandria, a city on the Mediterranean. It reportedly has an A320 sitting there ready to go as soon as it gets the green light. Mexicos VivaAerobus will begin three new routes June 2: Monterrey-Tampico, Guadalajara-Mazatlan and Guadalajara-Acapulco. The Monterrey-based LCC, which operates older-generation B737s, is in a difficult fight not just with Mexicana and Aeromexico but also with two fellow LCCs, Interjet and Volaris. The markets fragmentation, in fact, is one reason why its not really participating in the wider Latin America boom. Another reason was its difficult bout last year with the H1N1 scare. Colombias Aires, up against two tough competitors in Avianca and Copas AeroRepublica unit, is already flying to Ft. Lauderdale from Barranquilla and Medellin, and will start doing so from Cartagena, Bucaramanga and Pereira in June. That puts more pressure on American and its Latin American gateway in Miami, which is already facing tough low-fare competition from Spiritcarry-on bag charges and allbased in Ft. Lauderdale. Spirit flies to four Colombian cities: Bogota, Cartagena, Medellin and Armenia. Deltas tendency to enter and exit markets makes even hokey-pokey dancers blush. Now its having second thoughts about re-entering the Atlanta-Shanghai market, which it launched in 2008, discontinued in 2009, intended to restart this fall but asked the DOT last week for permission to start next fall. To its credit, though, Delta fully exploits the fact that airplanes, unlike factories, are versatile assets that can quickly move around in response to demand changes. Other carriers like American have been far more conservative, perhaps wary of upsetting local communities and customers. You put your B777-200LR in, you take your B777-200LR out. Oman Air is making nearby Ras al Khaimah, one of the seven United Arab Emirates, its 34th destination. Its also the carriers third UAE destination after Dubai and Abu Dhabi. Flights with ATR turboprops begin early next month. In Saudi Arabia, the LCC NasAir will begin flying to Khartoum next week from Riyadh and Jeddah. The carriers expansion is otherwise focused on India, where it will soon enter the Delhi, Calicut and Kochi markets. Aleppo in Syria is another upcoming destination. United and Continental may someday be one airline, but for now the two partners still compete. United is starting service from its Los Angeles hub to Continentals Houston hub. CRJ-700s will fly the route once daily beginning in late August. United had better hope the merger happens and makes this service unnecessary: Continental flies the route up to ten times each day, each way with a lower-CASM mix of B737s and B757s (and with Uniteds code on the flights, albeit probably with terms favorable to Continental). Is United trying to remind Continental that one benefit of merging would be not having to compete against silliness like this?

by the numbers
2,500 2,000 1,500 1,000 500 0
ira te s Un ite d Am er ica n Co nt Sin in en ga ta po l re A irl in es Ai r C an ad Th a ai A irw ay s US A i rw ay s Tr an sa er Ca o th ay P ac if i c Ai r T ra ns at S7 A irl in Qa es ta r A irw ay s lta De Ae ro flo t

Europes Top Foreign Airlines

Non-European airlines (as defined by OAG) with the most ASKs from European airports (June 2010)

Source: OAG MAX Online


Airline Delta American United Continental US Airways Southwest Alaska JetBlue AirTran Allegiant SkyWest Republic ExpressJet Pinnacle Air Canada WestJet LAN TAM Gol Copa Emirates Air Arabia Turkish Airlines Kenya Airways South African Air. Jet Airways Aeroflot Crude oil futures
(for delivery next month; source New York Mercantile exchange)

A Look at the Worlds Airlines, Including Endweek Equity Prices

Around the World

Price 13.01 7.78 22.99 22.01 6.63 13.96 43.79 6.52 5.36 53.77 14.58 6.43 4.02 7.55 2.48 13.72 13.69 27.61 13.08 58.76

Last Week 13.87 8.79 22.83 22.98 7.15 13.38 43.09 6.63 5.69 56.56 14.49 6.51 3.88 7.50 2.50 13.50 13.64 29.97 13.13 58.21

Last Year 7.88 5.42 6.42 13.25 4.84 7.59 17.82 5.53 7.39 49.06 13.54 8.06 1.28 1.93 0.80 12.76 6.82 16.50 3.48 32.34

