The Morning News: Silverjet Share Trading Halted ... United Initiates New Round of Fare Hikes

Silverjet, the scrappy all-business-class startup, is in serious trouble with its latest round of financing. Trading in its shares has been suspended in London, and I wouldn't bet on its surviving this long weekend.

Here's the announcement this morning from the carrier, the third all-business-class startup in recent years (MaxJet and Eos having since joined the Choir Invisible). The fourth is the French all-business-class startup l'Avion, which announced its third Paris-Newark route yesterday.)

***

From Silverjet:

"On 6 May 2008, Silverjet announced that on 2 May 2008 Silverjet Aviation Limited (“Silverjet Aviation”), a wholly owned subsidiary of Silverjet, had entered into a £8.4 million loan facility agreement (the “Loan Facility”) and that Silverjet had entered into a proposed £4.3 million subscription agreement with Viceroy Holdings LLC (“Viceroy”). On 2 May 2008, Silverjet Aviation served a notice under the Loan Facility to draw down approximately US $5 million.

Silverjet has yet to receive the full drawdown.

As announced on 30 April 2008, Silverjet's working capital reserves are limited and advances under the Loan Facility are required as a matter of urgency.

In the circumstances, Silverjet has requested, and the London Stock Exchange has confirmed, an immediate suspension in the trading of the ordinary shares of the Company on the AIM market of the London Stock Exchange.

Silverjet continues discussions with other parties, which have confirmed an interest in investing in the company. In the meantime, Silverjet’s services continue as scheduled."

***

United Airlines initiated a new round of fare hikes, and we'll see if the rest fall into step on this one, considering the ongoing softening in demand. As of this afternoon, American and Delta joined in to match United's fare increases.

Last night, Rick Seaney at FareCompare.com wrote:

"Tonight in the 8 p.m. EDT domestic airfare distribution, United Airlines initiated the 16th attempt at hiking airfares in 2008 across the bulk of its route system.

The increase ranges from $10 to $60 roundtrip based on mileage between cities:

---City pairs greater than 1,500 miles roundtrip (750 miles one-way) have been increased by $30 or $60

---City pairs between 800 miles and 1,500 miles roundtrip (400 – 750 one-way) have been increased either $20 or $40

---City pairs under 800 miles (400 miles one-way) have been increase $10 or $20 roundtrip

Also in this airfare distribution, AirTran raised airfares by $50 roundtrip across the bulk of its route system in the same airfare distribution.

There is no doubt that the airline industry, legacy airlines in particular, are in dire straits -- tonight United used one of the three types of arrows remaining in its woefully bare quiver to combat $130+ barrel oil: Airfare Hikes, Fee Hikes and Capacity Reductions

That said the timing of this increase -- on the heels of customer satisfaction survey woes and American Airlines contentious $15 first check bag fee this week – is at best a bit tone deaf -- underscoring the desperate measures that are likely to follow if oil prices continue rise unchecked.

Will the other legacy airlines match? To that I respond: Do they really have a choice? I would be surprised if we don’t see wide spread matching over the long weekend.

I have been asked numerous times in recent weeks if we have reached the tipping point on airfare hikes – that point where consumers begin to push back on higher prices (and fees) and passengers head for the exits …

Yes the signs of softening are there, yes many people are changing their travel plans, but what strikes me is that it really doesn’t matter. Airlines have no choice but to pass on the cost of fuel to consumers and when passengers do begin to push back in significant numbers the airlines have no choice but slash capacity by that same amount.

A bright spot for passengers is that airlines have to keep the planes completely full and that means those willing to travel on off-peak days like Tuesday, Wednesday and Saturday and off-peak times of day can still get reasonably priced tickets if they don’t procrastinate and start shopping a few months before departure. Florida for example is super cheap in July because of lingering hurricane jitters and seasonal heat/humidity.

...I will continue to update on any significant matching and rollback activity related to this increase." -- Rick Seaney.

The FareCompare.com Updated 2008 Airfare Hike Timeline:

1. January 3rd, initiated by United, $10 roundtrip, base airfare hike, successful

2. January 11th, initiated by United, $30 roundtrip, fuel surcharge hike, unsuccessful

3. January 17th, initiated by American, $20 roundtrip, fuel surcharge hike, unsuccessful

4. January 24th, initiated by Continental, $20 roundtrip, fuel surcharge hike, successful

5. February 22nd, initiated by United, $10 roundtrip, base airfare hike, successful

6. February 28th, initiated by Delta, $10 roundtrip, base airfare hike, successful

7. March 7th, initiated by United, $10 roundtrip, fuel surcharge hike, successful

8. March 14th, initiated by United, $4-$50 roundtrip, base airfare hike, successful

9. March 19th, initiated by Delta, $10 roundtrip, fuel surcharge hike, unsuccessful

10. March 27th, initiated by Delta, $10 roundtrip, fuel surcharge hike, unsuccessful

11. April 9th, initiated by United, $4-$30 roundtrip, base airfare hike, successful

12. April 15th, initiated by United, $10-$20 roundtrip, fuel surcharge hike, successful

13. April 24th, initiated by United, $4-$70 roundtrip, base airfare hike, successful

14. April 28th, initiated by Delta, $10 and $40 roundtrip, fuel surcharge hike, successful

15. May 7th, initiated by Delta, $20 roundtrip, fuel surcharge hike, successful

16. May 22nd, initiated by United, $10 - $60 roundtrip, base airfare hike, pending

###

Mesa Air Warns of Bankruptcy

Mesa Air, which operates mainly as a supplier of regional-jet service to big airlines, says it will have to file for bankruptcy court protection if a contract dispute with Delta Air Lines doesn't go its way.

In a filing today with the S.E.C., Mesa said that if Delta succeeds in terminating a contract under which Mesa supplies regional-jet service to Delta, the result would be a series of defaults that will lead to bankruptcy court.

Mesa -- which is based in Phoenix -- operates 182 aircraft with over 1,000 departures to 157 cities in the U.S., Canada, the Bahamas and Mexico. It flies under the names Delta Connection, United Express, US Airways Express and go! Hawaiian Airlines.

