Delta institutes fuel surcharges on award flights — who is next?

by Grant Martin on

One of the perks of having a frequent flyer number used to be earning enough miles for a free ticket. Free being a relative term, because we still had to pay some taxes. Domestically, this was about five dollars, while internationally this could be up to fifty or a hundred. No big deal, I always had a few empty cans to return.

Not any more on Delta. Citing fuel costs, the Atlanta-based airline is now going to charge a 25$ fuel surcharge for domestic award bookings and 50$ for international itineraries.

“But Grant,” you say, isn’t an award ticket supposed to be FREE?

Yeah, that’s what I thought too.

These sort of shenanigans are what we in the community call “devaluation of miles” and are indirectly a product of downsizing in the industry. Airlines want you to use fewer of miles, so they make them harder and more frustrating to spend. Fewer award tickets = more revenue tickets = more cash on hand.

Devaluation is another reason that many passengers in the Delta/Northwest merger are a little concerned. While both CEOs claim that our miles and status are secure, neither will profess to if they’re secure in value as well. Sure, you have 100,000 miles, but our new Deltwest airline charges 150,000 miles per award ticket. With a 200$ fuel surcharge.

Expect more of the same petty fees to show up across other carriers as they scramble to raise extra cash — my guess is that this will be picked up by the other legacies pretty quick.

Delta’s fuel surcharges go into effect August 15th, so book your award travel before then.

Gadling’s airline hit list: five airlines to watch this summer

by Grant Martin on

With all of the trouble swirling around the airline industry it’s hard not to think about this summer and more problems that could occur. Summertime is traditionally a busy time of year, with travel prices and oil going up as vacationers hit the road. This year is a little different though. More Americans are staying home because they can’t afford to take that summer vacation to Disney World and the cost of operating an airplane is at an all time high. We suggest in an earlier article that this combination could spell disaster for more than one airline.

I’m not the only speculator on the obituaries — Morningstar released a financial report on the airlines earlier this month that rated the liquidity and debt coverage of some of the major carriers. What they found was that Southwest was the only airline in a decent position, a few other carriers were squabbling along in second place and there were a lot of airlines in serious financial trouble this summer.

Business Travel Commission and AirlineForecasts issued another doomsday paper last week called the Airline Crisis Report, where they look at the earnings of the top ten carriers in the United States. The only company in the black? You guessed it.

So we’ve put all of the data together and mixed in a fair amount of “gut feeling” to make Gadling’s Hitlist: 5 Airlines to Watch this Summer. Expect to hear about these airlines in the news, woeing about fuel prices and cutting about service and maybe even exploring the “B” word: bankruptcy.

  1. Frontier – Denver based Frontier Airlines declared bankruptcy earlier this year because their credit company started taking a larger cut out of their transactions. All this has potential passengers afraid of another Skybus incident where they might get trapped at their destination, so my bet is loads and profit are down even further. Today the struggling airline released a report saying they would take a $59.4M loss this year, their largest deficit ever.
  2. L’avion – Never heard of L’avion? Most people haven’t. One of the last of the business-class-only carriers around town is struggling to keep it’s head above water as OpenSkies is about to jump into the USA-Paris market this month. If we’ve learned anything from Maxjet, Eos, or Silverjet, L’avion is up to bat next.
  3. US Airways – The above data seem to indicate that US Airways is in one of the worst situations among all carriers — among the most outstanding debt, lowest liquidity and lowest earnings in the market. Earlier this year they were rumored to be in talks with United to merge. Someone needs to bail them out, because they keep hemorrhaging cash and with a rating among the lowest on the Airline Quality Report, passengers need a boost in confidence.
  4. Spirit – Low Cost Carriers are among the first victims in a downturn, as Skybus already showed us. While Spirit has been around for a while, they may not have the customer or frequent flyer base to keep things going in sustained tight times. As MSNBC’s Chris Elliott pointed out last week, they’ve almost shut down their customer service, which can’t be a great sign of things to come.
  5. Mesa/Pinnacle – As small feeder airlines for the larger carriers, both Mesa and Pinnacle face the potential of being trimmed out as the giants cut costs. Just last week, Pinnacle was dropped as a feeder by Delta Airlines. Mesa, on the other hand, was rated among the lowest in both the Morningstar and AQR reports.

Think I’m full of crap? As I admitted before, much of these predictions are a mixture of speculation and data — these notes shouldn’t influence your portfolio investments or even your decision to book tickets. Let me know what your favorite airlines and predictions are below are and hold on for a little bit of turbulence this summer.

Oil, the economy and airlines

by Grant Martin on

The numbers don’t look good for the the airlines this summer, I’m afraid. Small trickles of data keep coming in from every direction pointing to a toxic combination of high oil prices and low demand that are going to be serious hurdles for the industry as the year progresses. Predicting more bankruptcies, Morningstar recently ranked the top carriers by liquidity and debt coverage, highlighting the struggling US Airways and Frontier Airlines at the back of the pack while pointing out the very few who might have a chance. The IATA keeps adjusting its annual industry profits as crude rises, from +4.5bn when a barrel of oil was 86$ to -2.3bn when it was 106$ (the current price is around 130$).