Comment Latin routes pressured by rivals expanding in Caribbean, Brazil; also Venezuela forex issues Says its outperformed industry on RASM for seven consecutive quarters Upgrading its Chicago-NY LGA schedules in response to Deltas encroachment By June, all London Heathrow flights will offer flat-bed seats in premium class Happy to see any merger, even if its not involved; equates consolidation with pricing power By no means flatly opposed to a merger; did so twice in the past (or three times incl. ATA) Actually suffered a volcanic ash incident last year and several in years past CEO Barger says hes real open to joining an alliance (AIN Online) Strongly supports new Senate proposal designed to curb oil speculation Says Florida markets particularly strong this year; too early to assess Orlando airport switch Will report Q1 financial results May 6 Frontiers mechanics union (the Teamsters) wins a court ruling against outsourcing moves Names Thomas Hanley as its new CEO; has extensive experience in the U.S. regional sector Full-time equivalent workforce down by 9% in the past year (BTS) Pesky rival Porter, while preparing its IPO, receives its 20th Q400; will enter service May 1 Rival Transat urging government to do more to stimulate international tourism to Canada Secures flight rights to Buenos Aires Aeroparque airport; Santiago flights start next month Air Canadas Jazz to take control of Uruguays Pluna Hires GE Aviation to help it find ways to lower its fuel bill Rival Avianca building longhaul network: will start A330 Medellin-Madrid service in July Seeing demand pickup in Abidjan, Ivory Coast; will boost capacity in response Tried but exited the Kabul market a few years ago; now FlyDubai is having a go Government may sell more of its minority shareholding Neither Air France nor Lufthansa serves Nairobi, though KLM, Swiss and Brussels Air. do Will attempt to privatize some of its non-core operating units Big question: will Air India be able to cut its labor costs despite intense union resistance? Denies allegations that it hiked Moscow-Beijing fares in a predatory way amid ash crisis U.S. carriers showing big variance in their y/y fuel outlays depending on y/y ASM production and, importantly, how bad their hedge positions were last year. Deltas fuel expenses actually fell y/y in Q1 while AirTrans were up more than 50%!
Note several stocks traded on multiple exchanges; not intended for trading purposes

(not publicly traded) 0.96 4.94 59.00 0.93 5.05 59.00 0.93 1.51 23.25

(not publicly traded) 508 2.16 $85 536 2.23 $83 204 1.11 $52

AROUND THE WORLD Around the World
Airline Lufthansa Air France/KLM British Airways Iberia SAS Alitalia Finnair Aer Lingus Virgin Atlantic easyJet Ryanair Air Berlin Norwegian Vueling Aegean Japan Airlines All Nippon Singapore Airlines Cathay Pacific Korean Air Air China China Eastern China Southern Malaysia Airlines AirAsia Thai Airways Qantas Virgin Blue Air New Zealand Price 12.63 12.26 234 2.57 1.24 Last Week 12.84 12.44 235 2.57 1.21 Last Year 9.60 8.98 164 1.52 3.66

Comment Drink up: one of its airport lounges in Munich now features a beer garden Government still owns an equity stake Countries including the U.K. now warning against travel to politically volatile Thailand Still negotiating with pilots on compensation terms for new LCC unit Currently leasing out 26 of its 241 aircraft; another 20 parked Rome FCOs airport traffic up 10% y/y in Jan. and Feb.; Milan MXPs up 9% Maintenance arm wins contract extension to do B757 and B767 work for TUIfly Nordic Government expects Irish economy to grow again during the second half of this year U.K. investigating alleged price collusion between it and Cathay Pacific on LHR-HKG Three new routes from Manchester (Zurich, Sharm el Sheikh and Mahon) begin this week Website advertises an explosive Ryanair sale with a photo of an erupting volcano Hungarys Malev gets another government loan; rival Wizz Air red with anger Its own traffic at Oslo airport up 16% y/y in Q1 and up 32% from Q1 2008 Sees about $27m in revenue synergies from Clickair merger; $21m in cost synergies Will provide more details on Olympic merger this summer; synergies to start next year Reportedly earned a profit during the month of March (Nikkei) Denver airport trying to lure it into serving the city from Tokyo (Denver Post) How much of a threat do Jetstars longhaul plans from Singapore represent? Received another B777-300ER last week; has 34 B777s in all, including five older -200s Low fare Jin Air unit launches first flight to Guam from Seoul Incheon Passenger counts up 18% y/y in March Frequent flier program has about 6m members Tibet Airlines, a startup, preparing to launch from Lhasa sometime middle of next year May deploy some newly bought B737s to its regional unit Firefly Its only flights disrupted by European ash cloud were those to London Stansted Thailand offering travel insurance to tourists worried about political protest disruptions Frequent flier plan reaches the 7m member mark Placed the biggest plane order of any airline during the downturn; bought up to 105 B737s March RPK traffic down 2% on 8% less capacity; longhaul still down more than shorthaul


A Look at the Worlds Airlines, Including Endweek Equity Prices

(not publicly traded) 4.39 0.73 4.45 0.75 4.40 0.73

(not publicly traded) 497 3.92 4.10 143 11.95 3.20 1 299 8.26 16.70 66800 8.31 4.29 4.09 2.20 1.34 24.40 2.89 0.60 1.04 478 3.89 4.21 148 12.35 3.39 1 290 8.24 15.86 67500 8.04 3.83 3.79 2.27 1.33 22.90 2.98 0.66 1.07 335 3.20 4.01 42.50 4.92 3.26 199 366 5.46 9.15 37800 4.00 1.41 2.20 3.14 1.25 13.00 1.98 0.28 0.86