Mesa is in the process of shutting down operations at another subsidiary, Air Midwest, which supplies air service to 20 small and mid-size cities under the federally subsidized Essential Air Services Program.

The Delta Connection business flies 34 ERJ-145 regional jets under contract with Delta Air Lines. Mesa and Delta have been in a legal battle since Delta said in March that it planned to drop Mesa's services.

Major airlines have been shrinking domestic capacity, and regional jets such as ERJ-145s are being sidelined all over the industry.

A lawsuit by Mesa against Delta is pending. Mesa says in its S.E.C. filing that it expects a ruling in late May or early June.

###

American's Baggage

On the matter of American Airlines charging for every checked bag, it's not the extra 15 bucks that bugs me, it's the principal of the thing. And yes, I meant to spell principal that way.

By many accounts, Gerard Arpey, the CEO of American, or some of his top minions, settled impulsively on the imposition of a new $15 fee on the first checked bag shortly before yesterday's annual stockholders' meeting.

"This was not thought through," an American insider told me. "It was asinine, and the reaction in house and out shows just how ill-conceived it was."

Well, they do need the dough. I do not believe it is generally understood just how dire the circumstances are for the major airlines. And their financial crisis is becoming our national transportation crisis.

But why couldn't American just raise fares by $15, rather than add a bag fee that will create logistical complications that, evidently, no one in charge at American has planned for yet.

My take on it: Passengers, as I have said, are pushing back finally against the drumbeat of fare hikes that the network airlines have imposed, in remarkable lockstep, all year. The May operating results will show a clear drop in demand, following the first small drop in April.

As an option, fare hikes are losing traction. And the major airlines are now desperate. They can't shrink the domestic system fast enough to match the falloff in demand.

But why is American's $15 bag fee such a mistake?

Simple logistics. When the airlines all imposed a $25 fee on a second checked bag earlier this spring (though those fees are only just now taking effect in some cases), not that many people were affected because not that many people check two bags.

But lots of people check a single bag, especially in the summer.

Here's where the logistics become impossible.

---Who's going to actually collect that $15? The skycaps at the curb? The clerks at the ticket counters? How much longer will it take to process each checked bag now, including making change?

---On board the airplane, won't the battle for space in the overhead bins just get worse as more people opt to cram that carry-on more full? And haven't the flight attendants been asked to do enough already? For the flight attendants, isn't this just one more brick on the load?

---Assuming x-number of passengers will opt not to check a bag, won't that put more pressure on the airport security checkpoints, where things have been running pretty smoothly for a good while now? Do all those millions of tubes of toothpaste and bottles of shampoo that used to get stashed in a checked bag now start turning up ringing the alarms at the checkpoints?

Just asking.

***

Bulletin: American Airlines Abandons More Domestic Service, Slaps On $15 Fee for FIRST Checked Bag

---American Airlines said today it will reduce domestic flying by over 20 percent (mainline and regional) in the fourth quarter, slap on a $15 fee for the FIRST checked bag, and pull 40 mainline MD-80s and 35-40 regional jets out of its fleet. The news will be announced at the company's annual shareholder meeting today. (And what a merry event THAT will be.)

If we had a functional Congress or White House in this country, this would be the time for someone to start paying close attention to the economic and social implications of the long-cosseted airline industry slashing vital national services, whatever their excuse may be.

Here's American's announcement in full:

***

"AMR Corporation Announces Significant Capacity Reductions, Aircraft Retirements and Additional Revenue Growth Efforts

Wednesday May 21, 9:37 am ET

Actions Taken in Response to Record Fuel Prices, Economic Concerns and a Difficult Competitive Environment

FORT WORTH, Texas, May 21 /PRNewswire-FirstCall/ -- AMR Corporation, the parent company of American Airlines, Inc., today announced significant reductions to its 2008 domestic flight schedule, including a fourth quarter mainline domestic capacity reduction of 11 percent to 12 percent from the previous year. It also outlined plans to retire at least 75 mainline and regional aircraft and unveiled several revenue growth initiatives, as the company responds to record fuel prices, growing concerns about the economy and a difficult competitive environment.

"The airline industry as it is constituted today was not built to withstand oil prices at $125 a barrel, and certainly not when record fuel expenses are coupled with a weak U.S. economy," said AMR Chairman and CEO Gerard Arpey. "Our company and industry simply cannot afford to sit by hoping for industry and market conditions to improve. We must work to overcome our near-term challenges and to secure our company's long-term future for the benefit of our shareholders, customers and employees. We must find ways to cover the cost of providing our services so that we can remain viable and have the resources to reinvest in our company for the future. Those goals are central to the actions we are outlining today."

Additional 2008 Capacity Reductions

AMR, which is holding its Annual Meeting of Shareholders today, said it will reduce American Airlines domestic capacity -- or available seat miles flown -- in the fourth quarter of 2008 by 11 percent to 12 percent, compared to the fourth quarter of 2007. According to its April 16 guidance, AMR previously expected domestic mainline capacity in the fourth quarter to decline by 4.6 percent compared to the same period in 2007.

In addition, AMR regional affiliate capacity is expected to decline by 10 percent to 11 percent in the fourth quarter compared to fourth quarter 2007 levels. Previously, regional affiliate capacity in the fourth quarter was expected to increase by 2.0 percent from 2007 levels.

AMR continues to assess the impact of the capacity reductions on specific routes and markets. (For additional information regarding AMR capacity changes for 2008, refer to the table at the end of the release.)

Arpey said the capacity reductions aim to significantly reduce costs as well as create a more sustainable supply-and-demand balance in the market. In recent years, Arpey added, the industry has been hurt by some airlines growing faster than conditions warranted, and that impact has worsened in light of recent economic trends and soaring fuel prices.

As a result of significantly reduced flying, AMR expects to retire 40 to 45 mainline aircraft from American's fleet, the majority of which will consist of MD-80s but will also include some Airbus A300 aircraft. The capacity reductions will also result in the retirement of 35 to 40 regional jets, as well as a number of turbo-prop aircraft from AMR's regional affiliate fleet.

The capacity changes will result in workforce reductions at both American Airlines and American Eagle Airlines and could result in facility closures or facility consolidation. AMR is assessing the scope and location-specific impact of any workforce reductions resulting from the capacity reductions. In addition, AMR is assessing the impact of these capacity reductions on its overall cost outlook.