At the same time, carriers have been forced to launch fare sales across the board because demand is so low that they can’t fill airplanes. So even when flights sell out, they’re still losing money.

In the past six months alone, we’ve written about seven airlines that have gone under, Skybus, Aloha, ATA, Eos, Silverjet, Maxjet and Oasis Hong Kong, with Frontier Airlines going bankrupt but continuing operations. There are seventeen others that we didn’t mention.

Each airline eulogizes its tenure with a farewell note left on an abandoned webpage, most pointing to the rising price of jet fuel and recalling a long lost day when their company meant to change the world.

How can the airline industry continue to operate in these conditions? Their current business plan is to make some of it up by adding extra fees — 15$ here for a checked bag, 50$ there for a changed ticket. But Americans are crafty. They’ll do whatever they can to get around extra fees, from cramming everything into an overhead compartment to starving to death on a transcontinental flight. And in the end the few dollars made by selling stale sandwiches on their flight won’t make up for the extra price of jet fuel in the belly of the aircraft.

So the industry will continue to take hits and the price of oil will continue to rise. Meanwhile, consumers will continue to demand low cost tickets, tapering off demand and cutting into the bottom line. Capacity will need to be reduced severely to maintain cash flow. Some, like American Airlines parent company, AMR have already initiated these efforts, announcing a 12% cut in capacity just last week.

And what if they’ve squeezed every last nickel out of the consumer, cut as many corners as possible and still can’t afford to run the airline? Run the well dry and hope that things get better before anyone notices. Only once their credit has turned tepid and the feds have shuttered their gates will they cease operations, stranding thousands of passengers and leaving only a website and a few dusty old MD-80’s in an airline empire that never could have been.

IATA: Doom and gloom for the airline industry

by Grant Martin on

Ever wonder why New Orleans‘ airport is coded MSY or Toronto is YYZ? Those acronyms are assigned by the International Air Transport Association, or IATA. They’re also the group the assign airlines their two letter symbols: DL for Delta, WN for Southwest and so on.

In addition to their uncanny ability to assign and mediate airport and airline names acronyms, the IATA is also an industry watchdog and partner, ensuring that airlines calculate fares correctly, function in the bureaucracy and behave properly in times of strife. You can see how active their pressroom is here.

And how does one of the industry’s strongest players feel about the future of airlines? If you hadn’t guessed from the headline, they’re pretty somber. In an article released on Monday, the agency predicted severe losses for the industry in 2008, all as a result of higher crude prices. Earlier this year when similar calculations were made (at 86$/barrel), the upbeat news was a profit of near 4.5bn; now the loss is over 2 billion dollars.

The worst part? The 2bn loss is calculated at a crude price of $106.5. With oil trading at well over $130 these days, those losses are going to be significantly higher by year’s end. End result? More hardship for the airline industry.

Keep your receipts handy. This may be a rough summer.

Everyone is now charging for extra bags. Get used to it.

by Grant Martin on

If you’ve been following airline industry news over the past few weeks, you’ve probably heard news about many American carriers creating new fees for multiple checked bags. If your favorite hometown airline hasn’t started doing it yet, don’t hold your breath, it’s probably on the way.

These changes are too bad for American passengers, but long overdue, I’m afraid. Airlines have been struggling to cope with staggeringly high oil and operational costs over the last few years, all while maintaining competitive and fair prices. Their competition has cut so deep into the bottom line that carriers are now faced with two options: raise ticket prices or implement extra fees.

What currently drives the majority of the airline ticket market, however, is overwhelming demand for budget tickets — regardless of the carrier, class of service or amenities. Raising the bar on ticket prices thus runs the risk of losing large swaths of passengers with each increase.

So the airlines are forced to nickel and dime their regular passengers with extra fees along the way. This includes several in-flight amenities such as headphones or television that have already been integrated into many routes to extra baggage fees, which are unrolling this week.

Where to after that? It wouldn’t surprise me if airlines soon unilaterally started charging for all beverages, preferred seating, peanuts, wheelchair room or overweight passengers. Anything to keep the bottom line in its current place.

As the prevailing trend over the last few years dictates though, most of these changes won’t have any effect on the the frequent and business travelers. In addition to extra baggage fees being waived, most elite members are allowed an additional bag that they can bring along for free. Loyalty pays off, I suppose.

For now, make sure you keep an extra twenty with you when you’re on the road — if you want an extra shred of comfort, food or alcohol on board you’re going to have to pay for it. But as you’re handing your five dollars over for a dried up tuna sandwich on white bread and six ounces of gin, ask yourself, would you rather pay for your oil with your plane ticket or your in-flight privileges?

I don’t know about you, but I would rather save my money upfront, pack light and starve.