air transport world - january 2013

Forecast 2013

AIR TRANSPORT WORLDJanuary 2013 | www.atwonline.com | A Penton Publication

Interviewswiss ceo Harry Hohmeister

Powerplant PlanningNew engine technologies shape the future

Winged AmbitionsPegasus finds low-cost niche opportunities

The Magazine of Global Airline Management

A I R T R A N S P O R T W O R L D

A i r T r a n s p o r t W o r l d



Another ChAllengIng YeAr

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atwonline.com | January 2013 | atw 1

Contents

43

51

47

54

29

Volume 50 / Number 1 January 2013This issue online www.atwonline.com/issue/January-2013Forecast 2013

24 AnoTher ChAllenging YeArGuarded optimism for 2013, but no one believes it will be easy.By Karen Walker

27 indusTrY of ConTrAdiCTionsBoom time for aircraft orders, but not for airline profitability.By Karen Walker

29 norTh AmeriCA: TighT disCiplineCapacity and cost controls help keep US carriers in the black.By Karen Walker

35 AsiA: sTill hoTDespite challenges, Asia Pacific remains one of the most dynamic and positive regions.By Karen Walker

36 europe: BleAk TimesFor European carriers, 2012 was annus horribilis. This year may prove only marginally better.By Victoria Moores

38 lATin AmeriCA: lATin pArAdoxIngredients exist for strong growth in Latin America, but infrastructure isn’t keeping pace.By Aaron Karp

41 CArgo flATTenedVirtually no growth seen from 2007-2012 for global air cargo traffic. By Aaron Karp

Features

43 serviCe ChAngeTechnology and data management are the new drivers of aircraft maintenance.By Christine Boynton

47 Winged AmBiTionsTurkish carrier finds low-cost niche opportunities in new markets.By Alan Dron

51 engineering innovATionJumps in aircraft efficiency largely fall on engine manufacturers.By Aaron Karp

54 eYes on The goAlInterview with Harry Hohmeister, CEO of Swiss International Air Lines.By Kurt Hofmann

24

36

2013Forecast

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Contents

5 Editorial Legal Shenanigans

By Karen Walker

9 NEWSBriEFS

9 obama signs law enabling US airlines to skirt EU EtS

10 american airlines nears US airways merger decision

12 airasia orders 100 more a320s

13 aviancataca orders 15 atr-72-600s

14 Faa orders Boeing 787 inspections

16 Bombardier confident in new CSeries schedule

17 Emirates reports strong half-year profit

18 oneworld eyes asia for new members

20 aNalySiS transatlantic Manuevering

delta looks to boost its london Heathrow presence with 49% stake in Virgin atlantic.By Aaron Karp

57 trENdS

63 CUStomEr SErViCES

63 adVErtiSErS’ iNdEx

63 adVErtiSErS’ WEBSitES

64 CommENtary legal travesty. the European Court has abandoned the rule of law with its passenger rights bill.By Pablo Mendes de Leon

9 1610

2017 57

JaNUary 2013 | Volume 50 / Number 1




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EDITORIAL


Legal Shenanigans

Two important legal decisions were announced as 2012 drew to a close, both significant for the airline

industry.In a New York court, it was decided that

United Airlines was not responsible for alleged airport security lapses in the lead up to the 9/11 hijacking of an American Airlines aircraft that was deliberately crashed into New York’s World Trade Center.

US District Judge Alvin Hellerstein granted a request by United and parent United Continental Holdings to dis-miss negligence claims brought by the leaseholder of the World Trade Center property (WTCP).

In his determination, the judge wrote that “it was not within United’s range of apprehension that terrorists would slip through the (Portland, Maine) security screening checkpoint, fly to [Boston] Lo-gan, proceed through another air carrier’s security screening and board that air carrier’s flight, hijack the flight and crash it into 1 World Trade Center, let alone that 1 World Trade Center would therefore collapse and cause Tower 7 to collapse.”

The action was brought as part of a wider suit against United and American Airlines by WTCP and affiliated companies, which purchased 99-year leases for four World Trade Center buildings from the Port Au-thority of New York and New Jersey in July 2001, three months before the attacks.

Separately, in a French appeals court, Continental Airlines was cleared of criminal blame for the July 2000 crash of an Air France Concorde aircraft at Paris Charles de Gaulle airport.

The appeals court decision came almost two years to the day after another French court found Continental to be criminally responsible for the crash, in which 113 people died. That court had concluded there was a link between safety failures by Continental and the fire that brought down the Concorde. It held the airline and its mechanic responsible for having manufac-tured and installed a piece of titanium that fell from a Continental DC-10 that took off from the same runway shortly before the Concorde’s departure.

While both of these legal decisions ultimately came down on the right side of justice, they were painfully long to reach conclusion and involved cost, time, distrac-tion and stress that were unnecessary. In short, these legal shenanigans should never have been allowed.

Criminalization of aviation accidents and legal interference in air transportation issues are growing and disturbing trends that need to be checked. At the very least, there should be a common set of ICAO-led, globally agreed parameters for when legal pursuit is justified and when so, the extent of its reach. Criminalization, or even its mere potential, runs the risk of silencing the open reporting culture that is necessary for full accident investigations and accident prevention. But this industry also must do a better job of communicat-ing that message without sounding like it assumes aviation safety automatically trumps justice. Safety and justice are both important principles; a sound industry accord would help ensure the latter does not jeopardize the former.

EDITORIAL STAFF

Editor-in-Chief Karen Walker +1 301-755-0165 [email protected]

Managing Editor Kathryn M. Young +1 301-755-0170 [email protected]

Senior Editor Aaron Karp (North America) +1 301-755-0167 [email protected]

Senior Editor/Europe Bureau Chief Victoria Moores Tel: +44 (0) 7966 389 339 [email protected]

Editor/ATWonline.comLinda Blachly +1 301-755-0169 [email protected]

Editor/New Media Christine M. Boynton +1 301-755-0163 [email protected]

Contributing Editor Edvaldo Pereira Lima Latin America Tel & Fax: +55 11 37336323 [email protected]

Contributing Writers Polina Borodina Henry Canaday Katie Cantle Alan Dron Kurt Hofmann Michele McDonald Robert W. Moorman Anne Paylor

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Obama signs bill enabling US airlines to skirt EU ETSUS President Barack Obama signed legislation that enables the country’s transportation secretary to “prohibit” US airlines from participating in the European Union’s (EU) Emissions Trading Scheme (ETS).

After the European Commission (EC) agreed in November to temporarily suspend the ETS for flights to/from the EU, the US House of Representatives went ahead and cleared the anti-ETS bill already passed by the Senate in September, moving the leg-islation to the president’s desk. Obama signing the bill doesn’t start the international battle that might have ensued had he done so before the EC’s tem-porary back down, but the law theoretically gives the US more

leverage in future negotiations. Airlines for America (A4A)

president and CEO Nicholas Calio said in a statement that Obama’s signing of the bill “sent an unequivocal signal to the EU” that the ETS is “illegal and unilaterally imposed.” He reiterated US airlines’ call for “a global sectoral approach at the international level” to regulate aircraft carbon diox-ide emissions.

The law signed by Obama states that the transportation secretary can bar US carriers from participating in the EU ETS if doing so would be “in the public interest,” particu-larly taking into account “the impacts on US consumers, US carriers and US operators; the impacts on the economic, energy and environmental

security of the United States; and the impacts on US foreign relations, including existing international commitments.”

It additionally green lights the transportation secretary (currently Ray LaHood) to “take other actions under existing authorities … to hold operators of civil aircraft of the United States harmless from the emissions trading scheme.” The law also gives the secretary the authority to “reassess” a prohibition on US airline’s participation in the ETS if the EU amends the scheme or an international agreement on aircraft emis-sions is reached.

House Transportation and Infrastructure Committee chairman John Mica (R-Fla.) said, “I am pleased that this

measure has been signed by the president over suggestions by some environmental groups to veto the bill. The law … is a clear signal that the United States will not accept the EU’s go-it-alone attempt to impose emissions taxes on other nations for activities far out-side the EU’s own borders.”

Major EADS ownership restructuring agreement reachedAirbus parent EADS unveiled an agreement to make “a far-reaching change” in the way the company’s shareholding is structured.

An EADS shareholder struc-ture shakeup had been widely predicted in recent weeks. Under terms of the accord, France and Germany will “build equal ownership positions” in EADS, the company said, add-ing that the two countries will have direct stakes of about 12% each while Spain will hold a 4% share. Meanwhile, German company Daimler (which now holds a 15% stake in EADS) and French company Lagardere (which now holds 7.5% of EADS) will “largely reduce their stakes,” EADS said.

While the deal will give France and Germany more direct ownership stakes in EADS, it will lower total French, German and Spanish holdings in the company from about 50% today to under 30% under the new structure. Also, in an attempt at “nor-malizing and simplifying” the governance of EADS, share-holders—including France and Germany—will give up veto

rights over decision-making.More of the company’s

shares will be floated on the open market, with EADS plan-ning to eventually put around 70% of its ownership holdings on the market.

“We are making a big leap forward in terms of governance,” EADS CEO Tom Enders said in a state-ment. “Strategy and industrial projects in the future will be solely defined and decided by the board of directors and the executive team, [and] the operations will be managed without any outside interfer-ence from specific sharehold-ers or shareholder concerts … The new shareholder structure allows for a significant increase in the free float of shares. Our intention for a major share buy-back next year, based on our strong liquidity position, will benefit all shareholders.”

Fitch Ratings said the previ-ous complex arrangement of state control at EADS, through both direct and indirect share-holdings, was “a key factor in the collapse of EADS’ attempt-ed merger with BAE Systems in September.”

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NEWSBRIEFS

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ChinESE COnSOrTiUM AgrEES TO bUy 80.1% OF iLFC FOr $4.23 biLLiOn

American international group (Aig) has agreed to sell 80.1% of aircraft leasing giant international Lease Finance Corp. (iLFC) to a consortium of Chinese inves-tors for $4.23 billion in cash.

Under the agreement, detailed in a US Securities and Exchange Commission filing, the consortium led by new China Trust Co. chairman Weng Xianding will also have an option to buy another 9.9% for $522.5 million. The total deal, subject to approval of regula-tory authorities in both the US and China, values iLFC at $5.28 billion. iLFC, originally founded by Steven Udvar-hazy in Los Angeles in 1973, has a portfolio of 1,000 owned or managed aircraft and commitments to purchase another 233.

The investor group is comprised of new China Trust Co., China Aviation industrial Fund and P3 investments. According to Aig, the group “is expected to be expanded” to include new China Life insurance Co. and an investment arm of industrial and Commercial bank of China international.

in the SEC filing, Aig said the agreement includes a clause allowing for termination of the transaction on May 15, 2013, if it has not been finalized. The termina-tion date could be extended to June 17, 2013.

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American Airlines says US Airways merger decision nearing

American Airlines chairman, president and CEO Tom Horton said AMR Corp. will “soon” decide if it will emerge from bankruptcy protection as a standalone entity or as

part of a merged carrier with US Airways.

In a December message to workers, Horton noted American’s pilots, represented by the Allied Pilots Association

(APA), approved a new col-lective bargaining agreement, ending a contentious process of negotiating new labor deals with unionized employ-ees. That allows the airline to prepare to emerge from Chapter 11, which it entered in November 2011.