Note several stocks traded on multiple exchanges; not intended for trading purposes

cover story
Lashed by Ash: Industry assesses fallout from Europes volcano crisis

could easily reach seven figures. It added that call volumes at its service center were up as much as 30%. If the crisis forces aviation suppliers and service providers to increase their prices, airlines and their passengers will be the ones taking the hit. As with most crises, however, this one could have been worse and may even have some benevolent side effects . For starters, almost nobody was hurt, with some exceptions for people unable to travel for critical medical care. In addition, it occurred before the peak summer travel season, if too close to the end of Easter for comfort. Passengers wont remain reluctant to travel by air, as they were after 9/11. Carriers made creative use of new customer service tools like Air Frances enabling passengers to re-book flights via social media sites Twitter and Facebook. And airlines, for once, arent generally seen as the bad guysgovernments and safety authorities are bearing more of the negative publicity fallout. Airlines, in fact, are the ones that are angry. The industry criticized European officials for an excessively cautious and uncoordinated response. BAs CEO Willie Walsh himself took to the airways in a test flight to prove that flying was safe, while Virgin Atlantics Richard Branson took to the airwaves to blast governments for acting irresponsibly. It doesnt seem, moreover, that airlines will start collapsing by the dozens because of this. Losses were indeed heavy and cash flow concerns undoubtedly serious. But no carrier has completely run out of cash, at least not yet, and a few really unprofitable ones may have even saved a bit of money (or at least reduced losses) by not operating. Fortunately, the fuel crisis followed by the economic crisis compelled carriers to keep large cash cushions on their balance sheets, even when that meant more borrowing or selling additional equity. British Airways said April 19 that it had $2.6b in cash on hand at the start of the crisis and more than $660m in credit lines to draw upon if needed. Most importantly, the industry stands to get government help, just as U.S. airlines did after 9/11 and many others around the world did during the economic crisis. Carriers may be in a position to sue governments for compensation as well. Help from the political realm, in fact, is already happening. Sweden, for example, extended the payment period for airport charges from 30 to 90 days to ease pressure on cash balances. The countrys government is also weighing a plan to temporarily suspend tax payments and social security contributions. The E.U. plans to meet tomorrow to discuss an appropriate response. One thing theyll discuss is the so-called Single European Sky (SESAR). At the moment, air traffic control in Europe is handled by 27 different national agencies, a condition that greatly complicated the response to the volcanic ash cloud coming from Iceland. But theres now momentum to implement SESAR sooner than its current 2012 deadline. Resistance from unions and national defense officials may no longer get in the way. A unified airspace, of course, would also bring major environmental and fuel saving benefits. The E.U. may also revise its passenger rights rules, which place expensive burdens on airlines during times of operational chaos, even when its not their fault. IATA is lobbying for fairer treatment, as are LCCs including Ryanair, which is doing so loudly and with characteristic irreverence. It described compensation rules as absurd and discriminatory. Absurd isnt a bad word to describe this whole episode, where ash from a volcano became, to borrow from a headline in Time, a cloud that closed a continent. This ash cloud, though, did have some silver linings, and its adverse financial impacts will likely be moderated by government help. On second thought, maybe this episode wasnt so absurd. Maybe it was just another bland week in the one-shock-after-another airline business.

wondering if flying through ash, however safely, will cause added depreciation to aircraft engines. Europes airlines were obviously most affected, but carriers around the globe suffered as well. Boyd Group International, a consultancy, estimates that U.S. carriers suffered about $80m in lost revenues due to canceled transatlantic flights. Delta took the biggest hit, according the assessment, followed by United, American, Continental and US Airways. Airlines in nearby Russia, Turkey and North Africa naturally saw their Europeheavy schedules severely disrupted. Emirates, which flies to 22 cities in Europe, saw a fifth of its fleet grounded. As far away as Australia, Qantas said it would take approximately two to three weeks to clear its passenger backlog. And Hong Kongs Cathay Pacific isnt taking any new bookings for European routes until May 10, still more than two weeks away. It will be a while, in other words, before the airline industry is back to normal. Airline business partners and suppliers were of course affected as well. Airports began waiving certain fees and charges, ground handlers sat idle for days and travel insurance companies were faced with big claims. One of these insurers, Access America, said payouts

From Ash Crisis to Cash Crisis?

Loss estimates for selected airlines
Many carriers provided rough estimates of the money theyve lost, either on a daily basis during the height of the crisis or for the duration of the crisis. The damage, of course, is not complete, with many carriers still handling backlogs of stranded passengers. The figures below are not exactly comparable but provide a general look at how different airlines were impacted. Some of these losses might be offset by forthcoming government aid, although interestingly, at least one potential beneficiary of that aid opposes it. Finnair released a statement from its CEO stating, Companies in a weaker economic condition are making strong demands for help. A subsidy stampede would distort competition, because the risk of airlines using the system for wider support would be great.

Airline Aer Lingus: Air France/KLM: Air New Zealand: British Airways: Continental: Delta: easyJet: Emirates:
Source: company reports

Loss Estimate $20m-$27m total $47m daily $500k daily $20m-$30m daily $24m total $5m daily $53m total $10m daily

Airline Etihad: Finnair: Icelandair: Norwegian: Ryanair: SAS: Virgin Atlantic:

Loss Estimate $30m total $27m total $775k daily $17m total $8m daily $64m total $77m total