Additional Revenue Initiatives

Beyond the company's ongoing cost-containment efforts, Arpey noted that AMR has consistently sought revenue improvements through fare increases and fuel surcharges. Since AMR released its first quarter 2008 financial results on April 16, American has participated in or led 15 fare increases, 14 of which were at least partially successful.

Today, American introduced a $15 fee for the first checked bag, given the increasing costs of transporting checked baggage. This fee, which is effective for tickets purchased on or after June 15, does not apply to: American's AAdvantage program members who have achieved AAdvantage Gold, AAdvantage Platinum and AAdvantage Executive Platinum level; those who have purchased full-fare tickets in the Economy, Business and First Class cabins; and those with international itineraries (except to and from Canada and U.S. territories, such as Puerto Rico and the U.S. Virgin Islands).

American also said today that it has increased its fees for certain other services, ranging from reservation service fees to pet and oversized bag fees. The increases mostly range from $5 to $50 per service. The company estimates that new and increased fees announced this month will generate several hundred million dollars in incremental annual revenue.

"While we understand that these fees affect customers, we also believe that our pricing for the services we provide remains extremely competitive in the industry and continues to offer our customers ample choice and value," Arpey said. "The bottom line is that our revenues, which include ticket sales and fees, must keep pace with our increasing costs."

As evidence of the crisis caused by soaring fuel prices, Arpey cited the U.S. airline industry's first quarter 2008 pre-tax loss of nearly $2 billion excluding special items and the fact that eight U.S. airlines that have filed for bankruptcy protection this year, including five that have ceased service. AMR paid $665 million more for fuel in the first quarter than it would have paid at prices from the year-ago period. Its first quarter fuel expense increased by 45 percent year over year, while its total revenue increased by 5 percent. The price of jet fuel has increased by more than 10 percent since April 16, when AMR expected its 2008 fuel bill would be well over $6 billion higher than in 2003.

However, Arpey also noted that AMR has made much progress in recent years to better prepare it for the current uncertainty. At the end of the first quarter of 2008, the company's Total Debt, which it defines as the aggregate of its long-term debt, capital lease obligations, the principal amount of airport facility tax-exempt bonds, and the present value of aircraft operating lease obligations, was $15.2 billion, down more than 25 percent from the end of 2002. AMR's Net Debt, which it defines as Total Debt less unrestricted cash and short-term investments, was $10.7 billion at the end of the first quarter of 2008, down more than 40 percent from the end of 2002. AMR also ended the first quarter with $4.9 billion in cash and short-term investments, including a restricted balance of $426 million. It had about $2.7 billion in total cash and short-term investments, including a restricted balance of $783 million, at the end of 2002.

"Clearly, we have a lot of hard work ahead of us given the economic

realities we face," Arpey said. "But we have battled through many challenges

throughout our long history, and, with the continued dedication of our

leadership team and our people, I believe we have the fortitude to continue to

do so."

2008 Expected April 16

Capacity May 21 Guidance Guidance/

(year over (expected range) Expectations

year change)

4Q08 FY2008 4Q08 FY2008

System -8% to -7% -3.5% to -2.5% -1.9% -1.4%

Mainline Domestic -12% to -11% -6% to -5% -4.6% -3.6%

International -0.5% to 0.5% 1% to 2% 3.0% 2.5%

Regional System -11% to -10% -6.5% to -5.5% 2.0% -2.1%

Consolidated System -8% to -7% -4% to -3% -1.6% -1.5%

***

In other news:

--Would somebody please turn a garden hose on this JetBlue press-release writer? The one who evidently believes Burbank (Burbank!) is the "media capital of the world" and doesn't quite grasp what the term "makes history" means? (And by the way, Bob Hope Airport is a convenient airport, but when you wake up in the morning, you're still in Burbank. And incidentally, I met Bob Hope once, and he was an invincible jerk.)

Anyway, here's the press release. To wit:

WASHINGTON, May 21, 2008 (PRIME NEWSWIRE) -- JetBlue Airways
today makes history with the launch of the first-ever
nonstop service between Washington, D.C. and Burbank, Calif., in
northern Los Angeles County. America's leading low-fare, high-value
airline now jets up to twice daily between Washington's Dulles
International Airport and easy-in, easy-out Bob Hope Airport in
Burbank, 'the Media Capital of the World,' providing travelers fast
access to Hollywood, Pasadena, and the greater San Fernando Valley
region. To celebrate the debut of JetBlue's newest transcontinental
route, the airline is offering a low fare of $169 each way.

***

Bush Pilot

So a naked Pinnacle Air pilot and a flight attendant were arrested in the woods near Harrisburg, Pa. ... No, that's not the start of a joke, even though being in the woods near Harrisburg is pretty much a bellylaugh in and of itself.

But the report comes from the once-reliable Associated Press, and as usual a key question evidently was not asked. Specifically, snickering aside, both were charged with public drunkenness: When were they scheduled to fly?

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Those Newark Slots

More competition in air service is necessary and inevitable, but I have to confess to a selfish twinge of “not in my backyard” sentiment in the Transportation Department’s new proposal to auction off slots at Newark International Airport. (An airport, by the way, that had a perfectly fine name until some nimrod(s) a few years renamed it Newark Liberty International Airport, evidently unaware that liberty is exactly what you give up when you set foot in an airport.)

And since Newark is my home airport, I sure would welcome seeing JetBlue or Southwest operate there. Right now, Southwest isn’t even a factor in the New York area, and JetBlue operates out of Kennedy, which is torture to reach from New Jersey and which I avoid unless I have no other choice.

Furthermore, Continental Airlines, which has a bastion hub at Newark, is by my and most other travelers’ estimation the best-run of the major airlines. If the rest of the airlines ran as well as Continental does, at least out of Newark, we’d all be much happier travelers.

So, as I said, I sure would welcome Southwest or JetBlue at Newark, and lately I’m growing more fond of AirTran, which in fact does fly from Newark, though out of the dreadful Terminal B.

