Skybird
06-10-08, 04:25 AM
http://www.spiegel.de/international/business/0,1518,557607,00.html
Ryanair Faces Future Trouble
By Mark Scott
The European discount carrier says high fuel prices could wipe out profits this year, auguring much worse for rivals that lack its lean cost structure.
You know times are tough in the airline industry when European low-cost powerhouse Ryanair raises the white flag. That’s exactly what the carrier did on June 3 when the carrier said its goal was to break even this year as fuel costs continued to rise (http://www.spiegel.de/international/business/0,1518,556367,00.html). The airline also posted a 20 percent increase in net profit excluding one-off items to $748 million in the 12 months until Mar. 31 compared to $626 million a year earlier.
The announcement could well be the canary in the coal mine for other airlines. Most analysts expect Ireland’s Ryanair -- and its low-cost British rival Easyjet -- to weather the double whammy of rising oil prices and slowing economic growth better than the legacy carriers. Their stripped-down business models, coupled with passengers switching to low-cost flights to reduce travel costs, were expected to keep Ryanair and Easyjet flying high.
Yet even the Dublin-based carrier appears to have succumbed to the woes facing the broader airline industry. According to Ryanair, fuel now represents more than a third of the airline’s operating costs and every $1 increase in the price of crude above $65 adds $21.8 million to annual operating costs. Ryanair also is mostly unhedged on jet fuel -- a strategy that makes the carrier highly susceptible to oil price volatility.
The airline does have a new, more fuel-efficient fleet that will help offset the soaring fuel prices, but Ryanair’s Chief Financial Officer Howard Miller said the carrier would ground 20 planes this winter in an attempt to cut overheads. The carrier mothballed seven aircraft during the same period last year.
The fact that Ryanair may struggle to break even this year should have execs at legacy carriers shaking in their boots. If one of the world’s most cost-efficient carriers is facing the pinch, you have to wonder what economic challenges now face others in the airline industry.
http://www.spiegel.de/international/business/0,1518,druck-557335,00.html
Younger Fleets Boost Non-US Airlines
By Carol Matlack
The aging planes of United, American, and Delta guzzle more gas and make the US carriers more vulnerable to soaring oil prices -- and to their global competitors.
For a look at one of the biggest headaches facing US airlines, head out to Paris' Charles de Gaulle airport any day and watch the big jets taking off for the US. There goes United Airlines to Chicago, American Airlines to Boston, Delta Air Lines to Atlanta, and Air France to New York's John F. Kennedy airport.
What's the big deal? Many of the US carriers' planes are Boeing 767s, a model that dates from the mid-1980s. Most Air France-KLM planes are at least a decade younger -- and a lot more fuel-efficient. According to US Transportation Dept. data, the Airbus A330 model that Air France flies between Paris and JFK burns an average 12 percent less fuel per passenger than the 767 does on a similar flight.
With oil prices above $130 a barrel, that adds up fast. Indeed, if prices remain at current levels, US airlines are forecast to lose a record $7.2 billion this year, triggering what could be a brutal industry shakeout. "We're at the precipice of a disaster," says Scott Hamilton, an aviation consultant with Leeham in Issaquah, Wash.
Older Planes, Higher Costs
While the oil spike is clobbering airlines worldwide, the US carriers' aging fleets make them more vulnerable than most. American Airlines underscored that fact last month when it announced plans to retire as many as 50 planes, mainly gas-guzzling MD-80s dating from the early 1980s.
In fact, US airlines' fleets are some of the oldest in the world -- an average of 15 years old at American, almost 14 years at United and Delta, about 11 years at Northwest Airlines, and about 10 at Continental. By contrast, Air France's planes are only 8.8 years old on average -- and some others, such as Singapore Airlines, whose fleet averages 7 years, and Emirates, whose fleet averages 6.2 years, are younger still. Even carriers such as Russia's Aeroflot and THY Turkish Airlines have fleets that are about half the average age of US carriers'.
And the gap is only going to get worse. Financially strapped US carriers have curtailed their orders for new planes in recent years, even as foreign carriers have placed hundreds of orders for new, more fuel-efficient models. Out of 840 orders for the new fuel-sipping Boeing 787 Dreamliner, only 43 are from US carriers: Northwest and Continental.
