Air Transport World

North America.(WORLD AIRLINE REPORT)(briefs)


The independent cargo airline spun off when DHL purchased Airborne Express in 2003 has spent much of the last two years trying to diversify its business to reduce its reliance on its primary revenue generator: Providing US domestic air lift for the German express giant. And following DHL's decision in May to restructure its loss-making US express business by shifting North American air lift to rival UPS, ABX's efforts to broaden its scope may be what keeps it alive, albeit in a dramatically different form.


At this writing, DHL and UPS still were working out the details of their contract, but DHL made it clear that it intends no longer to use ABX for anything more than manning its ground sorting facility adjacent to its Wilmington, Ohio, air hub, where ABX is based. But that's only a minor part of ABX's contract with DHL and the airline has informed its 10,000 workers that more than 6,000 could be out of jobs. While the carrier vows to carry on with "business as usual" until the DHL-UPS deal is finalized, and the transition likely will take 12-18 months, it is expected to focus increasingly on its 767F charter and wet-lease business going forward.

To that end, parent ABX Holdings changed its name in May to Air Transport Services Group. In addition to ABX, subsidiaries now include Air Transport International, Cargo Aircraft Management, Capital Cargo International Airlines and LGSTX Services, all acquired in 2007 as part of the diversification drive. It touted a big boost in first-quarter revenue from its non-DHL charter and ACMI flying from $7.1 million to $93.3 million as evidence that it is broadening the range of services it offers. Overall revenue rose 33% to $382.1 million but DHL-related revenue made up 74% of that total.


Last year was Air Canada's 70th year of service (ATW, 9/07, p. 65) and it made the most of the landmark, posting a record operating income of C$433 million compared to C$236 million in 2006 excluding special charges. Aided by foreign currency gains, net profit soared to C$429 million ($437.8 million) from a net loss of C$74 million a year earlier. Revenue rose 5% to C$10.65 billion. It carried 33 million passengers. Cost per ASM excluding fuel dipped 0.8%.

Things turned a bit bumpier in its 71st year as it reported a 2008 first-quarter net loss of C$288 million, a substantial increase over a C$34 million loss in the year-ago period, in large part owing to a decision to record a provision of C$125 million related to the US-EU investigation into alleged anticompetitive practices in the air cargo segment. Excluding the cargo provision, operating loss declined to C$12 million from C$78 million a year ago as it managed to cut nonfuel CASM 5% for the period.

The strength of the Canadian loonie provides some insulation against the run-up in fuel prices, but AC is looking at all opportunities to cut costs, according to President and CEO Montie Brewer, who said the carrier will "aggressively review all routes to determine if they are economically feasible." Full-year 2008 capacity now is projected to grow 1%-2.5%, down from a previous estimate of 2.5%-4%.

Service to Rome Fiumicino and Osaka Kansai will be suspended in the "late fall," allowing AC to remove four 767-200s from the fleet. It continues to introduce 777-200LRs and -300ERs and will have 18 by early 2009. The 777s enabled it to launch nonstop service from Vancouver to Sydney last December, with one-stop service from Toronto. It is refurbishing the interiors of its in-service fleet and had completed 102 A320 family aircraft and 767-300s as of early May. It expects to complete 15 more aircraft by year end.

The network is well-balanced-43% of revenues come from the domestic market, where AC claims a 59% capacity share. Transborder services generate 20% and it has a 38% ASM share. Intercontinental sectors produce 37% of revenues and it enjoys a 40% ASM share. The carrier's unique "ala carte" fare system on its website has been a big success, with 45% of customers buying up from its lowest Tango fare last year. The Flight Pass program continues to grow, with revenues up 87% between 2007 and 2006.

In April it added its newest ala carte website offering, "On My Way." Customers who purchase this feature and experience a service disruption attributable to factors out of AC's control receive "speedy phone access to specially trained Air Canada customer service agents who will provide travel and accommodation solutions," such as a hotel room, car rental and meal vouchers. This year, AC will test and refine its new Web-based Polaris reservation system that will provide even more opportunities to develop its pricing system.


Record fuel prices achieved what a (briefly) revitalized network airline industry could not: Persuaded Air Tran to restrain its appetite for expansion. Earlier this year, the Orlando-based LCC announced a major retreat from the double-digit growth achieved from 2002 to 2007, when annual ASMs soared from 8.3 billion to 22.7 billion. For 2008, ASMs will rise just 8%, with no increase planned from September 2008 through at least the end of 2009 and just 5% for 2010. To achieve this, it is selling new aircraft as they are delivered and deferring 18 737-700s originally scheduled for delivery in 2009-11 to 2013-14.

The carrier disclosed that it was putting on the brakes as it reported a 2008 first-quarter loss of $34.8 million compared to income of $2.2 million in the year-ago period. An 18% rise in sales to $596.4 million was overwhelmed by a 62% jump in fuel costs to $268.4 million, consuming 44% of revenues. For 2007 it earned $52.7 million, up from $14.7 million in 2006, as revenues soared 22% to $2.31 billion and operating income more than tripled to $137.9 million from $40.9 million.

AirTran's rapid growth has helped contribute to a noteworthy achievement: Its nonfuel CASM excluding special items has declined in every year since 2001. It is forecast to decrease again this year, although it was up nearly 1% in the first quarter. Typical of its rapid growth, it launched 30 new routes last year and added seven destinations. It continues to diversify away from Atlanta, which remains its largest base.

Although it ultimately was unsuccessful in its bid to acquire Milwaukee-based Midwest Airlines, which went to an investment group including Northwest Airlines, it is building a base at MKE. A recent high point was taking the top spot in the Airline Quality Rating, an annual assessment of US airline customer service by the University of Nebraska and Wichita State University.


Last November it elevated longtime President and COO Bob Fornaro to the CEO spot in a planned succession. Joe Leonard continues as chairman. Earlier this year, Stan Gadek resigned as CFO and subsequently joined Sun Country Airlines as CEO.


Last year was one of highs and a few lows for the Seattle-based carrier but in the main it continued to make progress toward achieving the self-sustaining goals of Alaska 2010 (ATW, 1/07, p. 44). It celebrated its 75th anniversary and also mourned the passing of one of its most respected leaders, former Chairman and CEO Bruce Kennedy, who died in the crash of a light plane. It returned to the black with full-year earnings of $125 million at the parent company level after losing $52.6 million in 2006, but lost money in the fourth quarter owing to rising fuel prices and paper losses associated with its fuel hedges. And adjusted annual income actually declined from $137.7 million to $92.3 million.

Alaska launched its first service to Hawaii and nonfuel CASM fell 3% for the year. During the past six years it has achieved $298 million in annual cost reductions and expects to see a further improvement when it completes the transition to an all-737 fleet later this year. Also contributing to lower costs is the growth in Web-based booking: Last October it achieved a milestone by processing more than 50% of monthly sales through In the same month it introduced the first phase of its Airport of the Future project at its Seattle hub that it says cuts check-in time in half. It also reached agreement with Row 44 to launch inflight wireless Internet service with testing beginning this year.

The parent company was in the red in the first quarter of 2008, losing $35.9 million as fuel costs leapt 45% compared to the year-ago period. Nevertheless, the positive trend in other costs continued as nonfuel CASM declined to 7.54 cents from 7.8 cents a year earlier. A big challenge in 2008-in addition to coping with record fuel costs--will be to negotiate a new contract with its 1,483 pilots. The current agreement became amendable in May 2007. …

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