But let’s give Continental its due. Here’s their response from Friday to the DOT proposal:

***

“HOUSTON, May 16 -- Continental Airlines (NYSE: CAL - News) today issued the following statement in response to the U.S. Department of Transportation's (DOT) announcement to implement slot auctions at John F. Kennedy and Newark Liberty Airports:

The DOT proposal to auction off 10 percent, or approximately 95, of the slots at Newark over the next five years is an unlawful taking of property that Continental will vigorously oppose. Moreover, auctioning slots will do nothing to ease congestion, but will raise the cost of air travel to consumers and act as an effective increase in taxes on an industry already known to bear an unreasonably high tax rate. Additionally, the proposal will result in reduced service to various communities and will create unnecessary market uncertainty at a time when the skyrocketing cost of oil and jet fuel has already created an extremely challenging environment for the industry.

The auction proposal does not address the real need to modernize an outdated and inadequate air traffic control system to increase capacity and meet passenger demand.”

[Update: On the other hand, let's not get carried away here. Here's a rocket just in from my friend Joe Brancatelli:

"I'd like to see Continental's receipt for this property that is being unlawfully taken ... Last time I checked, the airspace belongs to the U.S. taxpayer, and Continental never paid a dime to buy a slot at EWR..."

Ok, then.

***

---War being the ultimate form of business travel and all, I’m just sayin’: Imagine if Franklin D. Roosevelt (or more to the point, Thomas E. Dewey) said during the election campaign in 1944 – when the U.S. had been involved in World War Two for less than three years -- that he supposed we’d be able to end the war and get the troops home by 1951 or so. Didn’t John McCain just get away with saying he thought we’d be able to declare victory in Iraq and bring the troops home -- by 2013?

###

The Daily News ...

---United Airlines Still Can't Get No Respect … This just in from the US Airline Pilots Association (USAPA), representing 5,000 pilots at US Airways:

“US Airways pilots will not support any moves towards a follow-on merger until management finishes the job of our last merger. With $6.8 billion dollars invested and an ATSB restricted contract, the pilots of US Airways are the single largest investor in US Airways. Regarding United Airlines, their financial health is a major concern to USAPA. With mounting losses, and a dismal balance sheet, UAL may not be the best dance partner for US Airways. If synergies mean cutting capacity at US Airways while we experience record load factors concurrent with positive industry yields, we simply aren’t interested.”

***

---Not all airlines are basket cases. In fact, the big foreign carriers (itching, incidentally, to buy into the U.S. market big time) are doing just fine. Lookit British Airways fiscal year results, released today. Profit is up 45 percent, and the profit margin exceeds 10 percent. Costs are down 0.7 percent despite oil prices. Premium traffic is up 4.4 percent.

***

---Oh. My. God. ... End Times are definitely imminent. Peggy Noonan, by far the most readable of the Irish-lady columnists, is starting to make sense.

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OpenSkies Gets the Go-Ahead

Two days after Singapore Airlines started a route featuring all-business-class service between Newark and Singapore, OpenSkies, a mostly-premium airline started by British Airways, got the green light from the U.S. Transportation Department today to begin flying to the U.S. in June.

OpenSkies will commence business with flights between JFK and Paris Orly.

The new airline, run by B.A. veteran Dale Moss, will also operate in a code share agreement with the French all-business-class airline l’Avion, which flies between Newark and Orly.

OpenSkies said it will start selling tickets next week on its Web site www.flyopenskies.com

It will start up using a single 757 configured with first-class and business-class cabins, as well as about 30 coach seats. My hunch is that the code-share with l’Avion is a way to hedge against any routine mechanical delays on that single 757.

A second Boeing 757, taken from the British Airways fleet, is being added later this year. OpenSkies said it plans to add routes between European cities including Amsterdam, Brussels, Frankfurt and Milan and New York.

Singapore’s all-business-class service, meanwhile, will add a Singapore-Los Angeles route in September. Singapore is flying its all-business-class routes using A340-500s configured with just 100 lie-flat seats.

###

Passenger Push-Back

Travelers are pushing back against lousy airline service and virtually weekly anti-competitive far hikes. It’s now so obvious that there is a significant falloff in air travel that even the bumptious Air Transport Association, invincible defender of the indefensible, is copping to the prospect that “slightly fewer passengers” will fly this summer.

Let’s cut through the PR palaver and look at the numbers. The airline trade group forecast, which uses very optimistic advance data, is that domestic travel will be off 2 percent this summer, which USA Today this morning correctly points out would be the biggest seasonal falloff in air travel since the summer after 9/11.

(The schoolmarms who write those USA Today sub-heads, ever ameliorative, importune all of us here in the USA to “Pack your patience. Airlines predict delays and congestion.”)

Well, this is being written from my outpost in the Sonoran desert, with a sky full of sun. I predict light and warmth.

[Update: While the airlines are hollering about fuel, they sure are using a lot less of it. The demand for jet fuel in the United States fell in April to the lowest level in five years for that month, according to the American Petroleum Institute, in a report today by Reuters. While there were a lot of flight cancellations in April, led by the American Airlines maintenance fiasco, that wasn't enough to fully explain the trend The oil trade group said that April was the sixth straight month that jet fuel use fell, Reuters says.]

Meanwhile, Doug Steenland, the man who helped further demoralize Northwest Airlines’ hardworking pilots, flight attendants and other employees while blissfully packing his pension package, warns that the imminent Delta takeover of Northwest (and please, colleagues, let us stop referring to this event as a “merger”) will mean still higher fares and a shrinking (domestic) air transport system -- because airlines are just paying so darn much for fuel.

…Excuse me for a minute while I contemplate the situation of some poor trucker trying to make it in face of that $4.67 a gallon price for diesel I noticed the other day at a gas station out by the Interstate....

OK, then. The poor airlines, bailed out with regularity by the taxpayers, blithely strangle vital national air-transport service while they wail about gas prices, as if we weren't all trying to cope with gas prices. The airlines seem to believe they can do this without consequence.

At some point, the Congress we allegedly have in this country might want to take a look at the economic and social implications (not to mention national security implications) of a severely deteriorating national air-transport system -- and perhaps hold some feet to the fire. I mean, isn’t that Congress’s job?

Steenland, meanwhile, warns that the already shrunken system will shrink even more than has been announced. Steenland, of course, will be headed to the golf course the minute the Delta people take charge.

