Inside Track - 2006-04-03

Delta Passing Facility cost to passengers
Delta Air Lines late last week began passing facility charges to passengers on applicable domestic itineraries. Delta typically had absorbed the fees, which are imposed by local airports and authorized by the Federal Aviation Administration, but now is seeking to recoup the expense. Delta said the fees could be as high as $18 per roundtrip, but would average between $3 and $4.50 each way. Airlines and travel professionals for years have bemoaned the 26 percent of taxes and fees levied on airline tickets, which—as many travel industry advocates are quick to point out—surpass the "sin taxes" imposed on alcohol and tobacco. "Taxes and fees on airline services are among the highest of any consumer good and we believe there should be transparency for our customers in the costs of their travel," said Gail Grimmett, vice president of revenue management. "The changes we are announcing today allow us to more accurately display the full costs of government fees imposed on certain connecting itineraries, while at the same time allowing us to collect the appropriate revenues to cover a portion of these costs." The bankrupt carrier last week reported it lost $209 million for the month of February, an improvement over the $267 million loss for the same month last year.

Topaz Quantifies TMC, Internet Fare Pricing Gap
A study by Topaz International Ltd. released late last week found that business travel booked in 2005 by corporate travel agencies averaged $56 less than the same itinerary booked on public Internet sites, creating the smallest margin in five years. The Portland, Ore.-based company also noted that last year the average agency fare of $427 and the average Internet fare of $483 were the lowest since Topaz started measuring the two in 2001. Company president and CEO Bradley Seitz said the data shows the gap between the performance of online alternatives and traditional agencies are closing. "What we will continue to see is the desire of airlines to control and price their product where they can obtain the most value," he said in a statement. "They have recognized that while their distribution channels are wide, pricing must be a little more consistent among all channels." Seitz also said the complexity will continue. "Airlines must raise their rates to compensate for the recent losses in the industry and the continuing rise of fuel costs," he said. "The challenge of every corporate travel leader will be to ensure they have processes in place to locate and book the lowest alternatives, and validate that their service providers are giving the levels of contracted offering that have been agreed to."

IATA: Airlines To Lose This Year, Profit Next
The International Air Transport Association last month said it expected airlines across the globe to lose an aggregate $2.2 billion this year, but strike a profit of $7.2 billion in 2007. While still forecasting a loss for the year, IATA revised the magnitude to decrease from its initial estimate of $4.3 billion in 2006 losses. The $5.4 billion projected loss for U.S.-based carriers will be offset by projected profits among carriers in Asia/Pacific and Europe. "There is a new cautious optimism emerging in the industry," said Giovanni Bisignani, IATA director general and CEO. "Improved economic prospects in Europe and Asia combined with an improving situation in the U.S. will lead to reduced losses in 2006 and strengthened profitability in 2007. While the trend is positive, we are nowhere near sustainability. A profit of $7.2 billion is only a 3 percent return on capital invested. Improved cost efficiency should be at the top of the agenda for everyone in the airline industry." Oil and jet fuel costs remain the X factor on the road to profitability. IATA based its projections on the assumption that a barrel of crude this year will average $57 and slip to $52 in 2007. "If we are looking for a common villain, it is fuel," Bisignani said. "The industry's fuel bill went from $44 billion in 2003 to $92 billion last year. High fuel prices are a long-term reality. Refinery margins on jet fuel more than doubled—from $6 to $16 per barrel—in the past two years."

FAA Extends Traffic Cap At O'Hare
The Federal Aviation Administration last month extended to Oct. 29 an agreement with airlines to cap at 88 the number of flights per hour at Chicago's O'Hare International Airport between 7 a.m to 8 p.m. The agreement, which was set to expire late this month, was forged in 2004 with the intention of cutting congestion at the airport. "Flight reductions at O'Hare have worked to cut delays but they are not our preferred approach," said U.S. Transportation Secretary Norman Mineta. "We need to develop additional capacity so the market can be allowed to grow without the burden of government interference or the fear of airport gridlock." FAA said the agreement improved O'Hare's performance by 17 percent and cut delay minutes by 22 percent. "For now, we're going to stick with a formula that is saving air travelers countless time and money," said FAA administrator Marion Blakey. "While we are working hard to add capacity, we need to make sure in the interim that O'Hare schedules don't exceed what the airport can handle."