“As we bring our restruc-turing to a close, we are also completing our review of strategic alternatives,” Horton told AMR employees. “As you know, we have been evaluating the merits of a combination under a non-disclosure agree-ment with US Airways. While we are confident the new American will be very strong, we are evaluating whether such a combination could cre-ate value for our owners and a positive outcome for our

people and our customers. We expect to have a conclusion on this soon.”

The Wall Street Journal reported that US Airways’ merger proposal, confiden-tially sent to AMR and its creditors last month, would give AMR creditors 70% of the merged carrier while US Airways’ shareholders would hold 30%. Also, the newspaper reported that US Airways chairman and CEO Doug Parker would head the merged carrier under the proposal.

APA said it “continues to support a merger with US Airways as the best path to a stronger, more competitive American Airlines that will in turn enhance our pilots’ long-term career prospects.”

California sues Delta Air Lines over smartphone app

The state of California has filed a lawsuit against Delta Air Lines, alleging the airline is in noncompliance with state laws regarding online privacy.

Under California law, companies collecting “person-ally identifiable information” online, including through mobile devices, must post a privacy policy informing con-sumers of what information is collected and how it is used. California attorney general Kamala Harris said the “Fly Delta” smartphone app, which allows passengers to check-in for flights and make other transactions, has no posted

privacy policy.By filing the suit in a San

Francisco court, Harris said the state is seeking “to enjoin Delta from distributing its app without a privacy policy” and to impose “penalties of up to $2,500 for each violation.”

Harris said in a statement, “California law is clear that mobile apps collecting per-sonal information need privacy policies and that the users of those apps deserve to know what is being done with their personal information.”

Delta said it does not make public statements about pend-ing litigation.

Lufthansa seLLs haLf its amadeus stake

Lufthansa Group (LH) has raised €307 mil-lion ($389.7 million) from the sale of a 3.61% stake in IT firm Amadeus, reducing its total shareholding from 7.61% to 4%.

In a statement, LH said it sold the 16.2 million shares via an institutional private placement to strength-en its liquidity.

The deal combines with a recent Air France-KLM hedging transac-tion, which involved the placement of up to 7.4 million shares, equivalent to 1.66% of Amadeus’ share capital. Amadeus’ major shareholders, LH, Iberia and AF-KLM, have all agreed to a lock-up peri-od of 90 days for their remaining holdings.

IATA’s Tyler: ETS delay ‘puts pressure’ on airlines to find common voice The European Commission’s (EC) decision to suspend its Emissions Trading Scheme (ETS) for flights into and out of the European Union (EU) for one year shifts the burden to the air transport industry to find commonality on control-ling aircraft carbon dioxide (CO2) emissions, IATA DG and CEO Tony Tyler said.

Speaking at the opening ses-sion of the Latin American and Caribbean Air Transport Assn.

(ALTA) Airline Leaders Forum in Panama City, Tyler reiterated the EC’s move “creates space at the ICAO level” to forge a “political agreement” on how to control aviation emissions globally. Airlines that found unity in opposition to the ETS must now come together to push ICAO toward a sensible agreement, he added.

“The [ETS delay] decision … puts pressure on the [airline] industry,” he said. “Now we

must find a common posi-tion … No solution is going to satisfy every airline 100%. We will need to find the fairest possible compromise, remain-ing consistent at global and regional levels. If we fail or lose unity, that opens the door for individual governments to pick us apart and impose solutions that will, quite prob-ably, be more expensive and less workable for our complex global industry.”

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American preparing for emergence from Chapter 11 protection.

Delta’s smarphone app



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AfriqiyAh orders four more A350 XWBs

Libya-based Afriqiyah Airways has placed a follow-on order for four Airbus A350 XWBs and converted its ear-lier order for six A350-800s to the larger A350-900.

The additional order brings to 10 the total number of A350-900s the carrier has on order. Afriqiyah plans to configure the type with 314 seats and use it to open new destinations in the us, the middle east and Asia. The A350 is scheduled to enter into service in 2014.

Afriqiyah launched operations from its Tripoli base in december 2001. it operates three A319s, six A320 and two A330s, according to the airline’s website.

AirAsia orders 100 Airbus A320s

Malaysia-based AirAsia has placed an order with Airbus for an additional 100 A320 aircraft. The order is for 64 A320neos and 36 classic A320 aircraft. The order was announced during a visit by British Prime Minister David Cameron to the Airbus wing manufacturing facility at Broughton in the UK.

During the Farnborough Airshow in July, AirAsia Group CEO Tony Fernandes said the carrier was in final negotia-tions with Airbus for the order.

AirAsia has ordered 475 sin-gle-aisle aircraft from Airbus, made up of 264 A320neos and 211 classic A320 fam-ily aircraft. More than 100 aircraft have already been delivered and are operating out of its bases in Bangkok, Kuala Lumpur, Jakarta, Manila and Tokyo to some 70 destinations in 20 countries across Asia.

Affiliate AirAsia X oper-ates widebody Airbus A330-300s on longer services from Kuala Lumpur to Northern Asia and Australia.

interjet signs agreement for 40 A320neos

Mexico’s Interjet has signed a purchase agreement for 40 Airbus A320neo aircraft.

“Interjet’s investment in these new aircraft, at manu-facturer’s list price, is over $3.2 billion,” Interjet said in a statement. It operates an

all-Airbus fleet and has not yet announced an engine selection for the neos.

“Adding the newest aircraft technology to our already young and efficient A320 fleet will allow us to operate some of the most cost-efficient and environ-mentally friendly equipment available in aviation,” Interjet chairman Miguel Aleman Velasco said.

Interjet operates a fleet of 36 A320s and will take delivery of one additional A320 later this month. In March it will take delivery of its first Sukhoi Superjet 100. Including this order it has a backlog of 45 A320 family aircraft.

“The A320neo will help Interjet maintain our leading position in Mexico’s airline business,” Interjet president Miguel Alemán Magnani said.

ComAC wins 50 new orders for C919

Commercial Aircraft Corp. of China (COMAC) won 50 orders for the 150-seat C919 at the Zhuhai Air Show. The orders comprise 20 from Hebei Airlines, 20 from Joy Air and 10 from GECAS.

International Airlines Group and Ryanair have signed MOUs for the C919. To date, COMAC has received 380 orders for the aircraft.

The C919 entered the final

design definition phase last year. Detailed design will be completed this year and the first flight is scheduled for 2014. Type certification is expected by 2016, followed by first delivery. By 2020, COMAC expects to produce 150 C919s annually. According to the most recent market forecast released by COMAC, China will need 4,960 new commercial aircraft by 2031.

silkAir finalizes order for 54 737s, mAXs

Singapore Airlines regional affiliate SilkAir finalized an order for 54 737s and 737 MAX 8s worth $4.9 billion at list prices.

The previously announced letter of intent, comprising 23 737-800s and 31 737 MAX 8s, begins the carrier’s fleet transi-tion to Boeing aircraft. This

is the largest aircraft order in SilkAir’s history.

CEO Leslie Thng said the aircraft will enable the carrier to fly to “more destinations and increase capacity on existing routes.” SilkAir, which has an all-Airbus fleet, first announced a letter-of-intent to place the Boeing order in August.

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Russia’s Yakutia commits to 12 737NGs

Russia’s Yakutia airline confirmed its commitment to purchase 12 Boeing 737NGs, comprising three 737-700s and nine 737-800s. Delivery is sched-uled between 2016 and 2018. airline representa-tives said the firm order would be signed in three to four months.

Yakutia’s current Boeing fleet consists of three 737-800s, four -700s and five 757-200s. cEo ivan Prostit said the airline could place more Boeing aircraft orders although he did not disclose the exact number.

the airline is also increasing its fleet with Bombardier Q400s, which will replace its antonov an-24s.

in the coming months, the airline will take deliv-ery of two sukhoi superjet 100s (ssJ100s), which will be used on routes inside the Yakutia republic (Eastern siberia), part of the Russian Far North territories.

aviancataca orders 15 atR 72-600s

AviancaTaca placed a firm order for 15 ATR 72-600s plus 15 options. Deliveries are sched-uled to begin in June 2013.

The new aircraft, which will serve regional routes in Colombia and Central America, will replace Fokker 50s and ATR 42s.

Avianca Airlines will operate the new aircraft to destinations including Barrancabermeja, Florence, Manizales, Neiva, Pasto, Popayán, Tumaco and

Yopal. TACA will operate the ATRs into Guatemala City, Flores, Tegucigalpa, Roatán, San Pedro Sula, San Salvador, Managua, San José and Liberia.

AviancaTaca was formed by the merger of Colombia’s Avianca and El Salvador-based Grupo TACA under a single holding company. The carriers will unify under the Avianca brand starting in the first half of 2013.

okay airways orders three ma60s

Tianjin-based Okay Airways inked an agreement with Aviation Corp. of China (AVIC) subsidiary Xi’an Aircraft International Corp. for three MA60s. The order was announced at the Zhuhai Air Show.

Okay operates a fleet of seven MA60s on more than 20 regional routes in Northwest China. AVIC has received 199 orders for the MA60 series aircraft, comprising 183 orders for the MA60 and 16 orders for the MA600.

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Airbus completes Assembly of first flyAble A350

Airbus completed the main structural assem-bly and system connec-tion of the first A350 XWB flight-test aircraft.

The aircraft will under-go testing of its hydrau-lic system, followed by the full electric and hydraulic power-on. After several weeks of functional system test-ing, the aircraft will be painted and have its engines installed.

The aircraft is one of the first two to be assembled at the new final assembly line in Toulouse.

FAA orders Boeing 787 inspections, cites fuel leak riskUS FAA issued an airworthi-ness directive ordering Boeing 787 operators to inspect the aircraft for “improperly assem-bled” engine fuel feed manifold couplings.

There are currently 38 787s in service. In a notice published last month in the US’s govern-ment’s federal register, FAA said it has “received reports of fuel leaks on two different in-service [787s] and the sub-sequent discovery of several improperly assembled engine

fuel feed manifold couplings on in-service and production airplanes.”

FAA did not mention which operators reported the fuel leaks, but Ethiopian Airlines told ATW that it experienced a fuel leak on a 787 during initial operations, adding that the problem is now “resolved.”

FAA said the improper cou-pling installations “occurred during production” and include “couplings with missing or improperly installed lockwire,

parts within the couplings installed in the wrong loca-tions, incorrect parts installed in the couplings, and couplings that have extra parts installed.”

The agency added, “These conditions, if not corrected, could result in fuel leaks, which could lead to fuel exhaustion, engine power loss or shut-down, or leaks on hot engine parts that could lead to a fire … An unsafe condition exists that requires the immediate adop-tion of this AD. The FAA has

found that the risk to the flying public justifies waiving notice and comment prior to adoption of this rule.”

Boeing told ATW in an emailed statement that FAA’s action “makes mandatory” inspections Boeing had already recommended to 787 opera-tors. The manufacturer said it made the recommendation “after a determination that two connectors had been improp-erly installed on airplanes that had been delivered.”

AIA bullish on US aerospace sales

US aerospace sales are expect-ed to rise 3.4% year-over-year to $217.9 billion for 2012 and increase another 2.6% in 2013 to $223.6 billion.