Here are some excerpts, with my comment, natch, from the Air Transport Association’s press release on summer travel:

---“ATA forecasts that slightly fewer passengers will travel June 1 through August 31 compared to the same period last year. Approximately 211.5 million passengers are expected to fly this summer, down approximately 1 percent from the 214.2 million passengers who traveled during the summer months of 2007.” (Statement conflates domestic travel, which is being slashed by the airlines, with international travel, which the airlines are boosting).

---“For a variety of reasons, slightly fewer people will fly this summer and planes will be approaching 85 percent full,'” said ATA President and CEO James C. May. (‘Variety of reasons'= Major airlines are yanking more planes out of service, cutting routes to many small and mid-size cities, and generally shrinking the system while raising prices.)

---“`We know that summer travel can be stressful for passengers and airports are well organized to handle unexpected schedule changes or delays,’” said Greg Principato, ACI-NA [Airports Council International North America] president. “`We will work closely with the airlines and the Transportation Security Administration to ensure safe and smooth operations for travelers. In the case of delays, airports will help to provide a full range of business and leisure services to meet passenger needs.’” [True fact. Principato is a good guy and the airports have really been stepping up to the plate to provide customer service that no longer is being provided by the airlines],

---“... with the cost of jet fuel approaching $170 per barrel, airlines will be taking every conceivable step to minimize delays and improve operational efficiencies.” [Correct: You will see airlines pro-actively canceling even more domestic flights, to cut costs, using the lamest of excuses, like party cloudy skies.]

---“Working together we are doing our best to make this summer travel season better than last.”

[Talk about setting the bar low!]

--end

All Aboard Latest Fare-Hike Express

I'm taking odds on how long they can keep this up before leisure demand crashes, but the major airlines have succeeded again in raising fares across the board.

Here's the update from Rick Seaney at FareCompare.com:

***

"By Rick Seaney

This morning at 10 am EDT Continental matched the Delta initiated increase of an additional $20rt and at 12:30 pm EDT both Northwest and US Airways matched -- all six legacy airlines have significantly matched the increase across the bulk of their respective route systems.

This brings the fuel surcharge to $130 RT for many of the city pairs across the country (especially prevalent on those city pairs that do not overlap with a low-cost airline).

The only time increases have failed this year is when one of the legacy airlines has not matched -- so it is likely the will be the 11th (of 15) widely successful airfare hikes of 2008 (success measured by all six legacy airlines matching across their respective route systems).

I will update our time line at the end of the day Monday if no rollback activity occurs. I look for at least one more increase this month of a similar size."

###

American Airlines Jet Loses Fuselage Panel, Continues from Dallas to Paris

Another airliner lost a chunk off its fuselage, this one an American Airlines flight from Dallas to Paris on April 20, it was learned today.

Shortly after the 767 took off from DFW, there was a loud noise that sounded like an explosion in the belly of the plane, a flight attendant said in an e-mail obtained by WFAA TV in Dallas, which broke the story.

Despite the first jolt and a subsequent one, the pilot continued on to Paris, nine hours away. American Airlines said the pilot acted properly. Some safety experts disagree, as you can see in the WFAA report. (Ignore the description of the 767 as a "jumbo jet," of course. It's just an older widebody.)

When the plane landed in Paris, a 2-by-3 foot panel was found to be missing from its belly.

This is the second time in six weeks that an airliner has been reported to have lost a piece of its fuselage in flight. See my post on March 28 about a US Airways 757 that lost a 5-by-7 foot panel that flew off the left wing and slammed into the fuselage at 27,000 feet, cracking an outer window, before landing safely (though with what the FAA later called significant damage), in Philadelphia.

###

Domestic Fare Hike XV

This is starting to sound like Super Bowl naming: Fare hike XV, the fifteenth, got underway last night.

And they're off! Delta breaks from the gate at the head of the field...

This update is from Rick Seaney at FareCompare.com:

***

By Rick Seaney

This evening Delta Air Lines initiated the 15^th attempted domestic airfare increase of 2008 by upping fuel charges an additional $20 roundtrip across the bulk of its route system.

The new total fuel surcharge on numerous Delta city pairs is now up to a record $130 roundtrip ($65 one-way) -- oddly enough the total of this fuel surcharge increase combined with taxes and fees is now larger than the actual base airfare on several short haul domestic flights.

With a backdrop of a slowing economy, I continue to look for a tipping point where domestic air travelers begin to significantly push back on record high airline ticket prices. At best the jury is still out on whether we are seeing the first signs of push back (see conflicting reports below), what is abundantly clear however is that legacy airlines are willing to cut back even more capacity as we near this point:

• Travelocity says summer demand is strong (http://www.bizjournals.com/baltimore/stories/2008/05/05/daily30.html)
• Orbitz says domestic bookings are weak (http://www.chicagobusiness.com/cgi-bin/news.pl?id=29334)
• Airlines show significant drop in April domestic traffic (more than can be accounted for by Easter in March) (http://www.bloomberg.com/apps/news?pid=20601103&sid=agnAGzDFb4aM&refer=us )

I had predicted at least 2 more increases in May and nothing has changed recently changed to alter this opinion – the torrid pace of airfare increases puts us on track for just shy of 40 increase attempts this year (compared to 23 last year) – while this total is unlikely, it is not inconceivable if oil cracks the $150 barrier and beyond.

In related airfare increase news tonight -- United Airlines increased airline ticket prices between the U.S and Canada by $86 to $129 roundtrip.