Manufacturers Wary of Financing US Carriers
Of the 386 booked orders for Airbus' new A350, which like the 787 promises to be more fuel-efficient thanks to use of lightweight composites and other innovations, only 18 are from the US. And not a single US carrier has ordered the Airbus A380 double-decker jumbo, which the European maker says is more efficient per passenger mile than its closest rivals, the Boeing 747 and 777.
"Given the state of the US airline industry, who is going to pay for these aircraft?" asks Chris Tarry, an independent British aviation analyst based in Tunbridge Wells, England. "The manufacturers won't want to provide financing."
How much fuel do those old planes guzzle? Airlines and aircraft makers rarely disclose figures, and comparing aircraft models is difficult because of variables such as flying time and cabin configuration. However, fuel-cost data reported by US carriers to the Transportation Dept. gives a rough idea of the situation.
According to DOT figures, the Boeing 767 model used by many US carriers on transatlantic routes uses an average $3,946 worth of fuel and oil per hour during a 3,000-mile flight -- or $17.85 per passenger per hour, based on an average 221 seats. The Airbus A330 model used by Air France and other European carriers burns an average $15.72 per passenger per hour, about 12 percent less, under comparable conditions.
Domestic Routes May Be Threatened Next
Higher fuel costs aren't the only disadvantage to operating aging fleets: Older planes also require heavier maintenance. Big jets have to undergo a major checkup every six to eight years that costs an average $1.5 million and keeps the plane grounded for up to a month, says Adam Pilarski, senior vice-president of the Avitas aviation consulting firm in Chantilly, Va. To avoid that, some foreign airlines such as Emirates replace their planes after five or six years.
Of course, US airlines aren't threatened by competition from foreign carriers' younger planes on domestic routes, since the foreigners aren't allowed to operate flights that begin and end in the country. But as the US industry's finances worsen, Washington could face pressure to ease longstanding restrictions against foreign ownership of US airlines, allowing cash-rich players such as Air France and Lufthansa to make a move.
Lufthansa already owns 19 percent of discount carrier JetBlue. And London's Virgin Atlantic, whose seven-year-old fleet (on average) is one of the youngest in the business, recently launched a US low-cost carrier, Virgin America, in which it holds a minority stake. In this business, staying young pays big dividends
Ryanair Faces Future Trouble
By Mark Scott
The European discount carrier says high fuel prices could wipe out profits this year, auguring much worse for rivals that lack its lean cost structure.
You know times are tough in the airline industry when European low-cost powerhouse Ryanair raises the white flag. That’s exactly what the carrier did on June 3 when the carrier said its goal was to break even this year as fuel costs continued to rise (http://www.spiegel.de/international/business/0,1518,556367,00.html). The airline also posted a 20 percent increase in net profit excluding one-off items to $748 million in the 12 months until Mar. 31 compared to $626 million a year earlier.
The announcement could well be the canary in the coal mine for other airlines. Most analysts expect Ireland’s Ryanair -- and its low-cost British rival Easyjet -- to weather the double whammy of rising oil prices and slowing economic growth better than the legacy carriers. Their stripped-down business models, coupled with passengers switching to low-cost flights to reduce travel costs, were expected to keep Ryanair and Easyjet flying high.
Yet even the Dublin-based carrier appears to have succumbed to the woes facing the broader airline industry. According to Ryanair, fuel now represents more than a third of the airline’s operating costs and every $1 increase in the price of crude above $65 adds $21.8 million to annual operating costs. Ryanair also is mostly unhedged on jet fuel -- a strategy that makes the carrier highly susceptible to oil price volatility.
The airline does have a new, more fuel-efficient fleet that will help offset the soaring fuel prices, but Ryanair’s Chief Financial Officer Howard Miller said the carrier would ground 20 planes this winter in an attempt to cut overheads. The carrier mothballed seven aircraft during the same period last year.
The fact that Ryanair may struggle to break even this year should have execs at legacy carriers shaking in their boots. If one of the world’s most cost-efficient carriers is facing the pinch, you have to wonder what economic challenges now face others in the airline industry.
http://www.spiegel.de/international/business/0,1518,druck-557335,00.html
Younger Fleets Boost Non-US Airlines
By Carol Matlack
The aging planes of United, American, and Delta guzzle more gas and make the US carriers more vulnerable to soaring oil prices -- and to their global competitors.