In its year-end forecast released in December, US Aerospace Industries Association (AIA) said US civil aircraft sales are expected to increase 13.9% in 2012 to $60.6 billion and lift another 11.4% to $67.5 billion in 2013. Aerospace manufacturing is “an industry that remains healthy despite the obstacles.” AIA president and CEO Marion Blakey said at a luncheon in

Washington, DC. The aero-space business is “one of the bright spots in the US econo-my,” she added.

But Blakey warned that if the US government fails to forestall across-the-board spending cuts set to kick in this year—budget sequestration—the industry would be negatively affected. In particular, FAA’s program to implement the satellite-based NextGen ATC system “could be hit very hard” by the budget cuts, she said.

If sequestration is allowed to happen, NextGen could get “thrown off track,” said Blakey,

formerly an FAA administrator. “We could see that technology set back by many years.”

Even the current level of ATC services would be affected, likely leading to less commercial air service or more restrictive operating schedules for airlines, Blakey warned. Sequestration’s “approximately $1 billion cut to [FAA’s] budget is massive,” she said.

According to AIA, Boeing’s commercial backlog at the end of 2012 stood at 4,144 aircraft valued at $305.4 billion.

Separately, Boeing said the world’s airlines should have access to “reasonable liquidity and pricing” for financing new aircraft deliveries in 2013.

In a statement, Boeing Capital Corp. managing director-capital markets devel-opment and leasing Kostya Zolotusky said, “We expect that despite economic and political challenges, global air travel will again demonstrate its remarkable resilience in 2013.”

China Southern to buy 10 Airbus A330-300s

China Southern Airlines has committed to purchase 10 Airbus A330-300s, in a deal valued at $1.9 billion, according to Reuters. Deliveries will be from 2014 to 2016.

China Southern said in a

statement to Reuters that “the new aircraft would be funded through internal resources and loans from commercial banks and that the catalog price of one Airbus A330-300 aircraft was $188 million.”

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Lufthansa to create ‘new Germanwings’

Lufthansa will give a new iden-tity to its low-cost subsidiary Germanwings this year as it transfers its non-hub routes to the LCC from July 1. Such a move will create a “new Germanwings,” with an expand-ed fleet and a new livery.

Germanwings’ fleet will grow from 30 Airbus A319s and A320s to about 90 aircraft. Thirty Lufthansa

aircraft and 23 Eurowings aircraft will be transferred to Germanwings.

From July 1, the new airline will officially launch, introduc-ing a new livery.

Lufthansa chairman and CEO Christoph Franz said the move “will make us able to return our non-hub trunk routes to a profitable opera-tion.” He added that costs on

the routes will lower 20%.Germanwings CEO Thomas

Winkelmann said the changes will introduce a “completely new low-cost airline.” The “new Germanwings” will include Lufthansa’s decentralized European routes not operat-ing out of Frankfurt or Munich hubs. Lufthansa said 800 flight attendants and 200 pilots will be affected by the move.

Delta Air Lines orders 40 CRJ900s valued at $1.85 billion

Delta Air Lines placed a firm order for 40 Bombardier CRJ900s valued $1.85 billion at list prices, and took options on another 30 CRJ900s.

The regional jets will be operated by “carriers to be determined by Delta” under the Delta Connection brand,

Bombardier and the airline said. Deliveries are slated to start in the second half of 2013. The aircraft will be configured in a two-class layout compris-ing 76 seats.

Delta plans to phase out 60 50-seat CRJ200s as it takes delivery of the CRJ900s.

Delta Connection carriers now operate 466 CRJs compris-ing 286 CRJ200s, 79 CRJ700s and 101 CRJ900s. Currently, Pinnacle Airlines operates 57 CRJ900s, ExpressJet Airlines operates 16 and SkyWest Airlines flies 28 under the Delta Connection brand.

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China EastErn ordErs 60 a320s

China Eastern Airlines ordered 60 Airbus A320s. The aircraft, valued at $5.4 billion at list prices, will be used to expand the air-line’s domestic servic-es. Delivery is sched-uled between 2014 and 2017, according to a China Eastern statement released by the Shanghai Stock Exchange.

Last year, the Shanghai-based carrier sealed a $5.94 billion deal for 20 Boeing 777-300ERs.

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TNT Express agrees to sale of TNT Airways and Pan Air

TNT Express has agreed to sell its two airlines to ASL Aviation Group to overcome ownership restrictions triggered by its planned merger with United Parcel Service.

ASL Aviation is par-ent to Irish cargo airline Air Contractors as well as French passenger and cargo operator

Europe Airpost. Under the deal, ASL will acquire 100% of TNT Airways and Spanish carrier Pan Air just before UPS and TNT merge.

“We have found a new ownership and control struc-ture that secures the future of the airlines, ensures service continuity and safeguards TNT

Express jobs in Liege. This is an important step towards com-pletion of the proposed UPS-TNT Express merger,” interim TNT CEO Bernard Bot said.

The sale of the two airlines is conditional on UPS and TNT gaining regulatory approval for their tie-up. Once the deal is completed, ASL will take over

all flights performed by TNT Express’ airlines and it will act as a third-party provider to the com-bined UPS-TNT Express group.

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Bombardier confident in new CSeries schedule

Bombardier has a “high degree of confidence” it will be able to stick to its revised schedule for the CSeries, a company official said.

The Canadian manufacturer this month postponed entry into service (EIS) of the CSeries from late 2013 to around the end of June 2014, and also pushed back first flight by six months to the end of June 2013. Speaking to ATW on the sidelines of the Latin American and Caribbean Air Transport Association (ALTA) Airline Leaders Forum in Panama City, Bombardier VP-marketing-commercial aircraft Philippe Poutissou said the delay was necessary to ensure all suppli-ers were operating on a “har-monized” schedule.

“When you try to bring an aircraft to first flight, a number of critical paths have to con-

verge,” he explained, declining to say which supplier or suppli-ers were found to need more time. “We need to do it right,” he said, adding that the air-craft’s customers “understand” the delay and are “supportive of our [revised] plan.”

He pointed out that while the 110-seat CS100 has been delayed, the 130-seat

CS300 remains on track for a late 2014 EIS as planned. Bombardier now has 138 firm orders for the CSeries with letters-of-intent, options and purchase rights for another 214. Nine customers have made firm commitments for the CSeries.

“We’re sold out for the first few years” of the program,

Poutissou said. “We’re looking at 2016 availability” for new orders.

He said the fact that Boeing and Airbus are now well into developing and marketing the re-engined versions of their narrowbodies should help CSeries sales going forward. “What’s different now is that you now have a clear landscape [for the narrowbody sector] and carriers know the CSeries is the one all-new aircraft com-ing to market,” he commented.

In October, Bombardier started assembly of the first flight test CSeries at its Mirabel, Québec facility. And Bombardier test pilots have been conducting virtual flight system trials on a full-sized “iron bird” CSeries mock-up. Separately, the manufacturer is considering certifying the CS300 to have as many as 150-160 seats.

Rendering courtesy B

ombardier

Bombardier believes the CS100 will enter service in June 2014.

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Emirates posts strong half-year profit

Emirates Group—parent of Emirates Airline (EK) and aircraft-handling-to-inflight-catering company dnata—earned an AED2.1 billion ($575 million) net profit for the first six months of its fiscal year that started April 1, 2012. The result was up 68% year-over-year.

Group revenue and other

operating income rose to AED38.2 billion, up 16% year-over-year, marking the first time it has passed the $10 billion mark in a six-month period.

Emirates Group chairman and CEO Sheikh Ahmed said the company has “continued to invest in the infrastructure of

both Emirates and dnata and it continues to pay off.”

EK continued to underscore the strength of the major Gulf airlines by recording a first-half net profit of AED1.7 billion ($464 million), up 104% from AED836 million year-over-year.

EK said the result was achieved in the face of continu-ing challenging market condi-tions, including high fuel prices.

Fuel accounted for 39% of costs, although this was down 2% on the same period last year.

ASKs grew 17.3% and RPKs jumped 17.8%, with load fac-tors averaging 80%, slightly above last year’s 79%. EK carried 18.7 million passengers from April 1, up 15.4% for the same period last year.

Cargo volumes were up by more than 16%, a significant growth against the market trend, EK said.

Mexico’s interjet adds 10 superjet 100 options

Interjet has added 10 options to its firm order for 20 Sukhoi Superjet 100 (SSJ100) aircraft, and Superjet International increasing-ly believes the Mexican carrier holds the key to the future success of the regional aircraft.

Interjet will become the first Western operator to receive the aircraft when it takes delivery of its first of the type in March 2013. It plans to take 19 more SSJ100s through 2014.

Emirates continues profitable ways.

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Oneworld alliance eyes Asia for new members; awaits TAM decisionOneworld is eyeing new Asian members, as it waits to hear TAM’s alliance decision and looks to integrate Malaysia Airlines, Sri Lankan Airlines and Qatar Airways.

“Bolstering our position on business cities in Asia is a focus of our internal discus-sions,” oneworld CEO Bruce Ashby told ATW in London. “China is an area which is constantly coming up. We already have Cathay Pacific, but China is growing so fast that we are keeping an eye on that region.”

Ashby said Hong Kong-based Cathay Pacific Airways is supportive of these discus-sions. However, he has not been approached by Chinese airlines. “We are consider-ing it and talking through the options,” he said.

Ashby is hoping to welcome TAM into oneworld following its merger with LAN Airlines: “We believe we offer a great solution for TAM. We think we have a pretty strong case. They have indicated they are close to a decision. It’s not a done deal, but I hope it will be final-ized soon.”

Malaysia Airlines will join oneworld this year. Later in the year, or in early 2014, Qatar Airways and Sri Lankan Airlines will also come onboard. Ashby said these new members will strengthen the alliance’s Indian and African networks, which remain com-parative weak points.

Meanwhile, Star Alliance member AviancaTaca said it is ready to fill the gap by expand-ing service in Brazil if TAM leaves the grouping.

QATAr AirwAys AMends Airbus A350 Xwb Order

Qatar Airways has altered its order for the forthcom-ing Airbus A350 Xwb, moving to the larger models in the range.

The fast-expanding Arab carrier had previously ordered 80 aircraft spread across the three-model range—20 A350-800s, 40 -900s and 20 -1000s. Qatar’s amend-ed order comprises 43 -900s and 37 -1000s.

Qatar is the latest of several airlines to change its order from the smaller -800 version to the larger-capacity models.

“we have taken the time necessary to come to today’s decision in favor of the larger A350 Xwb models, which we believe are best suited to our business model,” CeO Akbar Al baker said.

The move to increase the order for the -1000 is poten-tially significant for Airbus, as Al baker has previously been critical of the variant’s performance.

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AnAlysis


Virgin Group chairman Richard Branson was irked. With rumors flying last month that

Delta Air Lines was on the verge of buy-ing Singapore Airlines’ 49% stake in Virgin Atlantic Airways (51%-owned by Virgin Group), there was speculation in the British media that the carrier would essentially become Delta UK.

In particular, International Airlines Group (IAG) CEO Willie Walsh told The Telegraph that he “can’t see Delta wanting to operate the Virgin brand because if they do, what does that say about the Delta brand?” Walsh said Delta wanted Virgin Atlantic’s London Heathrow slots.

An annoyed Branson responded on his blog, “Rumors have been spread in the press that I am planning to give up

control of Virgin Atlantic and accord-ing to Willie Walsh—who runs [British Airways]—that our brand will soon disappear. This is wishful thinking and totally misguided.”