I have updated our 2008 domestic airfare hike timeline as follows:

1. January 3^rd, initiated by United, $10 roundtrip, base airfare hike, successful

2. January 11^th, initiated by United, $30 roundtrip, fuel surcharge hike, unsuccessful

3. January 17^th, initiated by American, $20 roundtrip, fuel surcharge hike, unsuccessful

4. January 24^th, initiated by Continental, $20 roundtrip, fuel surcharge hike, successful

5. February 22^nd, initiated by United, $10 roundtrip, base airfare hike, successful

6. February 28^th, initiated by Delta, $10 roundtrip, base airfare hike, successful

7. March 7^th, initiated by United, $10 roundtrip, fuel surcharge hike, successful

8. March 14^th, initiated by United, $4-$50 roundtrip, base airfare hike, successful

9. March 19^th, initiated by Delta, $10 roundtrip, fuel surcharge hike, unsuccessful

10. March 27^th, initiated by Delta, $10 roundtrip, fuel surcharge hike, unsuccessful

11. April 9^th, initiated by United, $4-$30 roundtrip, base airfare hike, successful

12. April 15^th, initiated by United, $10-$20 roundtrip, fuel surcharge hike, successful

13. April 24^th, initiated by United, $4-$70 roundtrip, base airfare hike, successful

14. April 28^th, initiated by Delta, $10 and $40 roundtrip, fuel surcharge hike, successful

15. May 7^th, initiated by Delta, $20 roundtrip, fuel surcharge hike, pending

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April in Paris ...

...was a lot cheaper than May, June, July and later are going to be. While we've been watching domestic fares skyrocket (I hate that cheesy media verb, but it's actually appropriate in this instance), airlines have been really piling on the fuel surcharges on international routes.

Here's an update from Tom Parsons at BestFares.com:

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International Airfares Continue To Climb Sky High
As World Wide Airlines Raise Fuel Surcharges

Arlington, TX -- Wednesday, May 7, 2008 - "The cost to travel outside the United States is becoming more expensive due to special add-on fuel surcharges now being imposed by most US and international airlines across the globe" - says Tom Parsons CEO of Bestfares.com, the discount travel website that tracks airfares.

"On several international routes the fuel surcharge is actually higher than the base airfare" - says Parsons. The fuel surcharge compared to last summer on some routes has more then doubled. Parsons gives an example stating, "The base airfare price from Los Angeles to London for departure by May 25, 2008 is as low as $195 roundtrip and the fuel surcharge is $306 roundtrip."

This week we saw the price of oil hit over $122 per barrel. It's a traveler beware, as the cost of fuel continues to climb so will airfares. The cost of jet fuel has become the biggest expense for the airlines in recent years and this cost is now being passed on to the customer through fuel surcharges and higher ticket prices. We also expect to see more increases on domestic and international routes throughout 2008.

"As we enter the busy high-demand summer season, many travelers are seeking out airfares as low as last summer. We suggest that before you start searching on the internet that you take two aspirins to avoid ticket shock " - adds Parsons.

Listed below are the fuel surcharges charged by most major airlines that offer international service from the United States:

Destination	Summer 2007 Fuel Surcharge (Roundtrip)	Summer 2008 Fuel Surcharge (Roundtrip)	Fuel Surcharge Difference
Most European cities including Amsterdam, Athens, Madrid, Moscow, Paris, Prague and Rome	$150	$270	$120
United Kingdom (London, Manchester and Glasgow)	$130	$302	$172
Beijing, Manila and Tokyo	$180	$270	$90
Cairo, Egypt and Dubai, UAE	$160	$260	$100
Most German cities including Berlin, Frankfurt and Munich	$150	$210	$60
Hong Kong	$180	$270	$90
Honolulu	$18	$130	$112
Johannesburg	$150	$290	$140
Mumbai	$250	$350	$100
Rio de Janeiro	$56	$170	$114
San Jose, Costa Rica	$130	$250	$120
Santiago, Chile	$130	$310	$180
Sydney	$70	$230	$160
Tel Aviv	$112	$290	$178

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Trouble in the VLJ World?

DayJet's quiet announcement (see yesterday's post) that it is laying off a portion of its work force (100 out of 260 employees, I am now told) and cutting back crucial expansion plans comes amid some apparent signs of disquiet at Eclipse Aviation, the Albuquerque , N.M. company that developed and is producing the $1.6 million Eclipse 500 very light jet.

The announcement was handled so softly that it barely gets mentioned in the mainstream media today.

I've always been amazed at the order figures Eclipse and DayJet, its major customer, have announced. DayJet, which has 28 Eclipse 500s in hand, is on the books for 239 firm orders and 70 options. Eclipse, founded by Vern Raburn, claims it has more than 2,600 firm orders. A total of 158 Eclipse 500s have been delivered.

The big question now is the validity of blue-sky claims about the potential of the very light jet industry. The FAA -- never one to shirk from predictions that enhance its importance as the regulator of the air lanes -- has said that 4,000 very light jets will be in the skies by 2015. In March, PMI Media published a forecast predicting that 7,659 very light jets will be delivered by 2016, which strikes me as a remarkably precise figure for a prediction.

This blog, Eclipse Aviation Critic NG , reports on trouble within Eclipse.

Eclipse apparently is concerned. The Albuquerque Journal, the hometown newspaper, reported on April 22 that Eclipse "has asked a California court to force the unmasking of anonymous commentators who posted on Web sites covering the company."

The Albuquerque paper said that a subpoena was issued by a California Superior Court in Santa Clara County ordering Google to "provide names, addresses and other information for about 28 commentators" to the blog.

Meanwhile, the Atlantic magazine is out this month with a hagiography on DayJet and Eclipse by Jim Fallows, who's been writing trenchantly for many years about aviation alternatives, but who may have been caught out (damned magazine lead times!) too far in front of a story that may be banking steeply.

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DayJet, Unable to Raise New Money, Cuts Growth Plan and Reduces Work Force

Hammered by the credit crunch, DayJet said this afternoon that is reducing growth plans and cutting its work force. It didn't provide specific details, except to say that it was unable to raise $40 million in needs to continue growth.

DayJet, the first company to enter the so-called air-taxi business using jets, is the biggest customer for the Eclipse 500 very light jet. Based in Boca Raton, Fla., DayJet began flying last summer, offering on-demand, per-seat transportation. Its initial routes were medium-sized cities in Florida, but the founder, Ed Iocabucci, said that the company's future depended on expansion into regional flying throughout the Southeast to airports that it calls DayPorts.

DayJet has taken delivery of 28 Eclipse 500 jets, which cost about $1.6 million each, said Alana McCarrher, an Eclipse spokeswoman. Eclipse says it has a total of over 2,600 orders for the jets, 158 of which have been delivered to customers.

Including the 28 it has received, DayJet made 239 orders for Eclipse 500s, with an additional 70 options.