For a look at one of the biggest headaches facing US airlines, head out to Paris' Charles de Gaulle airport any day and watch the big jets taking off for the US. There goes United Airlines to Chicago, American Airlines to Boston, Delta Air Lines to Atlanta, and Air France to New York's John F. Kennedy airport.
What's the big deal? Many of the US carriers' planes are Boeing 767s, a model that dates from the mid-1980s. Most Air France-KLM planes are at least a decade younger -- and a lot more fuel-efficient. According to US Transportation Dept. data, the Airbus A330 model that Air France flies between Paris and JFK burns an average 12 percent less fuel per passenger than the 767 does on a similar flight.
With oil prices above $130 a barrel, that adds up fast. Indeed, if prices remain at current levels, US airlines are forecast to lose a record $7.2 billion this year, triggering what could be a brutal industry shakeout. "We're at the precipice of a disaster," says Scott Hamilton, an aviation consultant with Leeham in Issaquah, Wash.
Older Planes, Higher Costs
While the oil spike is clobbering airlines worldwide, the US carriers' aging fleets make them more vulnerable than most. American Airlines underscored that fact last month when it announced plans to retire as many as 50 planes, mainly gas-guzzling MD-80s dating from the early 1980s.
In fact, US airlines' fleets are some of the oldest in the world -- an average of 15 years old at American, almost 14 years at United and Delta, about 11 years at Northwest Airlines, and about 10 at Continental. By contrast, Air France's planes are only 8.8 years old on average -- and some others, such as Singapore Airlines, whose fleet averages 7 years, and Emirates, whose fleet averages 6.2 years, are younger still. Even carriers such as Russia's Aeroflot and THY Turkish Airlines have fleets that are about half the average age of US carriers'.
And the gap is only going to get worse. Financially strapped US carriers have curtailed their orders for new planes in recent years, even as foreign carriers have placed hundreds of orders for new, more fuel-efficient models. Out of 840 orders for the new fuel-sipping Boeing 787 Dreamliner, only 43 are from US carriers: Northwest and Continental.
Manufacturers Wary of Financing US Carriers
Of the 386 booked orders for Airbus' new A350, which like the 787 promises to be more fuel-efficient thanks to use of lightweight composites and other innovations, only 18 are from the US. And not a single US carrier has ordered the Airbus A380 double-decker jumbo, which the European maker says is more efficient per passenger mile than its closest rivals, the Boeing 747 and 777.
"Given the state of the US airline industry, who is going to pay for these aircraft?" asks Chris Tarry, an independent British aviation analyst based in Tunbridge Wells, England. "The manufacturers won't want to provide financing."
How much fuel do those old planes guzzle? Airlines and aircraft makers rarely disclose figures, and comparing aircraft models is difficult because of variables such as flying time and cabin configuration. However, fuel-cost data reported by US carriers to the Transportation Dept. gives a rough idea of the situation.
According to DOT figures, the Boeing 767 model used by many US carriers on transatlantic routes uses an average $3,946 worth of fuel and oil per hour during a 3,000-mile flight -- or $17.85 per passenger per hour, based on an average 221 seats. The Airbus A330 model used by Air France and other European carriers burns an average $15.72 per passenger per hour, about 12 percent less, under comparable conditions.
Domestic Routes May Be Threatened Next
Higher fuel costs aren't the only disadvantage to operating aging fleets: Older planes also require heavier maintenance. Big jets have to undergo a major checkup every six to eight years that costs an average $1.5 million and keeps the plane grounded for up to a month, says Adam Pilarski, senior vice-president of the Avitas aviation consulting firm in Chantilly, Va. To avoid that, some foreign airlines such as Emirates replace their planes after five or six years.
Of course, US airlines aren't threatened by competition from foreign carriers' younger planes on domestic routes, since the foreigners aren't allowed to operate flights that begin and end in the country. But as the US industry's finances worsen, Washington could face pressure to ease longstanding restrictions against foreign ownership of US airlines, allowing cash-rich players such as Air France and Lufthansa to make a move.
Lufthansa already owns 19 percent of discount carrier JetBlue. And London's Virgin Atlantic, whose seven-year-old fleet (on average) is one of the youngest in the business, recently launched a US low-cost carrier, Virgin America, in which it holds a minority stake. In this business, staying young pays big dividends