When the Delta-Virgin deal officially became reality shortly thereafter, Delta executives seemed to back Branson up, insisting that the well-known Virgin brand was a main factor in their decision to purchase Singapore Airlines’ minor-ity holding in the UK carrier for $360 million. Speaking to investors, Delta president Ed Bastian said, “Virgin brings a premier global brand that will enhance Delta’s brand equity through association and passenger access.”

But there is certainly some truth in Walsh’s assessment that Delta’s pri-mary interest is increasing its access to

Heathrow. As part of the deal, Delta and Virgin Atlantic will launch a transatlantic joint venture (JV).

Metal Neutral The JV will operate on a “metal neutral basis,” the carriers said, adding that both airlines will share “the costs and revenues from all joint venture flights.” The carriers have filed an antitrust-immunity application with the US Department of Transportation to gain privileges across the Atlantic similar to those enjoyed by oneworld partners American Airlines, British Airways and Iberia. Delta and Virgin expect both the share purchase and JV to be in place by the end of 2013.

According to Delta, its current share of passenger seats operated on flights between the US and Heathrow is just 8%, while American and BA have a com-bined share of 59%. If the Delta-Virgin JV is approved, it will operate about 24% of the seats between Heathrow and the US, according to Delta’s figures.

Bastian added, “London Heathrow is the largest international destination for corporate travel—nearly three times larger than the next destination, Paris Charles de Gaulle. [New York] JFK-[Heathrow]

Transatlantic ManeuveringDelta looks to boost its London Heathrow presence with 49% stake in Virgin Atlantic. By Aaron Karp

QQ To comment on this story or email the author, go to atwonline.com.

ViRGin GROUP chairman Richard Branson.

Analysis_JAN13.indd 20 12/17/12 9:56 AM



is the largest US-international market and corporate revenue momentum allows Delta to maximize this opportunity.”

Delta and Virgin Atlantic said they will operate “a total of 31 peak-day round-trip flights between the UK and North America, 23 of which operate at London Heathrow. The enlarged network will benefit customers of both carriers by providing greater access to a broader network, improved connectivity and convenient booking options.”

For all Branson’s pride in the Virgin Atlantic brand, the carrier has struggled in its battle against the oneworld airlines at Heathrow. It incurred an operating loss of £80.2 million ($129.4 million) for its financial year ended Feb. 29, 2012. While Branson extols Virgin Atlantic’s independent spirit, he seems to have come to peace with the fact that the airline will soon join a global alliance (likely to be SkyTeam, of which Delta is a key member). In the past, he repeatedly criticized oneworld for having a “mon-ster monopoly” on transatlantic flying.

In a recent interview with Bloomberg Television, Branson said, “Virgin Atlan-tic has always enjoyed its independence, but since pretty well every competitor that we have has an alliance, I think we have finally decided that to survive we need to have an alliance.”

And Virgin Atlantic will survive with Branson playing an integral role, he insisted. “Ignore the press speculation—I’m not going anywhere,” he wrote on his blog following the announcement of the Delta deal. “I still remember the negotia-tion with Boeing for the [first Virgin Atlantic] 747 and that first exciting flight [in 1984] as if it was yesterday. We have come a long way since then and have continued doing things differently—in-novating with seat-back entertainment, limousine services, new classes of travel and the longest bars in the sky.”

Though happy to be rid of its holding in Virgin Atlantic, Singapore Airlines’ execu-tives may want to have a drink at one of Branson’s bars in the sky: SIA bought the 49% stake in 1999 for £600 million ($968 million); 13 years later, it sold the holding to Delta for $600 million less.


EDItORS’ BLOG

Washington standoff: Mica vs. Pistole

Outgoing US House of Representa-tives Transportation and Infrastruc-ture Committee chairman John Mica (R-Fla.), a persistent critic of the Transportation Security Administra-tion, has scantly acknowledged the major change in direction administra-tor John Pistole, formerly the FBI’s number two official, has made at the agency since taking over in June 2010. As Mica tells it, TSA is forever frozen in the immediate years after 9/11, when it did a poor job of dealing with both the commercial aviation industry and the general public, and unwisely treated all passengers as equal risks.

But under Pistole, TSA has moved decidedly in the direction of “risk-based” security, rolling out the trusted traveler Pre-Check screening program, ending intrusive checks on those over 75 and under 12 and focusing much more on intelligence to guide its efforts. Airlines and airports say the agency, which took a my-way-or-the-highway ap-proach with the industry in its initial years, has significantly improved its outreach and now often works in close cooperation with them.

Mica simply refuses to acknowledge most of this, instead highlighting TSA’s greatest miscues through the years and implying these mistakes are examples of standard oper-ating procedure. Pistole, to him, is no different than previous TSA heads.

Mica, who had a large hand in creating TSA back in 2001, recently told my colleague Christine Boynton that he’d prefer the airport screening function the agency per-forms be transitioned to private security companies with TSA providing oversight and focusing on “intelligence” and “connecting the dots” rather than “hassling millions of passengers every day.”

Pistole, in fact, has repeatedly said that intelligence should guide the agency and that treating passengers well is important, so the two men aren’t as far apart as it may appear.

—Aaron Karp

Hot topics: REaDER COMMENtS FROM OUR wEBSItE

Obama signs bill enabling US airlines to skirt EU ETS: Good for the US. Airlines have a vested interest in reducing their own emissions. More carbon equals more fuel. More fuel means it costs more to produce the product and the profit is reduced. A carbon tax does not add any additional incentive to reduce the carbon footprint—it only raises costs to the consumer and money for the general fund to be spent on everything but environmental issues.

Bisignani: London Heathrow Airport loses leading position: Britain will watch more revenue leave its shore to the benefit of other European nations as well as IST and DXB. The high airport taxes don’t help either, as more people are using lower tax cities to depart from. AMS has become Heathrow’s third runway?

Pilot supply a key long-term challenge for regional airlines: Yes, it is sure looking like there will be an issue in the coming years/decades. With the cost of getting all the licenses and experience, and the wages at the regional airlines, it’s not hard to see why the industry will have a problem. I’m sure these young folks thinking of a career in avia-tion will think twice.

FAA orders Boeing 787 inspections, cites fuel leak risk: I cannot believe that Boeing’s and Airbus’ quality control missed their issues upon inspections and flight tests. For-get the Boeing vs. Airbus “war.” They are both in business to sell and deliver as many aircraft as they can and within time. Both Boeing and Airbus had issues with their global suppliers. Airbus had issues with their A380 wing structure and Boeing’s now caught with a fuel issue. Both companies have to make up time or it will cost them lots of euros and dollars if they don’t deliver on time. It’s a good thing that there haven’t been catastrophic issues.

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Only oneone airline industry award stands the test of time.

19741974United AirlinesUnited Airlines

19751975Pan American

1976Air France,

British Airways

1977Delta Air Lines

1978Swissair

1979Republic

1980Japan Airlines

19811981American Airlines

1982198219821982Lufthansa

19831983SAS

1984Piedmont

1985KLM

1986British Airways

1987Cathay

19881988American American Airlines

1989Singapore

Airlines

1990Alaska Airlines

1991Southwest

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199320 Years of

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And the And the 2013 2013

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is...

19941994LufthansaLufthansa

2005Air France/KLM

2010Air New Zealand

1995Qantas

2006Cathay PacificCathay Pacific

2011Emirates Airline

1996Continental

AirlinesAirlines

2007ANA

2012Air New Zealand

Airline of Airline of

1997KLM/Northwest

2008Singapore

Airlines

1998Delta Air Lines

20092009AsianaAsiana

20002000Lufthansa

20012001Continental

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2002200220022002Japan AirlinesJapan Airlines

20032003Southwest Southwest

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20042004QantasQantas

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2013Forecast

Despite a dismal start, a painful set of first-quarter financials, high fuel prices and a slowing world economy, the world’s airlines managed to end 2012 on a relative uptick.

In mid-December, IATA revised its total airline net profit for 2012 to $6.7 billion, up from the $4.1 billion forecast in October and based on an estimated $637 billion in revenues. The 2013 outlook was also improved to an expected $8.4 billion in net profit, up from a previous estimate of $7.5 billion, based on revenues of $659 billion. Industry net post-tax mar-

gin, however, will remain weak at a paltry 1% in 2012 and a barely better 1.3% in 2013.

Another

Challenging Year

“It certainly looks like 2013 will be another challeng-ing year,” IATA DG and CEO Tony Tyler said.

The improved prospects for 2012 were driven by strong airline performance in the second and third quarters. Airline profits and cash flows held up at levels similar to 2006 when oil prices were about $45 per barrel lower and world economic growth was 4%.

Historically, when GDP growth has fallen below 2% the airline industry has returned a collective loss. “With GDP growth close to the “stall speed” of 2% and oil at $109.50 a barrel, we expected much weaker perfor-mance. But airlines have adjusted to this difficult envi-ronment through improving efficiency and restructur-ing. That is protecting cash flows against weak economic growth and high fuel prices,” Tyler said.

The improved performance is most evident in large airlines for which earnings before interest, taxes, depreciation and amortization (EBITDA) aver-

aged between 10% and 15% of revenue in the third quarter of the year. “It’s a diverging picture. Econo-mies of scale are helping larger airlines to cope much better with the difficult environment than small- and medium-sized carriers, which continue to struggle,” Tyler noted.

Overall performance was also positively impacted by strong passenger traffic growth of 5.3% and a 3% improvement in yields.

But don’t pop the champagne yet. Cargo markets contracted by 2% and cargo yields are down 2% on 2011 levels. The $6.7 billion expected net profit is a fall from the $8.8 billion that the industry made in 2011. And, as IATA points out, the 1% net profit margin is well below the 7%-8% needed to recover the industry’s cost of capital.

Prospects for 2013 are improved, but still not champagne-worthy and, as IATA chief economist

Guarded optimism for 2013, but no one believes it will be easy.

By Karen WalKer

2013Forecast

Forecast1_ATW_JAN13.indd 24 12/17/12 2:07 PM



2013 GROwtH IN BOtH tRaVEL aND CaRGO

Brian Pearce emphasized, “there are more downside risks than upward risks. It’s an improving environment but one that remains very fragile.”

Among the biggest concerns for “things that could go wrong” are the US fiscal cliff, the Middle East/Iran situa-tion and the potential for a partial or full eurozone breakup. Even if those worst-case scenarios fail to materialize, however, GDP—the largest driver of industry prospects—is expected to strengthen only slightly to 2.3% in 2013. And while passenger demand in 2013 is expected to grow by 4.5%, that will still be below the 5.3% forecast for 2012 and yields are expected to deteriorate 0.2%, largely in response to lower fuel costs.

One significant milestone is expected to happen next year—airlines are expected to carry 3.1 billion passengers, the first time in history that it will break through the 3 billion mark. By 2016, that number is expected to rise to 3.6 billion, with the majority of growth taking place in developing markets.

Demand for air travel then continues its climb from when the first commercial flight took place on Jan. 1, 1914. Unfortunately, oil prices, regulatory and infrastructure hurdles, taxation and fees, and economic challenges also have contin-ued their upward spiral.

All

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• One unusual feature of aviation markets is the strong divergence between a robust expansion in air travel and the shrinkage of air freight since peaking in early 2010, after rebounding sharply from the recession

• In past cycles weakness in air freight has been a leading indicator of weakness in air travel. That has not been the case this time.