In a statement today announcing the cutbacks, Iocabucci said (excerpts follow):

---"Effective this week, we have made the difficult decision to scale back DayJet’s 2008 growth plan. Because of this change in strategy, the company has reduced its employee base across most areas of its business. ... These changes were caused by external economic factors and are not a reflection of a weakness in the underlying DayJet business model."

--"Our first phase of operations, the "Proof of Concept" phase, has gone exceptionally well. Response ... was very consistent with our expectations and we answered many nagging questions: Yes, customers will fly in a small jet; Yes, customers will embrace the per-seat model; Yes, customers will pay a premium for tangible value; Yes, the technology works as planned ... All in all, we have signed over 1,500 members, more than 550 of which are active travelers, and nearly 200 are frequent flyers."

---"[This] is only the first step to profitability. The next step is equally important -- growing the network to a density that generates operating margin. Our projections have always indicated a network of 30-50 "line" aircraft serving 20-30 fully developed DayPort markets was needed to reach critical scale. More importantly, this required a $40M infusion of operating capital in the first quarter of 2008. ... given the current state of the U.S. capital markets, the timing of our planned financing could not have been worse."

---"Without the growth capital required to open new markets, the company must scale back to a size that is consistent with the demand ... DayJet’s business model is based on operating at a critical mass, requiring investment ahead of growth. We hired and trained a number of employees in anticipation of future growth and always planned for additional capital investment at this stage. "

---[This] will not reduce our existing service region. ... We will continue to operate and expand our service (albeit at a slower rate) to communities across the Southeast ... when the capital markets recover, then we would expect to resume the growth forecast in our original plan."

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Upstairs, Downstairs

...Or a Tale of Two Cities, pick your allusion.

British Airways today reported that its passenger load factor fell 5.1 points in April, to 71.6 percent, compared with April of last year.

The Easter holiday falling in March of this year had some effect overall, but in general, BA said the basic problem is a decline in long-haul coach traffic, even as business-class and first-class traffic continues growing.

Coach traffic fell 8.8 percent in April, while premium traffic rose 3.4 percent, British Airways said.

Looking at airline performance in general for April, it's increasingly clear that the class-divide in the air-travel market is becoming more pronounced, as is the divide between domestic and international service. That is going to become extremely apparent this summer, as the network carriers continue shrinking domestic routes and concentrating on lucrative international routes (and those domestic routes that feed international traffic).

In a general assessment of what's ahead, I thought Delta's president, Edward H. Bastian, was pretty clear at the JPMorgan aviation and transportation conference in March (which occurred before the Delta-Northwest merger announcement).

Here are some excerpts from his comments that describe what is going on with some clarity through Delta's prism:

--"International growth is the core, the foundation and cornerstone" of Delta's future. "Internationally, we are go to be growing at roughly 15 percent pace in 2008 over 2007."

--"The good thing for us about the international growth is that a considerable amount of it is being funded out of the domestic system."

--"Forty-one percent of our capacity this summer will be flying internationally."

--Some of this domestic capacity reduction will be accomplished by pro-active "day-of-the-week cancellations, as well as holidays."

--This summer, Delta's schedule for international flying will be "up over 77 percent [while] domestic is down greater than 22 percent."

--"We're going to be continuing to rationalize, on the domestic side, point-to-point flying." [My note: That describes many routes that do not feed into hub connections that yield international passengers, and portends further reductions in service at many smaller airports.] "The domestic reductions I mentioned earlier are largely going to be come out of point-to-point flying domestically. We're going to be continuing the strength of our hubs [but] our point-to-point network domestically is subject to rationalization. "

--"Domestic capacity is increasingly being pointed toward feeding international destinations."

--This pronounced trend can be described metaphorically, Bastian said, as "the tale of two cities."

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Eos's Fate and Silverjet's Dilemma

[Above: The new all-business-class configuration on Singapore Airlines' A340-500s]


I've been hearing from people who say they loved Eos Airlines and can't understand why it failed, given its terrific in-cabin performance as an all-business-class airline whose product surpassed some airlines' first-class service.

Furthermore, it has been noted, other airlines seem to be optimistic about all-business-class service. In fact, Singapore Airlines is making one of the biggest moves ever into all-business-class flying by a major airline. In mid-May, Singapore will start all-business-class flights nonstop between Newark and Singapore a couple of times a week, and ramp them up to daily by summer. In September, Singapore is expanding the all-business-class service to Los Angeles-Singapore nonstop, again with a plan to ramp up quickly to daily flights.

And Lufthansa is also expanding its boutique all-business-class service, operated by PrivatAir, with flights between Germany and Dubai and India.

So what happened to Eos?

Brutally simple. Eos, flying used 757s, had a cost structure that required its planes (with 48 seats) to fly about 70 percent full, with average fares of about $3,500, to be profitable.

Though it had expansion plans, Eos flew a limited route, New York-London Stansted. On that route (especially with Stansted in the equation), it was heavily dependent on the banking and investment business -- not just in New York but, perhaps more importantly, in London. Remember, the plane flies both ways, and transatlantic traffic originating in London had become increasingly important, especially with the weak dollar.

Lawrence Hunt, the affable and indefatigable founder of Silverjet, has been frantically raising cash since the airline launched early last year. The most recent score was from Middle East investors, who bought a 28 percent stake in Silverjet last week. Hunt says that will help finance a planned aggressive expansion in the Middle East and Africa.

Meanwhile, though, Silverjet is struggling on its Newark-London route, and the challenge is made tougher the fact that Silverjet's London base is the not-so-convenient London Luton Airport.

[Silverjet reported today that it had a 67 percent load factor in April and said it expects that the load factor and yields will “show further improvement in May.]

Skeptics are perched on the trees waiting, but Hunt thinks Silverjet can ride it out, assuming additional financing, because he has hammered the break-even point down enough so that the current average fare of about $2,100 roundtrip will do the trick, assuming loads over 70 percent.

The major U.S. airlines in the New York-London market helped kill off Eos by cutting negotiated business-class fares -- the ones they offer their top corporate customers -- down to the Eos level. American Airlines even threw a new flight from New York into Stansted last October (and announced a second one to come) and was said to be discounting some business-class fares down to the $3,000 roundtrip range.

