Home | Business News | Browse by Publication | B | Business Travel News

Foreign-based airlines feel heat from LCCs.

Article Excerpt
After facing enormous challenges early in 2003, many of the world's large airlines continue to rebound, as cost-cutting programs begin producing results and traffic levels recover. The most significant impacts on the industry from severe acute respiratory syndrome, terrorism and the conflict in Iraq largely have been overcome. Both business and leisure demand is improving and some carriers even have experienced the first signs of strengthening revenue trends.

"All the signs are pointing to the expected growth of the airline sector," said Lufthansa chairman and CEO Wolfgang Mayrhuber. "The upswing is palpable."

Nevertheless, the global industry still is plagued by ongoing security threats, continued economic woes in certain regions and the unavoidable cost of rising jet fuel prices. Not all carriers have been successful in rebuilding operations, and, for some, 2004 could he the end of long and storied histories.

Several global trends accelerated in the past 12 months, including large-scale consolidation--both Air France-KLM and Japan Airlines System this spring completed mergers--and the relentless growth of low-cost carriers on nearly every continent. Expanding discount airlines prompted many network carriers to alter short-haul products and pricing structures, with some creating separately branded low-fare operations. International alliance development also progressed as more carriers aligned within the three major global groupings.

The Americas

Despite its overwhelming control of the Canadian market, Air Canada's prospects in early 2004 remain uncertain. Its bankruptcy restructuring began April 1, 2003, and is likely to run at least until this fall--a minimum of nine months delayed.

Trinity Time Investments last month ended its commitment to Air Canada, prompting the company to rework financing deals with Deutsche Bank and General Electric Capital Corp./GE Capital Aviation Services. To keep financing in place, Air Canada must meet several conditions--namely specific cost cutting goals--and emerge from court protection by Sept. 30.

Already during its restructuring, Air Canada renegotiated agreements with various creditors and lessors, struck new labor agreements, began a fleet renewal with new aircraft set to arrive in the fall, launched a co-branded corporate card with Amex Bank of Canada and rolled out a simplified pricing structure across all domestic and transborder markets. The new pricing leverages Internet channels to reduce distribution costs.

Moving forward, the company is focusing on more lucrative international flying and slightly will increase systemwide capacity in 2004.

Much of Air Canada's difficulties stem from the rapid growth of Canadian low-cost carriers. "Low-fare carriers in the travel market have definitely solidified their presence in the marketplace," said Michele Ferrari, senior vice president of client management at BTI Canada, an agency that recently reported a 5.4 percent decline in the cost of airline tickets for its corporate clients. "The acceptance of low-fare carriers by corporate travelers has forced dominant traditional airlines to rethink their fare and distribution models."

The largest of Canada's low-fare competitors, WestJet, had a strong 2003, increasing passenger revenues by 24 percent and dramatically growing its network....

View this article FREE - Now for a Limited Time, try Goliath Business News
Free for 3 Days!