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Aviation History
1996
1996 - 1960.PDF
BUSINESS US airlines exploit the boom KEVIN OTOOLE/LONDON THE MAJOR US AIRLINES have followed up their latest round of record profits with predic tions that their spectacular perfor mances will continue into the second half of the year. The airlines turned in their best- ever net profit—of more than $1.5 billion — in the second quarter, despite some lingering restructur ing charges. United Airlines and American Airlines, which led the latest profits haul, bothhintthatthereisbetterto come in the third quarter, tradition ally the industry's strongest. Airline analysts have already raised their forecasts for United, suggesting that its net profits will break through the $400 million mark in the third quarter. The airline says that it should "...comfortably exceed" that figure. American also promises that it is "capable of more", and seems rea sonably confident of bettering ana lyst forecasts of a third-quarter result above $32 5 million. Behind the optimism is a mini- boom in the US passenger market, with the network carriers making dramatic gains in traffic and yields throughout the second quarter. United says that its domestic yields were up by a record 8.5%, while its low-cost Shuttle operation swung back into profit with an unprecedented 17% rise. The sys tem-wide figure was only lower because of the impact of a slighly weaker Japanese yen on Pacific ser vices, an effect also experienced by Northwest. Carriers such as South west and USAir produced yield gains in the 6-8% range on their largely domestic networks. Airlines admitthathelp has come from the lapsing of the US ticket tax, used to fund US air-transport infrastructure. The tax, orits equiv alent, must eventually be re- imposed, but will require major legislation—which is now unlikely to take place before the US presi dential elections. The boom for the network majors has also coincided with a pause in the spiralling growth of the low-cost start-ups following the Valujet crash. Although there is no clear evidence of any lasting dam age, Valujet has been taken out of the market for the time being and others have had their wings clipped a little. The big airlines themselves have been indulging in a bout of low- fares deals over the US summer. The fares war was sparked off by $2 5 one-way deals launched in July by Southwest Airlines to mark its 2 5th anniversary. In the first two weeks of the sale, the carrier got through 4.5 million tickets and says that bookings would have been better but for congested telephone- switchboards. Other carriers have been quick to match the offer. The sales have been highly con trolled, and, in general, fares have been on the rise, helped by signs of a return in premium travellers. Continental attributes its dra matic second-quarter turnaround to the return of high-yielding business traffic, while America US AIRLINE SCHEDULED PASSENGER STATISTICS - SECOND QUARTER 1996 Airline United Airlines Traffic (millions) 47,443 IRPKI change 4.3% Capacity change 2.7% Load (%) 73.1% factors change 1.2pts 1 US AIRLINE GROUP QUARTERLY NET PROFITS (SMILLION) Airline group AMR/American Airlines America West Continental Airlines Delta Air Lines Northwest Airlines Southwest Airlines Trans World Airways UAL/United Airlines USAir Group TOTALS Ql 37 5 -30 -11 3 12 -123 59 -97 -145 1995 Q2 Q3 179 21 102 251 105 60 5 151 113 987 231 22 111 201 231 68 -82 243 43 1,067 Q4 -281 6 41 70 54 43 -28 -47 60 -82 Ql 157 14 88 63 53 33 -14 75 -32 437 1996 Q2 293 28 167 161 203 85 25 337 201 1,501 West used some of its new-found cash to install first-class services across its whole fleet. Unit costs have also been on the rise, although, in part, that has come as a consequence of booming traffic, alongside the imposition in 1995 of the aviation-fuel tax. With restructuring plans now largely complete, the focus has switched from containing costs towards making the most of the boom. Delta Air Lines provides the clearest example. Over the past two years, the group has ruthlessly pur sued a goal of bringing costs down to 4.7c per seat kilometre (or 7.5e per mile) by mid-1997. Chairman Ron Allen admits that the target will not now be reached, arguing that the market has changed and that Delta will take ".. .more mea sured systematic steps to reduce costs permanently". Allen adds that the ultimate cost goal still stands, "...but we won't penalise our overall financial per formance to do it". He says that the unit-cost target was "never an end in itself, and that the new goal will be to achieve a 12 % operating mar- C/RPK «7.76 yields change 4.3% Seat costs* e/ASK change 5.53 2.9% American Airlines Delta Air Lines Northwest Airlines Continental Airlines USAir Trans World Airlines Southwest Airlines America West Airlines TOTALS 42,927 38,870 28,256 16,938 16,161 11,313 10,956 6,200 219,063 2.6% 10.6% 11.3% 2.6% 0.6% 11.2% 13.6% 9.2% 6.5% -0.8% 1.6% 7.6% -0.2% -5.3% 7.5% 13.9% 9.2% 2.5% 69.4% 72.1% 74.9% 69.5% 71.1% 69.8% 67.0% 72.0% 71.4% 2.3pts 5.9pts 2.5pts 1.9pts 4.2pts 2.8pts -0.2pts -O.Opts 2.7pts C8.19 C6.23 C7.89 «8.37 111.16 (7.41 C8.00 «7.10 J7.86 2.4% 2.9% 2.2% 8.3% 6.9% 1.4% 8.6% 6.6% 3.8% 5.49 5.18 5.18 5.48 7.92 5.41 4.70 4.67 5.52 3.0% -0.7% 2.5% 3.9% 12.8% 6.2% 6.3% 5.2% 3.3% *N0TE: Unit costs exclude charges for employee share-ownership and restructuring RPK= revenue passenger kilometres ASK= available seat kilometres 1 mile=l.609km gin over the next year. In the first six months of this year, Delta has already managed to achieve a 10% margin, excluding the $829 million put aside to cover restructuring. That includes the $273 million provision in the sec ond quarter to pay for the early retirement of 500 pilots, agreed as part of the four-year union deal set tled in April. Meanwhile, the effort to repay debt and repair balance sheets is being stepped up. Over the second quarter, the groups used their prof its to cut debts by at least another $1.5 billion, through a mix of early repayments, buy-backs and aircraft refinancing. These measures will produce their own savings. United expects that its debt reduction over the past year or so will shave $100 million off its annual financing bill. Even Continental, which was struggling a year ago, now has $82 5 million in cash and has raised around $1.5 bil lion through refinancing deals since November, helping to shave its annual bill for interest payments and aircraft rentals by $74 million. Even Trans World Airways (TWA), the weakest of the majors, has doubled its cash balance over the past year, to reach $304 million in June against debt of more than $ 1 billion. TWAs plans to raise anoth er $183 million through a share flotation looked promising before the recent Boeing 747-100 crash forced the airline to delay the launch. The full impact of diat cat astrophe remains unclear, but, as one credit-rating agency com ments, TWA is in better shape to cope with it than at any time since the late 1980s. • 16 FLIGHT INTERNATIONAL 7 - 13 August 1996
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