Meanwhile, British Airways introduced a murderously cheap advance-purchase (62 days) business-class fare of about $2,500 round-trip between Kennedy and Heathrow, and later extended into mid-May -- pretty well covering the business-travel season to the summer lull.

Eos just couldn't compete as the majors kept slashing business-class fares (which had been going for about $9,000 roundtrip, walk-up)

At the end, "Eos's pricing was very similar to Continental, British Airways, American and Virgin Atlantic," said Silverjet's Hunt.

And "with only 48 seats on a 757, the economics were similar to Silverjet's 767s in terms of operating costs," he said. Silverjet runs its 767s with 100 seats.

Given that, plus the transatlantic fare war, Hunt said. "It was very hard for them to offer a price advantage. Eighty percent of their business came from banks and financial services, and those guys started getting deals with Continental and American and Delta in the $3,500-$4,000 range."

Optimistically, Hunt said, "It's going to be a very tough 2-3 years. It was very important for us to get our price point to the $2,000 level where the majors can't compete with us."

As to investors, Hunt said it's been exceedingly difficult to raise money.

"The British institutional investors have got their own problems. For example, one of our largest shareholders was the second-largest shareholder in a bank called Northern Rock that got bought by the government because it nearly went bust. So they had to sell everything -- and we have lots of shareholders in that situation. We've got a big property fund that's invested in us that's 80 percent leveraged. They're not sure whether they can make it or not, and they're selling everything they can to raise cash. So we need to find a different type of investor going forward," he said.

Here's the rest of what he told me in a recent interview:

"Also, we have a pretty tough regulatory environment, from a capital and liquidity point of view,
so you never know what the regulators are going to do.

"We're almost at a cash break-even now. Our planes are going to be nearly 60 to 70 percent full this summer. We're doing okay, but I'm not pretending we're out of the woods yet.

"How many people said I'd never get this off the ground? How many said we'd never raise the money? How many said we wouldn't fill the planes because people wouldn't fly to Luton? If I'd listened to all those people I wouldn't be here now."


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The Kentucky Derby: They Kill Horses, Don't They

The predictable romantic press twaddle and television rhapsodizing accompanied the running of the Kentucky Derby today.

But as the squadrons of private jets take off from Louisville to disperse the well-heeled fans back home, again the ugly truth about three-year-old thoroughbred racing (and breeding) is glossed over, because it doesn't comport with the media narrative and the commercial interests intertwined with it.

The horse that finished second, a filly named Eight Belles, broke down after the finish line -- compound fractures in two ankles -- and had to be killed (let's avoid the word "euthanized") on the track.

Presumably, the 157,000 party-goers in attendance collectively averted their eyes.

Without doubt, the craven NBC TV sports announcers at Churchill Downs did so. Even after the winning horse spooked at the collapsed Eight Belles and threw his jockey on the track, the NBC announcers prattled on merrily, ignoring the obvious until they were forced to acknowledge it briefly before moving back onto narrative and the winner's circle palaver.

Anyone who knows horses knows that that filly probably ran at least a few furlongs of that race on at least one fractured leg. It was in her nature not to quit.

These horses are far too delicately bred to start with -- and most of them are babies, not chronologically three years old, when they're forced into intensely competitive racing. Their bones and muscles are still not fully developed.

All they know is to run like hell. Which they do, with magnificence.

These horses are still too young, in early May of their second year, to race in a dense pack in the kind of intense conditions demanded at Churchill Downs. The Kentucky Derby might be a great party and spectacle, but it's an animal-welfare ethical disgrace, as is the entire Triple Crown and thoroughred-breeding apparatus.

There's nothing wrong with racing fully grown horses, assuming the horse knows what the deal is and goes along. Horses love to run. They even love to run with someone on their backs. But two-and-a-half years -- which is how old these horses actually are -- is too early to run them at that level, under those conditions. They need another year or more to develop, and even then they're still young and overbred.

Sports writers spend an awful lot of time flapping around about things like steroid use in baseball. It's time they started questioning assumptions about the races of the Triple Crown and the systemic animal abuse -- much of which occurs long before the dewey-eyed fans warble the atrocious "My Old Kentucky Home" at Churchill Downs -- that's behind all that excitement.

Most sports writers, of course, are known for this: Writing the same crap over and over, till the last syllable of recorded time, while stuffing themselves with free shrimp in the press lounge.

In Sunday's New York Daily News, then, we have this unconscionable passage quoting the dead horse's trainer, Larry Jones:

"Trainer Larry Jones said, 'She went out in a blaze of glory,' as he tried to hold back tears from his reddening eyes.

Sorry to hear of the trainer's reddening eyes. But she did not go out in a "blaze of glory." She is a horse. She went out in hideous pain, unable to understand why her legs gave out when all she was doing was running like hell. She went out in the back of a truck.

Are they going to bring out any more shrimp, do you think?

It is time to say enough.

"How many times do we have to see this?" said my wife Nancy, who knows horses. She said this: Racing raw, so-called three-year-olds in an arena massed with bellowing people and startling visual impressions, within a pack of horses that don't know each other -- the field is not a natural herd; it's a hastily assembled mob -- is simply "preying on their instincts to flee."

In the Washington Post, Sally Jenkins has it just right.

In the Times, William C. Rhoden's Sunday column also gets it. "The sport is at least as inhumane as greyhound racing and only a couple of steps removed from animal fighting," Rhoden says. "This is bullfighting."

But these are two lonely voices against the prevailing media-trumpet chorale of glorious tragedy: The brave filly who wouldn't quit, who ran on through shattering pain and managed to place in parimutuel paradise.

Can't you hear the stirring theme music?

Meanwhile, Chelokee, the colt who was badly injured just yesterday in Alysheba Stakes during the Kentucky Oaks races at Churchill Downs, was battling for survival.

Chelokee was trained by Michael Matz, who also trained Barbaro, the 2006 Kentucky Derby winner. Barbaro, you'll recall, shattered his leg two weeks later in the second 2006 Triple Crown race, the Preakness, and eventually had to be put down.

And these, remember, are just the famous horses that make the news.

Except, of course, on NBC.

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