2

ROBust aIR tRaVEL But sHRINkING fREIGHt

INtERNatIONaL tRaffIC aLsO VaRIEs BY REGION

MODERatELY BEttER PROfIts IN 2013• There is a lot of variation within the aggregate air travel number. • On domestic markets China continues to expand very strongly, after a slowdown

earlier this year. • By contrast Indian markets have gone into sharp reverse in 2012, following the

problems of Kingfisher and the slowdown of the Indian economy • The US market has barely moved, indicating its maturity and the sluggishness of

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currently slowly in decline

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SyStemwide Global CommerCial airlineS EBIT Margin, % Revenues Net Profit, $ Billion

2009 2010 2011 2012F 2013F 2009 2010 2011 2012F 2013F

Global 0.4 4.0 2.9 2.1 2.9 -4.6 19.2 8.8 6.7 8.4

reGionS

North America 1.2 4.7 3.1 3.4 3.8 -2.7 4.1 1.7 2.4 3.4

Europe -2.2 1.9 0.9 0.6 0.6 -4.3 1.9 0.4 0.0 0.0

Asia Pacific 2.8 6.0 5.0 2.9 4.7 2.6 11.4 5.4 3.0 3.2

Middle East -1.5 3.6 3.5 2.7 3.0 -0.6 0.9 1.0 0.8 1.1

Latin America 2.8 5.0 2.3 2.4 3.1 0.5 0.9 0.3 0.4 0.7

Africa -1.2 1.6 0.8 0.3 0.1 -0.1 0.1 0.0 0.0 0.0

Industry of ContradictionsAircraft orders boom, but not airline profitability.

By Karen WalKer

2013Forecast

The airline business remains a roller-coaster ride unsuited for the faint of heart. First the good news: global airline financial performance improved in the second and third quarters of

2012 following a sharp deterioration in the first quarter.In its June forecast, IATA emphasized the down-

side risks to airline industry profitability posed by the eurozone crisis and the unstable oil market. But policy actions since then appear to have reduced—though not eliminated—these risks, according to IATA, with oil prices easing slightly and some steps made toward stabilization in Europe’s most troubled sectors. Additional monetary easing by the US Federal Reserve and the Bank of Japan also improved expecta-tions for economic growth.

As a result, IATA in October revised its 2012 worldwide airline forecast to a combined net profit of $4.1 billion compared to $3 billion in its previ-ous forecast. This reflected a better performance by airlines despite a difficult economic environment. During the second quarter, industry-level operating profits were almost at the levels of the previous year after high oil prices squeezed first-quarter results. Big geographical differences remained, with Euro-pean losses unchanged, but North American airlines’ improved performance was revised higher. Then in December, considerably better-than-expected third-

quarter results prompted IATA forecasters to again revise their outlooks upward to an overall industry profit of $6.7 billion.

The outlook for 2013 is also moderately better with a forecast profit of $8.4 billion on revenues of $659 billion. This is based on anticipated slightly faster growth, marginally lower oil prices and im-proved airline performance on capacity.

But as IATA chief economist Brian Pearce said in December, more downside risks remain in the 2013 outlook; even allowing for a predicted better outcome, the world’s collective net profit margin will be just 1.3%.

And that tender margin will vanish if things go wrong. Among the most worrisome concerns are the potential for a eurozone breakup, the US hitting its fiscal cliff, the slowing Chinese economy failing to stabilize, or an Iran crisis.

The generally more optimistic outlook is also not evenly shared around the world. “It rather depends on where you look,” IATA DG and CEO Tony Tyler said in December. “European airline CEOs are still the gloomiest bunch among the group for reasons that are well known. The frustration that they have with issues of regulation and taxation are deeply felt and it seems so hard to do something about it.”

And policy risks still persist. “We need to make




2013Forecast

sure that cash-strapped governments understand that aviation is a catalyst for economic growth and ensure that light touch regulation does not become a license for infrastructure providers to let costs get out of control. We will also maintain pressure on govern-ments for important infrastructure improvements, including the Single European Sky, so that hard-won cost efficiencies are not lost to battles with conges-tion,” Tyler said.

On a regional basis, IATA broke down its anticipated 2012 and 2013 airline financial expectations as follows:North America. A 2012 collective net profit of $2.4 billion, up from 2011’s net profit of $1.7 billion. A 2013 combined net profit of $3.4 billion.Europe: A breakeven situation for 2012, which is $400 million worse than for 2011 but $1.2 billion better than IATA’s October forecast, thanks to ef-ficiency programs and stronger traffic growth. 2013 is expected to be a second consecutive year at breakeven with the EBIT margin remaining unchanged at 0.6%. Asia Pacific. A 2012 combined net profit of $3 billion, the largest regional profit and the most significant contributor to IATA’s upward revised 2012 forecast. Profits are expected to grow to $3.2 billion in 2013.Middle East. A 2012 collective profit of $800 mil-lion, below the $1 billion Middle East carriers made in 2011. The Arab Spring and lingering instability continues to impact performance. 2013 profits are expected to rise to $1.1 billion as airlines in the region continue to expand their share of international markets.Latin America. A 2012 combined profit of $400 million, making it the only region to see an improve-ment on 201l when the region’s carriers posted a $300 million profit. IATA sees net profits rising further to $700 million in 2013 as strong trade flows and economic growth continue.Africa. Carriers in the region are expected to end 2012 at breakeven, the same as 2011. The continent’s economy is expanding, but its carriers suffer from strong competition on long-haul routes, high-cost structures and regulatory restrictions, IATA said. Their breakeven status is expected to be maintained in 2013.

traffic GrowthTraffic volumes are expected to grow slightly faster in 2013, driven by growth of cargo after its decline in 2012. Capacity growth will be kept lower, sustaining load factors.

A feature of the past two years, IATA notes, has been divergent passenger and cargo markets. Dur-ing the first part of 2012 both markets expanded.

However, falling business confidence in many major economies caused both markets to flatten with very little growth at all over the mid-year months.

Consolidation and restructuring in the US and Europe, including joint ventures on many long-haul markets, is starting to make a difference to profitabil-ity, IATA said.

“Things are moving in the right direction,” Tyler said. “But the positive shift is not moving airlines anywhere near the 7-8% that would be needed to cover the industry’s cost of capital. It’s a tough busi-ness working hard to make it through tough times.

More planes, pleaseDespite the highly guarded optimism—and contin-ued precarious state of airline profitability—airlines are expected to continue their spending spree on new aircraft. In particular, more large orders are expected for new fuel- and emissions-efficient aircraft.

According to a market forecast released by COMAC in November, China will need 4,960 aircraft by 2031 in which 3,405 will be narrowbody aircraft.

Airbus said its commercial backlog stood at 4,414 aircraft valued at €482 billion ($616 billion), representing seven years of production, as of Sept. 30. Airbus expected to deliver about 580 commercial aircraft in 2012, including 30 A380s. Gross orders for 2012 were anticipated to reach 600-650 aircraft.

Boeing projects a $4.5 trillion market for 34,000 new airplanes over the next 20 years as the world fleet doubles in size, according to the Boeing’s 2012 Cur-rent Market Outlook. “The world’s aviation market is broader, deeper and more diverse than we’ve ever seen it,” said Randy Tinseth, VP marketing, Boeing Com-mercial Airplanes. “It has proven to be resilient even during some very challenging years and is driving production rate increases across the board.”

Between 2012 and 2031, Boeing expects a total of 23,240 single-aisle, 7,950 twin-aisle, 790 large and 2,020 regional jet aircraft to be delivered.

“Robust growth in China, India and other emerging markets is a major factor in the increased deliveries over the next 20 years. Low-cost carriers, with their ability to stimulate traffic with low fares, are growing faster than the market as a whole. There is also a strong demand to replace older, less fuel-efficient airplanes. Replacement accounts for 41% of new deliveries in the forecast,” Boeing said.

Boeing anticipates that of those 34,000 total new aircraft deliveries, 12,030 will go to Asia Pacific carri-ers; 7,760 to Europe; 7,290 to North America; 2,510 to Latin America; 2,370 to the Middle East; 1,140 to the Commonwealth of Independent States; and 900 to Africa.




2013Forecast

Tight DisciplineCapacity and cost controls help keep US carriers in the black

BY KAREN WALKER

2013Forecast

A rash of mostly positive third-quarter results across US and Canadian carriers helped underscore the general feeling that North American airlines are climbing out

of the abyss of red and into a more stable era of sus-tained profitability.

“By making dramatic improvements in aircraft utilization, labor productivity and fuel efficiency, US airlines have been able to reduce unit operating costs by more than 35% in real terms since deregulation in 1978, even when surging fuel prices are included,” Peter Belobaba, principal research scientist at the MIT International Center for Air Transportation, said dur-ing an Airlines for America (A4A) association briefing. “When combined with innovations in schedule opti-mization and capacity planning, these cost reductions have allowed real airfares to remain about 50% lower

than before deregulation.”Among the good third-quarter earnings news:�� Delta Air Lines nearly doubled its net income

to $1.05 billion. “Our solid revenue perfor-mance reflects the benefits of capacity disci-pline, strong operational performance and the investments we have made in our products and service,” DL president Ed Bastian said.�� US Airways more than tripled its net income

to $245 million, its highest-ever earnings for the quarter. �� Air Canada reported net income of C$429

million ($432.2 million), reversed from a net loss of C$124 million in the year-ago quarter. �� Calgary-based carrier WestJet reported

income of C$70.6 million ($70.96 million), up 79.9% from a C$39.3 net profit in the

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2013Forecast

year-ago quarter. �� Utah-based SkyWest Inc., parent company of

SkyWest Airlines and ExpressJet, saw net in-come jump from $116,000 to $20.9 million. �� Alaska Air Group, parent of Alaska Airlines and

Horizon Air, more than doubled its net income year-over-year, earning $163.4 million. �� United Continental Holdings posted a net

income of $6 million, down 99.1% from a net profit of $653 million in the prior-year period, though it pointed out that the results were affected by $514 million in special charges related to the integration of United Airlines and Continental Airlines. �� Hawaiian Airlines reported net income of

$45.5 million, up 77.6% from a $25.6 mil-lion profit in the year-ago period. �� Southwest Airlines reported a net profit of

$16 million, reversed from a $140 million net loss in the prior-year period.�� Atlas Air Worldwide Holdings, parent of

Atlas Air and Polar Air Cargo, posted net income of $33.9 million, up 20.2% despite a tough cargo market.

Not all US airlines were spared the pain. Virgin America’s third-quarter net loss widened to $12.6 million from a $3.3 million a year ago. United Parcel Service posted net income of $469 million, down 56.3% from a $1.07 billion net profit in the 2011 September quarter. And American Airlines parent AMR Corp., which operated through the year under Chapter 11, incurred a third-quarter net loss of $238 million, deepened by 46.8%.

Overall, IATA forecasters expect North American carriers to end 2012 with a collective net profit of $2.4 billion, stronger than the $1.7 billion profit of 2011. Earnings before interest and taxes margin of 3.4% is the strongest among regions, IATA points out. For 2013, IATA estimates North American air-lines will grow that profit to $3.4 billion, the largest absolute profit of all regions with an EBIT margin of 3.8%. “The US economy is forecast to be the stron-gest growing among the developed economies and further benefits are expected from earlier consolida-tion,” IATA noted in its December forecast.

