Travel Weekly - July 27, 2009

MONEY

bookings suggested the industry might have hit bottom.

“But we don’t know how long we will bounce along the bottom,” said Jeffery Smisek, Continental’s president, COO and director, who has been named to succeed Lawrence Kellner as CEO.

Part of the uncertainty among executives springs from uncontrollable issues like the flu pandemic and the continued volatility of fuel prices.

Delta attributed a revenue hit of between $125 million and $150 million to swine flu concerns, mostly in its point-of-sale Asia traffic.

Southwest reported a $20 million loss due to flu worries, while both Continental and United estimated their flu-related losses at about $50 million each.

“The H1N1 flu epidemic had an impact on demand in Latin America and the Pacific,” said John Tague, United’s COO, who was named president last week. “Large capacity reductions in the region reflect the pull-down in capacity to Mexico that we implemented after H1N1. We’ve begun to add the capacity back to Mexico, and we will be back at our full schedule by the end of the third quarter.”

Smisek said: “We are closely monitoring
the impact of H1N1 in regions currently
experiencing
their winter
season, such as
South America,
and in particu-
lar Argentina,
where we have
seen recent out-
breaks. We will
be responsive
should we need
to make tem-
porary capacity
adjustments in
Argentina or
other regions
as the winter flu
season sets in.”

Continued from Page 10

AIRLINES

Carriers can easily tweak capacity to compensate for flu-related losses, but adjusting operations to deal with roller-coaster fuel prices is another matter.

While Air Tran’s fuel costs were down by more than half during the reporting period and Southwest’s were down by more than a quarter compared with a year ago, the per-barrel price of fuel jumped by $20, to

$70, between April and June.

“Rising fuel costs during the second quarter and now into the third quarter are a huge concern,” Kelly said.

Flu and fuel aside, what’s really keeping airline executives up at night is international and business travel. Carriers depend on those higher-fare passengers to raise yields

and provide a steadier cash stream.

“What is really hurting is the lack of international strength and the lack of business demand,” said Arne Haak, Air Tran’s senior vice president of finance, treasurer and CFO.

Southwest’s Kelly said, “You look at our short-haul, more business-oriented, high-frequency markets and they are off across the country in alarming numbers.”

Kelly added, “The sudden collapse of the financial markets in September-Oc-tober just spooked the whole world. And I’ve heard many experts describe this as a credit-induced recession. So it’s fear. And it’s followed through with companies cutting back sharply and consumers also

Flu and fuel aside, what’s really keeping airline executives up at night is international and business travel.

cutting their spending simultaneously. To me it’s as simple as that. It is a very deep recession; it was not anticipated by many. You’re going to see the adjustments to that collapse rolling out over time.”

Not surprisingly, airlines are being cautious about interpreting their booking data too optimistically.

“We have seen stabilization in business demand and, candidly, have seen a bit of an uptick,” said Delta’s CEO, Richard H. Anderson. “But I think it’s very early to be trying to call that a trend, and we want to be certain that we are planning on the conservative side.

“We are not in a position yet to call it a long-term trend,” Anderson added. “We need to get past the end of August and get some visibility into the fall period and get a better view of what some of the macroeconomic indicators will be September through December.”

Allegiant’s good fortune continues: Q2 profit up 800%

For the second quarter, Allegiant increased its revenue by 12.5%, to $148 million.

Travel Weekly
Editor in Chief
Arnie Weissmann’s
column, From the
Window Seat, will
resume in the
Aug. 3 issue.

Small Allegiant outshone other airlines for the second quarter, increasing its quarterly profit by 800% and producing a net profit margin of 25%.

While other airlines reported revenue declines for the quarter as they cut capacity out of their networks, Allegiant increased its revenue by 12.5%, to $148 million, and managed a net profit of $23.9 million.

One of the ways the airline made up for the lower prices was by filling seats. Allegiant reported a load factor of 90.8% for the quarter.

The airline managed to increase its revenue even while its average fare on scheduled service declined 22%, to $65.16 per ticket, not including ancillary revenue. Including ancillary revenue, the average fare was $97.52, down 12.4% from last year.

“We had another very good quarter, our third highly profitable quarter in a row,” Allegiant CEO Maurice Gallagher said. “In these extremely difficult times when our industry has substantially reduced its operations and seen record declines in unit rev-

enue, we are pleased to report these quality numbers.”

While other airlines are dropping or shifting routes, Allegiant continues to grow its network. The carrier opened a new Southern California base offering seven new routes from Los Angeles Airport on May 1. Gallagher said the Southern California

routes are off to a great start, with load factors running ahead of projections.

“This further diversifies our exposure to regional economies and offers more protection to us in these uncertain times,” Gallagher said.

In addition, Allegiant added a new secondary leisure market, Myrtle

Beach, S.C., and has increased the number of small cities served to 60 from 51 in the past year. The airline now has 134 routes, up from 100 a year ago.

The airline also inaugurated a Cuban family charter program in the second quarter, operating between Miami and four cities in Cuba.

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