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Aviation History
1997
1997 - 1989.PDF
New US taxes may take a toll on airline boom KEVIN O'TOOLE/LONDON US AIRLINES COULD be hit with extra taxes of almost $4 billion over the next five years under recommendations from the US Congressional committee set up to establish an alternative to the 10% federal ticket tax. The recommendation, which is expected to become law from October, offers the industry a com promise, reducing the current flat- rate ticket tax to 7.5%, but supplementing this with a domes tic-user charge and other taxes. There had been a long-running campaign waged by the major net work carriers to get rid of the tick et tax altogether in favour of a user fee, but this was strongly resisted by low-fares airlines, led by Southwest Airlines. The new proposals, to be phased in over two years starting in October, will introduce a user fee on every domestic ticket, starting at Si per flight segment and eventual ly rising to $3. The departure tax for international passengers is to be doubled to $ 12 and a similar arrival charge is to be levied, as well as a tax on frequent-flyer miles which are bought for promotional use by hotels, retail banks and others. The compromise is expected to result in S3 billion of costs fallingon the major carriers, with low-fares carriers shouldering another Si bil lion. Southwest has swiftly attacked the resulting compromise, saying • IW:<l:JIL'l^: .!IIJ.!IM:iia;lll^i.^lllndMAIIII!.!; Group 1996 Ql Q2 Q3 Q4 AMR/American Airlines 157 293 282 284 Ql 152 1997 Q2 302 America West 14 Continental Airlines 88 Delta Air Lines 63 Northwest Airlines 53 Southwest Airlines 33 Trans World Airlines -37 UAL/United Airlines 6 US Airways Group -55 TOTALS 322 28 167 161 203 85 25 196 201 1.360 -46 18 238 254 61 26 340 68 1.241 12 47 125 26 28 -259 19 50 332 NOTE: Quarterly profit/loss are for whole groups including non-flight operations. 14 74 221 65 51 -72 105 144 753 23 128 302 136 94 -14 242 206 1,418 that the majors have only succeeded in hurting the whole industry. The major US carriers, report ing another set of healthy profits for the second quarter, admit that the re-imposition of the 10% tick et tax earlier this year has put some pressure on domestic yields, but this has largely been offset by strong demand especially on key international services. United Airlines parent UAL, reporting record revenues for the sixth consecutive quarter, was typi cal in seeing a 1% fall in domestic sales more than offset by a 3% climb in international routes. That was led by a 16% increase on ser vices to Latin America, a growing battleground for all the majors. Delta, with its restructuring now complete, is leading the profit- makers, helped by a "solid contri bution" from once persistently loss-making transatlantic routes and ever-tighter cost controls on the domestic network. The air line's low-cost Delta Kxpress oper ation has benefited from the domestic boom, with a 71 % load factor over its first nine months. Transpacific routes have fared less well, because of the weakness of the Japanese yen against the dol lar. Northwest Airlines, which reported a dip in its net results for the quarter, points to a "soft" Pacific market, a $30 million charge taken against the fallingyen and an estimated $80 million impact from the ticket tax. The airline also saw employ ment costs leap by nearly 19% in the quarter, largely as a result of the "snapback" wage agreements under which unions agreed to salary cuts three years ago as part of the restructuring, but on the condi tion that the cuts were eventually re-instated. Continental Airlines showed lower net profits over the previous June quarter, but only because of tax provisions. Pre-tax profits remained at record levels as the carrier's traffic soared bv 13%. • i|.-fl'il:i;M,.^^;;^iiflii-ii:^a-v n n •••••••••••—— Traffic (RPK) Capacity (ASK) Load factors Passenger yields Seat costs (millions) change* change (%) change c/RPK change e/ASK change United Airlines 48.909 3.1% 4.0% 72.5% -0.6 7.82 0.9% 5.54 0.3% American Airlines Delta Air Lines Northwest Airlines Continental Airlines US Airways _ Southwest Airlines Trans World Airlines America West TOTALS 43.955 41.449 29.190 19.182 17.623 11,286 10.271 6,668 228.534 2.4% 6.6% 3.3% 13.3% 9.1% 3.0% -9.2% 7.7% 4.3% 0.8% 3.1% 3.3% 8.8% 5.7% 8.0% -9.1% 9.2% 3.3% 70.5% 74.6% 74.9% 72.3% 73.4% 63.9% 69.8% 70.9% 72.2% 1.1 2.4 0.0 2.8 2.3 -3.1 -0.1 -1.0 0.7 8.28 7.84 7.51 8.00 10.53 8.08 7.21 6.76 8.06 1.1% -2.6% -4.8% -4.4% -5.6% 1.0% -2.8% 4.8% -1.6% 5.69 5.44 5.37 5.53 7.50 4.53 5.54 4.54 5.60 3.5% 5.0% 0.2% 1.0% -5.3% -3.6% 2.4% -2.7% 1.0% NOTES: Seat costs exclude ESOP schemes and restructuring charges and fuel taxes. RPK= revenue passenger kilometres ASK= available passenger kilometres lmile= 1.609km All changes are compared with second quarter of previous year. BUSINESS NEWS IN BRIEF • DEBONAIR LAUNCH Debonair, a UK-based low- cost airline, has signed agree ments to lease another five British Aerospace BAe 146s. The aircraft, which are to join the fleet from the third quar ter of this year, are part of a $12 million investment fol lowing the company's public launch on the EASDQ in July, raising $3 8 million. • DOLIMfTI SHARES Air Dolimiti, the Italian air line and Lufthansa partner, has gone ahead with its new share issue, which puts 25% of the company into the hands of three financial insti tutions. The Leali family still controls the rest of the air line. The share and accompa nying bond issues raised LI 6 billion ($9 million), which will help to fund the recent order for AI(R)ATRs. • VALUJET OPTIMISTIC Valujet ended the second quarter with a net loss of $9.2 billion, slightly less than for the same period a year ago during which it had to sus pend operations. Load fac tors continued to rise, reaching close to 55% although average fares are down by around 20% on a year ago. Valujet, which plans to buy AirTran Airways, ended the quarter with $150 million in cash. • FLOAT RAISES S631M China Southern Airlines' ini tial public offer on the New York and Hong Kong stock exchanges raised $631 mil lion, in what represents the largest single float of a Chinese airline stock to date. The offering, representing around 32% of the carrier, was sold at the upper end of the target range and the share prices rose strongly once trading began. The New York offer was ten times over-subscribed, although there was less demand for the small Hong Kong tranche. FLIGHT INTERNATIONAL 6 - 12 August 1997
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