But it is hard-won success based on tight capacity control, strong cost discipline and, in most cases, heavy reliance on ancillary fees to offset high fuel prices, rising taxes and regulatory fees. A4A points out that the oper-ating environment for North American airlines does not get easier. While companies like Apple are not chastised for margins north of 25%, pending and proposed new regulations and fees will pile an estimated $3.3 billion of costs on US airlines, A4A says.

And there remain two major threats to profitability that are uniquely of American making: the fiscal cliff and sequestration, a US congressional law in which widespread government cuts will become mandatory to deal with the federal debt. In her year-end address in Washington DC in December, US Aerospace Industries Association (AIA) CEO Marion Blakey warned, “we’re getting closer to a ‘Thelma and Louise’ moment, when we careen off into the void.”

She pointed out it was extremely difficult to forecast the 2013 outlook for the US aerospace and defense industry, given the cloud of fiscal cliff uncertainties.

The specter of sequestration cuts could signifi-cantly impact the implementation of NextGen ATM system modernization, she pointed out. That could mean the cost efficiencies implemented by US carriers are negated by unnecessary air traffic delays.

“But first, in the short term, we must avoid the fiscal cliff,” Blakey said.

Boeing, meanwhile, forecasts air carriers in North America will take delivery of 7,290 new airplanes over the next 20 years at a market value of $820 billion. Taking retirements of airplanes into account, the North America fleet will grow from 6,650 airplanes today to about 8,830 airplanes by 2031.

“The North American commercial aviation market is about to record a third consecutive year of profit, with modest passenger traffic growth,” said Randy Tinseth, VP Marketing, Boeing Commercial Airplanes. “The long-term outlook for the North American airline industry is approximately 3% annual traffic growth through the forecast period. The market is shaped by aggressive growth of low-cost carriers and the need to replace aging airplanes in the fleets of the established network carriers.”

Network carriers are expected to maintain strict capacity discipline, Boeing said. Low-cost carriers will continue to outpace network carrier growth to accom-modate increased demand and fill some markets aban-doned by network carriers. Financial stability will also be a key indicator of future growth. Several airlines have indicated growth planning to be executed when returns are sufficient to fund their strategic goals.

Boeing noted that the continent’s airlines are operating more cautiously than in the past. “In response to market pressures, airlines are deploy-ing capacity more strategically to help boost yields and cover higher fuel expenses,” it said. “Airlines are optimizing airplane utilization more closely to seasonal demand fluctuations, and passenger load factors remain near historic highs. The number of new-generation airplanes in the parked fleet remains low, indicating that airlines are shifting utilization to their most efficient assets.”



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Ask any European airline CEO about their top challenge for 2013 and their answer is unanimous: making money. All are facing a constant struggle to maximize revenues and

control costs in the face of spiraling fuel prices, but on top of these global issues Europe has found itself in the eye of the economic storm.

The turbulence includes exchange rate uncertainty, market volatility, the sovereign debt crisis, uncer-tainty over the future of the eurozone, mature market syndrome, constraints on much-needed consolidation and a hefty dose of labor unrest. And the strains are beginning to show.

“It is impossible to read the macro environment, or to predict how long it will last for. We just don’t know what is around the corner,” easyJet CEO Carolyn Mc-Call said. “We have removed the word “high” from fuel prices because, quite frankly, these are the fuel prices,” was the grim observation from Alex Cruz, CEO of Spanish budget carrier Vueling.

During 2012 some well-known European airlines disappeared from the aviation landscape, including bmibaby in the UK, Cimber Sterling in Denmark, Malev in Hungary, Spanair in Spain and Italian carrier Windjet. With other big names like SAS Scandinavian Airlines teetering on the brink and 4,500 jobs under threat at Iberia, calmer days seem a long way off.

“We’re likely to see some more consolidation in 2013,” e2consult principal Patrick Edmond told ATW. “Iberia’s at a fork in the road—will it still exist in its current form a year from now? SAS is struggling, but ironically its multi-national model may be replicated a little further east: Air Baltic and Estonian may ultimately settle on an arranged marriage and perhaps even invite Lithuania to the party. CSA [Czech Airlines] needs some help, and may well find an external partner. I think 2013 is also going to be a tough year for some of the larger European regional carriers like flybe and Air Nostrum.”

John Strickland from JLS Consulting agrees Eastern Europe is an area to watch. “It is difficult to say who

might fail in 2013, but certainly a number of Eastern European carriers are weak, as seen with the failure of Malev in 2012, and their governments are not in a position to prop them up. Legacy carriers will take some pain as they wrestle with their loss-making short-haul networks and Iberia, in particular, is likely to suffer from industrial action and see significant shrinkage of its operations. We may get a clearer picture of TAP’s [Por-tugal’s] future as the Portuguese government is forced to sell it off and it seems that a future in-vestor may come from Brazil.”

The problem is that Europe-an carriers have already lost their short-haul market to low-cost carriers and they are facing a major onslaught from Gulf carriers, which are offering a quality product for an extremely competitive price on long-haul routes. The former flag carriers have been left as middle-seat airlines as they weather one of the worst crises yet.

“For most airlines in Europe, improved results are only going to arise from structural changes, which in some cases will be substantial. While some draconian restructuring plans have been announced, implemen-tation challenges remain, and even then the outcomes

Bleak TimesFor European carriers, 2012 was annus horribilis. This year may prove only marginally better.

BY Victoria Moores

2013Forecast




2013Forecast

may be more to do with catching up rather than getting ahead of the competition,” said Chris Tarry from consultancy firm CTAIRA. “We have already seen in 2012 a number of instances where sustaining the unsustainable is no longer an option and this will be the case in 2013, too.”

“The big European carriers are in big danger if they don’t change,” said APG Network president Jean-Louis Baroux. “What is wrong is the management. Everyone thinks the same. If an American airline guy makes a big mistake, everyone else does the same.”

Into the RedThe fact is that Europe, once-buoyant, has sunk to the bottom of the leaderboard in terms of industry profitability—behind Africa and the rest of the world. What’s more, the Europe-specific outlook has become progressively worse throughout the year, with projected

2012 losses widening from $0.6 billion at the start of the year to $1.2 billion in IATA’s September forecast. Europe is the only region expected to end 2012 in the red, while China, Latin America and the Middle East zoom ahead in terms of growth.

On the plus side, prospects for 2013 look slightly brighter, with IATA forecasting that European losses will slim to $0.2 billion. Also, political tensions around the European Union’s controversial Emissions Trading Sys-tem (EU ETS) have calmed a little since climate action commissioner Connie Hedegaard agreed to “create the space” for an ICAO-led solution. In 2013, ICAO’s prog-ress on market-based measures and the EU’s reaction will no doubt take center stage. However, other regulatory developments are also waiting in the wings.

One of the early topics for 2013 will be consumer protection. Building on plans first announced in 2011, the European Commission (EC) is taking another look at the workings of its controversial Regulation 261. The outcome could be a simple

communication or a full-blown regulatory proposal, which would need to clear the European Council and Parliament. Airlines will be watching this process like hawks, hoping that their burden of liability in uncon-trollable situations—such as volcanic ash clouds—is lightened. ICAO is also planning to take a look at consumer protection at its March meeting.

External relations is another area to watch. The EC has committed to push forward its route right nego-tiations to boost the competitiveness of its airlines. It now needs the EU member states, represented by the European Council, to grant comprehensive mandates so it can secure better access to countries such as Brazil, China and Japan.

2013 could also see Europe revise its state aid guidelines, with potential impact for both airlines and airports, and there will be key political discussions in the European Parliament about the Better Airports Package, which covers ground handling, noise and slots. “I don’t believe the Better Airports Package will go through in one go,” said Athar Husain Khan, act-ing secretary general of the Association of European Airlines. “There is too much controversy over the slots and ground handling elements.”

a tough winterTurning to airports, the outlook for 2013 is also fragile. “What we are seeing is a tough winter ahead because it makes more sense for airlines to keep their aircraft grounded, especially the low-cost carriers,” said ACI Europe DG Olivier Jankovec.

European airports are now fighting harder to get business, with 64% cutting or freezing their charges. “We are now facing the new challenges of lower growth and increased network volatility. An airline ex-pects a route to be perfect within six months or they go away. Growth is no longer a given for all. There will be winners and losers, and more competition between airports.”

Jankovec warns that for smaller airports, which de-pend on one or two airlines, the prospects are bleak. “Airports with under a million passengers can’t come in at the end of the month without public support and there is huge pressure on government spending, so their funding is under pressure. They lack critical mass, so they have no exposure to capital markets. This really puts them in a difficult position.”

The situation could be further exacerbated by the revised state aid guidelines, which could limit public authority funding. “It’s going to be a tough year. Already European airport profitability has gone down and now 48% of airports are loss-making, up from 41% in 2009. There is a risk for some airports to go bust and close. This is a new situation.”

“tif they don’t change. what is wrong is the management. Everyone thinks the same. If an aeveryone else does the same.”

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Still HotDespite challenges, Asia Pacific remains one of the most dynamic and positive regions.

By Karen WalKer

2013Forecast

Although hurt by the deterioration in cargo markets, Asia Pacific airlines are expected to see net profits grow by $200 million to $3.2 billion in 2013, according to IATA. Earnings

before interest, taxes, depreciation and amortization for Asia Pacific carriers are expected to grow significantly to 4.7%, the strongest of the regions, and Asia Pacific air-lines account for over half of the industry’s global profits.

IATA also estimates that by 2016, 39% of global air travel will focus on routes to, from or within Asia Pacific, up from 34% in 2011.

As Association of Asia Pacific Airlines DG Andrew Herdman said in November at the association’s annual assembly in Kuala Lumpur, the past 12 months were pivotal for carriers in the region, several of which have forged groundbreaking deals that would have been unimaginable just a year earlier. “Previous rivals have turned into long-term strate-gic partners. A year ago, some may have questioned whether the Japanese market was ready to embrace different airline business models. But those new ventures, Japan Airlines together with Jetstar, and All Nip-pon Airways together with Air Asia, are now operating successfully, giving consumers more choices of service,” Herdman said.

In other deals, Singapore Airlines took a strategic stake, alongside Etihad, in Virgin Australia, also involving a tie up with Tiger Airways Australia. Qantas ended its decades’ long joint service agreement with British Airways in favor of a wide-ranging new partnership deal with Emirates.

“We welcome this new competitive landscape—a landscape that provides consumers with a vast array of new travel options. A landscape that adds additional momentum to the heightened stature and influence of Asian carriers in the global industry,” Herdman said.

China and India remain the key drivers of the shift eastwards, but Indonesia, Korea, Malaysia, Philippines

and Thailand also have dynamic and increasingly im-portant economies that are fuelling rising incomes and driving sustained growth in travel demand.

Asia’s major challenges in 2012 have been a very weak cargo market and high fuel prices. Asian carriers operate large freighter fleets and account for approxi-mately 40% of global air cargo traffic, so they have been particularly hard hit by the current cargo market weakness. International air cargo demand, expressed in freight tonne kilometer terms, declined by 5.8% year-over-year in October, according to AAPA, a reflection of the continued overall weakness in air cargo markets. Offered freight capacity was reduced

by 6.1%, leaving the average international air cargo load factor almost unchanged at 67.4%.

“Global air cargo markets are still depressed, with volumes for the first ten months of the year 4.0% down on last year’s levels. Overall, the air cargo market is characterized by weak demand and excess capacity, maintaining downward pressure on rates,” Herdman said.

But 2013 is expected to see, if not an upturn in cargo, then at least an end to the deterioration.

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Latin ParadoxIngredients exist for strong growth in Latin America, but infrastructure isn’t keeping pace.

By AAron KArp

2013Forecast

There is a paradox related to air passenger growth in Latin America that threatens the robust rate of airline traffic expansion pre-dicted as a natural consequence of more people

in the region ascending to the middle class. Yes, a host of economic trends point toward muscular passenger growth in the region for the foreseeable future. But air-lines say airport and ATC infrastructure shortcomings could seriously curtail that potential for expansion.

One sign of the explosive growth in airline passen-gers occurring in Latin America: The region’s busiest city-pair, Rio de Janeiro-São Paulo, was traveled by 1.5 million more passengers in 2011 compared to 2010. That 13% year-over-year growth occurred even though more than 12 million passengers were already

flying between the Brazilian cities in 2010 (See chart, opposite page).

Latin American and Caribbean Air Transport Asso-ciation (ALTA) member airlines’ passenger traffic rose 8% year-over-year for the first 10 months of 2012 to 187.9 billion RPKs on a 6.3% increase in capacity to 245.9 billion ASKs, pushing up load factor 1.2 points to 76.4%. According to IATA, only Middle Eastern airlines are growing passenger numbers faster. (One of South America’s most developed countries, Chile, saw 800,000 people fly for the first time in 2010, accord-ing to LAN Airlines.)

Boeing predicts Latin American passenger traffic, in terms of RPKs, will grow at an annual rate of 6.6% over the next two decades, while Airbus forecasts




2013Forecast

annual passenger traffic growth of 5.3% in the region over the next 20 years. “Our experience has been that you put a new route in and passengers fill the aircraft. You don’t know where they came from,” LAN senior VP-corporate affairs Pablo Querol told ATW in 2012.

Keeping PaceSpeaking at the recent ALTA Airline Leaders Forum in Panama City, LAN and TAM parent LATAM Airlines Group CEO Enrique Cueto said, “When you talk to authorities, they say by law they can’t plan for growth rates of more than 6% [annually], but the in-dustry is growing at 15%. The industry in the region has grown faster than elsewhere in the world.”

Fast growth achieved over the last decade by car-riers such as Brazil’s TAM and GOL “was unthink-able for aviation planners 10 years ago and we have to catch up,” Cueto commented. He added that the region’s airlines are also forced “to operate in highly fragmented airspace” that further decreases efficiency.

ALTA executive director Alex de Gunten last year amplified his recurring call for airport and ATC modernization in Latin America. “We can’t stress enough the need to address the infrastructure issues faced by our industry,” he said. Speaking at an IATA conference in Santiago de Chile, he added, “We can’t afford to wait until we have a crisis to take action. Infrastructure projects take years to complete, so the time to act is now.”

De Gunten said that Latin American airlines placed around $50 billion worth of aircraft orders between 2006 and 2011. “Unfortunately, this investment has not been matched by an equivalent commitment by governments to build airport and air navigation support infrastructure to meet the traffic growth,” he asserted. “As a result, the encouraging economic outlook for Latin America and the Carib-bean is at risk from the constraints and economic inefficiencies imposed by an aging and inadequate aviation infrastructure … Governments have not kept up their required investment to reduce the gaps in infrastructure.”

IATA DG and CEO Tony Tyler said, “It is no secret that Latin American infrastructure develop-ment has not kept pace with growing demand. Only one state—Barbados—ranks in the top 25 for quality of air transport infrastructure, according to the World Economic Forum’s 2011 Travel and Tourism Compet-itiveness Report of 139 countries … Of the region’s largest economies, Chile ranks 26. But Mexico is 65, Brazil 93 and Argentina stands at 115.”

AviancaTaca chairman and ALTA president Ro-berto Kriete noted that infrastructure is “not always

favorable for air transportation” in Latin America. “Approximately one-third of flights in the region depart from an airport that is congested or very con-gested,” he said, adding that aviation infrastructure is “actually going backwards” in some parts of Latin America. “We cannot continue to patch the infra-structure” and maintain the current pace of growth, he cautioned.

An example of infrastructure issues squeezing growth is occurring in Colombia. “We still have ma-jor limitations” at Bogota El Dorado Airport, Avianca CEO Fabio Villegas said. “Avianca has its main opera-tions center in Bogota … and our main limitation to growth is the Bogota airport … The management of air traffic is truly inefficient.”

Kriete said, “The most expensive airport in Latin America is the airport you don’t have … It’s a key issue—how do we develop airports rapidly? Not 4-5 years behind [passenger demand] … It’s an issue of political will.”

The region’s airlines say some markets’ airport charges and government taxes on flights are prohibi-tive. “Venezuela is an impressive market. We would like to be there,” Villegas said. “But the regulatory en-vironment makes it impossible.” Total flights handled

The Top 20 CiTy pairs in LaTin ameriCa/Caribbeanadded seats % chg.

City pair Total seats 2011 vs. 2010

Rio de Janeiro-Sao Paulo 12,292,194 1,455,144 13.0

Brasilia-Sao Paulo 5,488,701 690,288 14.0

Belo Horizonte-Sao Paulo 4,705,915 590,732 14.0

Porto Alegre-Sao Paulo 4,584,800 685,772 18.0

Curitiba-Sao Paulo 4,465,467 457,842 11.0

Salvador-Sao Paulo 3,835,474 499,430 15.0

Mexico City-Monterrey 3,444,448 214,310 7.0

Bogota-Medellin 3,299,373 -98,004 -3.0

Guadalajara-Mexico City 3,084,792 263,448 9.0

Cancun-Mexico City 3,065,692 76,698 3.0

Brasilia-Rio de Janeiro 2,959,052 563,630 24.0

Bogota-Cali 2,935,874 -55,125 -2.0

Guayaquil-Quito 2,742,090 -89,073 -3.0

Buenos Aires-Sao Paulo 2,659,348 77,754 3.0

Florianopolis-Sao Paulo 2,608,682 95,522 4.0

Recife-Sao Paulo 2,473,496 442,254 22.0

Rio de Janeiro-Salvador 2,311,570 377,774 20.0

Belo Horizonte-Rio de Janeiro 2,111,364 316,930 18.0

Cuzco-Lima 2,087,442 347,967 20.0

Bogota-Cartagena 1,992,798 122,009 7.0

Source: ALTA




2013Forecast

at Caracas Bolivar Airport decreased 7% year-over-year in 2011, in stark contrast to growth at most of the region’s top airports.

Bullish Boeing & airbus Despite the concerns over infrastructure, Boeing and Airbus both see strong demand for commercial aircraft in Latin America over the next two decades, with Boeing slightly more bullish on the region. Boe-ing is forecasting demand for 2,510 new aircraft in Latin America through 2031 valued at $260 billon, while Airbus is projecting demand in the region for 2,120 new aircraft valued at $242 billion over the

same timeframe.Boeing Commercial Airplanes VP-marketing

Randy Tinseth said Latin America “is a market that has really taken off … We expect 2012 [was] a year of record orders for this market.” He noted that 83% of demand for new aircraft in the region will be for single-aisle planes.

Airbus executive VP-Latin America and the Carib-bean Rafael Alonso added, “As long as the infrastruc-

ture is there, the market is going to continue to grow. You cannot grow an economy of a country if you don’t grow aviation.”

Alonso said carriers are partly getting around the infrastructure problem by ordering larger aircraft: “One way of [generating] growth is operating bigger-size aircraft so that with the same air traffic control slot you can carry more passengers … [Latin American airlines] are looking for bigger aircraft. The aircraft being ordered now [by the region’s carriers] are about 30% bigger than they were in the year 2000.”

And orders keep coming from the region’s airlines. Avianca revealed in November it had ordered three additional Boeing 787s, bringing the total number of Dreamliners it has on order to 15. It originally placed an order for 10 787s in 2007, becoming the first South American carrier to order the aircraft. LAN last year became the first Latin American carrier to put the 787 into service.

Non-Latin American airlines are taking notice of the region’s potential. In the past 18 months, Lufthansa has increased ASKs to/from Latin America by 40%; in Brazil—its most important market in the region—capacity grew 70% over the period.

Delta Air Lines on Jan. 1 relocated its commercial headquarters for Latin America and the Caribbean from Atlanta to São Paulo. Nicolas Ferri, the VP heading the airline’s new Brazilian office, said the move “allows us to participate in the day-to-day af-fairs of the aviation industry in the region and be part of its evolution.”

Edvaldo Pereira Lima contributed to this report.

Latin america “is a market that has really taken off … we expect 2012 [was] a year of record orders for this market.” Some 83% of demand for new aircraft in the region will be for single-aisle planes.

—Boeing Commercial Airplanes VP-marketing Randy Tinseth

Pho

to:

Rob

Fin

lays

on




After decades of reliable, continuous growth, air cargo traffic has completely stagnated over the last five years. The level of international airfreight traffic was essen-

tially the same in 2012 as 2007.From a statistical standpoint, this fact contin-

ues to amaze: Global air cargo traffic only fell on a year-over-year basis once until 2008 (in 2001) but, barring an unexpected late turnaround in last year’s fourth-quarter, air cargo traffic has now dropped on an annual basis four times in five years.

“We’ve had 12 years [of data dating back to 2000], almost two-thirds of a 20-year forecast period, where air cargo has only averaged 3%” annual traffic growth, Air Cargo Management Group (ACMG) managing director Robert Dahl told ATW. That’s about half of the 6% annual growth rate experienced by the indus-try until the middle part of the last decade.

“It’s reasonable to expect that 3% could be what the new-normal will be,” Dahl said. After rebounding from back-to-back down years with a 20% uptick in 2010, global air cargo traffic fell 0.7% in 2011 and was down 1.9% through the first nine months of 2012, according to IATA.

Shippers shift down“We’ve had five years with very little net growth and that’s unprecedented in this industry,” Dahl said. “Shippers have choices … and airfreight has always been the high-price option. Shippers are now willing to trade off some of that [air] speed … In the last few years, the cost deferential between air and surface has actually gotten higher … [There’s a] widening gap between air and surface transportation [prices], and that has worked to the detriment of the air transpor-tation industry. At the same time, those providing surface transportation—both ocean and truck—have improved their service level.”

United Parcel Service’s 2012 third-quarter revenue was down 0.7% year-over-year to $13.07 billion as the delivery giant contended with what chairman and

CEO Scott Davis characterized as “an environment of slowing global trade.” CFO Kurt Kuehn told analysts that UPS customers continue to “migrate to less premium products.”

Similarly, FedEx chairman, president and CEO Fred Smith said in recent public comments that “some customers are trading off speed for cost savings,” adding the trend “will continue for the foreseeable future, likely even when economic conditions improve.”

IATA analysts, at the organization’s outlook brief-ing in mid-December, confirmed a gloomy forecast for the cargo business, with asset utilization continu-ing to decline. But IATA chief economist Brian Pearce noted there were signs of US consumers becoming more confident, which could “help put a floor under” goods migrating to surface transport.

Air cargo “yields are going down and capacity is ample … there’s overcapacity,” Accenture senior man-ager Marcus Fromm said. “There’s very little appetite and courage in [the air cargo] industry to really do the next step of innovation. Little increases in fuel prices have a huge impact [on whether an air cargo route is profitable. Airfreight operators need to be] applying more intelligence on how you sell and what you sell. The industry needs to come off this kind of attitude about complaining about the volatility” and provide a higher value proposition to shippers.

Dahl added, “One of the issues that operators of freighters face today is the high price of fuel. There’s only one revenue stream—from the cargo you carry—and there’s downward pressure on yields. The airlines are sort of caught in a bind. It’s difficult to generate enough revenue with a freighter to make it profitable.”

Prospects are not expected to improve soon, he warned: “With all the economic uncertainty that the world faces, it’s hard to see how we’ll establish [sus-tained, positive air cargo growth in the near-term]. Our expectation is that the first part of 2013 is likely to carry on like the second half of 2012. Most of us who look at the market would say the early part of 2013 is not going to be great.”

Cargo FlattenedVirtually no growth seen from 2007-2012 for global air cargo traffic.

By AAron KArp

2013Forecast



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In its services market outlook, Boeing identifies a total market of almost $2.4 trillion over the next 20 years. The market for services is projected to grow by approximately 4% annually over the term

of the outlook.“Airlines are looking for every possible advantage

to succeed, from efficiencies in maintenance services to breakthroughs in flight operations and information technology,” Boeing SVP-commercial aviation ser-vices Lou Mancini said at the Farnborough Airshow in July. “Demand for this kind of support and services is only going to grow as fuel prices remain high, fleet size increases and airlines look for ways to improve their overall operations and reduce costs.”

As the industry moves increasingly toward a

“digital” airline — with e-Enabled aircraft such as the Airbus A380 and Boeing 787 — demand is growing for information integration with airline maintenance engineering, flight operations and information tech-nology departments.

“Boeing has the ability to create unparalleled integrated solutions,” Mancini said. “We know the airplane better than anyone; we have the resources to bring innovations to market.”

Customer Pain PointsBoeing has around 340 field service representatives stationed in nearly 60 countries as part of its support package for customers, and a 24/7 operations center at Boeing Field that “mirrors the way airplanes actu-


Service ChangeTechnology and data management are the new

drivers of aircraft maintenance. By Christine Boynton

MRO_ATW_JAN13.indd 43 12/14/12 2:39 PM




ally operate … in a real-time environment,” Boeing VP-information services Per Norén told ATW. In line with this, the manufacturer has reorganized its services business, creating a process it calls the Boeing Edge.

“When we created this strategy, we spent the first six to eight months just talking to customers about their key pain points,” Norén said. Then we went back and said if these are the key pain points for our customers, where are our strategic priorities? Where do we start? Boeing Edge is foremost a way for us to get our people to think through every day, every minute, every second, 24/7, 365 how we can give our customers a competitive advantage.”

As the 787 enters service with more airlines and at a time when more aircraft are becoming connected, data-rich environments, Boeing sees Information Services as a growth area and key priority.

“Information management plays an essential role because you don’t need all data at all times. Informa-tion services had to do with the realization that we had a lot of very smart tools in the information space, but the airlines needed more than tools, they needed an integrated portfolio of products and services to capture the explosion of data and to connect dots

that had not been connected before, to deploy those analytics and create new decision support solutions,” Norén said. “We did that and then we launched the Boeing Edge to really try to help our customers take advantage of the large portfolio of services and sup-port and solutions that we can offer.”

Norén notes that the company’s Information Services unit is a “pretty big deal” for Boeing. “As a strategic priority, it is a significant effort,” he said.

an Explosion of Data “The 777 was really designed to be e-Enabled, information enabled,” Norén said. “It has technology on the airplane that allowed it to be both connected to the ground and send and receive data in real time. With that airplane, we realized that we’d started to innovate some pretty groundbreaking products like airplane health management, which monitors the airplane in real time to predict and prevent failures.”

The 777 transmitted about 1 megabyte a flight from the air. Today the 787, with more advanced sys-tems, transmits about 28 megabytes of data a flight.

Looking at Boeing’s Current Market Outlook that calls for approximately 33,500 new airplanes in 2013,

Airline heAlth mAnAgement in Action

Boeing estimates the cost to an airline for an airplane delay of between one and two hours can be conserva-tively put at between $10,000 and $150,000. One of its operations solutions that help customers avoid these costly delays, Airline Health Management (AHM), has three types of support available: real-time fault manage-ment; performance monitoring; and custom alerting and analysis. Its real-time fault monitoring collects and analyzes data in real time, making it available to ground operations so that teams can have solutions ready for an aircraft even before it arrives at the gate. Performance monitoring analyzes airplane cruise performance data, including fuel efficiency and emission levels. The custom alerting and analysis support provides customer-specified alerts from the airplane about developing system issues. Things such as tire pressure, hydraulic fluid, APU and engine oil levels are automatically monitored, collected and transmitted using ACARS. AHM was tested first in trials with Japan Airlines, Air France and American Airlines in 2003 on 777s and 747-400s. Currently, a total of 52 airlines use AHM — below are some recent examples of the solution in action.

OCTOBeR 2012: A customer picked up an AHM alert during monitoring for a right-hand wing gear door

operation. Although there were no crew reports of defects, the AHM prognostic alert indicated that the fault was a telltale indicator of a more serious problem in the early stages of development. An analysis was subsequently done, a faulty part replaced, and the air-plane was returned to service.

NOveMBeR 2012: AHM detected that an aircraft’s air-conditioning system was demonstrating abnormal behavior. Using AHM’s prognostics, the customer was able to preemptively remove debris from a clogged line, avoiding a potential delay.

DeCeMBeR 2012: Based on an AHM, alert which showed an abnormal trend on an aircraft’s spoiler, Boeing contacted the spoiler’s manufacturer. They dis-cussed the issue and made a joint recommendation to the customer to carry out a precautionary removal of the spoiler.

ONgOINg: AHM is being used to monitor oil con-sumption of the auxiliary power units on over 500 777 airplanes worldwide. When oil consumption reaches unacceptable levels, airline maintenance crews are automatically alerted. This allows the airlines to ana-lyze pending system problems during scheduled main-tenance, rather than having to react to problems when fault conditions have fully developed—which might result in delays or turnbacks.

— Christine Boynton




the potential data load is tremendous.“If you take the 28 megabytes and calculate how

much that would be with those new airplanes you’re going from 6.9 terabytes a year in data generation to about a petabyte [1,000 terabytes],” Norén said. “It’s a 14,000% increase in data that you can use. It’s an explosion in data.”

The issue the industry faces is not about technol-ogy. On an average day, Google reportedly processes over 20 petabytes of data. The issue becomes how to sort and select relevant items from the pile — how to use this data in an intelligent, constructive way.

“Information management plays an essential role because you don’t need all data at all times, you need a certain piece of data to create the right intelligence and the right decisions at a certain time,” Norén said. “And that’s really what we’re working on that we call the digital airline. How do you create suites and plat-forms on the ground and in the air that connect the dots of data … so you can connect everything from how you fly, maintain and operate the airplane on the ground and how that connects into better passenger service and efficiency in the end?

“This is a really big play. It’s the play of saying it’s a digital airline that is totally connected from the ground to the air with whomever uses the data, whether it’s a passenger, a mechanic, an engineer, the CEO or an air traffic controller. That’s the vision of the digital airline.”

Data ManagementFaced with this growing mountain of data, Boeing is focused on leveraging the knowledge it has in the airplane and then building an architecture on the ground to connect the dots.

“We’re doing that right now,” Norén said. “What we want to build are smart, connected information platforms — not big monolithic systems which we had in the old world — using cloud technologies so you can actually store the data and use the data when you need it.”

For 12 years, Boeing has offered a portal for data, information and manuals called MyBoeingFleet — which is visited over 19,000 times a day by customers. The portal has about 180 stored applications, includ-ing airplane health management and maintenance performance toolbox.

“We did cloud before cloud was a word,” Norén said. “Now cloud is an industry driver. We’ve done cloud for many years but to do it in the new paradigm, a safe way of storing data, accessing data, we’ve been going at that for the last couple of years and we’re building a prototype for our new information platform that we’re starting to test in the marketplace.”

The new information platform will allow, for example, an airline CEO to see at a glance the airline’s ontime performance, fleet reliability and number and length of air traffic delays. Today, those informa-tion points are provided from different sources, “but we’re working on building more of an aggregated visualization — a dashboard — of all those things,” Norén said. “By doing so, you also drive the need for integrating more data into new applications, which is another strategic move we’re making.”

The company is also watching how mobile tech-nologies are driving change for how data is used and is moving a lot of its applications into the mobile space, such as its Electronic Flight Bag Solution.

“There are new technologies being developed at the speed of light, from Apple, from Microsoft, from the bigger software and services houses ... and we are partnering with some of them,” Norén said. “The industry change needs to include more than ourselves and our customers. I think the key thing for us is that it takes more than great technology to create an advantage for our customers.”

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Fast-growing turkish low-cost carrier (LCC) Pegasus airlines is seeking new ways to expand into Russia and Central asia as it tries to combat restrictive regulatory regimes in the region.

Pegasus, which just placed firm orders for 58 Airbus A320neos and 17 A321neos, is already seeing a compound growth rate of around 40% for domestic services and 26% for international sectors.

The carrier believes it could do even better if the region’s civil aviation authorities would embrace liberalization of air services.

Chairman Ali Sabançi sees Russia and the Central Asian republics, colloquially known as the “Stans,” as ideal areas in which to grow. Russia is a vast market that has yet to really experi-ence the LCC phenomenon, while the Stans have relatively few (or no) air links to regions such as Europe and the Middle East and often have small, loss-making national carriers.

Turkey, historically the crossroads of East and West, offers the ideal transit hub for the Stans, Sabançi said, and Istanbul is a major attraction for businessmen and tourists from Central Asia, particularly since Turkey eliminated visa requirements for visitors from around the region.

Passenger numbers between the Stans and Turkey are extremely small, given the total populations involved, Sabançi said. For example, the combined populations of Turkey and Uzbekistan amount to 102 million people, yet just 151,000 people flew between the two nations in 2011.

Much of the reason is cost: currently, the average round-trip cost between Istanbul and


Winged AmbitionsTurkish carrier

finds low-cost niche

opportunities in new

markets. Alan Dron

Pegasus Chairman Ali Sabançi

Pegasus_ATW_JAN13.indd 47 12/18/12 10:09 AM




the Uzbek capital Tashkent, a five-hour and 20-min-ute flight, is roughly the equivalent of $660. Pegasus flies from Istanbul to London, a four-hour flight, for the equivalent of $170. Those high costs to Uzbeki-stan are the result of insufficient competition, and similar situations exist in several other Central Asian and Middle East nations.

The key is liberalizing the flight regulatory regime between nations, Sabançi told ATW, but while Turkey is keen to proceed, several Central Asian nations want to protect their flag carriers: “It’s more important [for them] to have those flag carriers rather than to have

more tourists and business coming into the country.”While Sabançi remains hopeful of liberaliza-

tion in the longer term, Pegasus is trying another tack in Kyrgyzstan. “There’s almost no flying there, never mind no LCCs,” Sabançi noted. The carrier is developing a local airline in which it will be a large minority shareholder and pass on its know-how to local managers. An announcement is expected around the turn of the year.

“It would be wonderful to use this as a pattern for other Stans,” Sabançi said. “This part of the world is virgin territory.”

From Charter to Low-Cost

Pegasus Airlines began life in 1990 as a charter airline, effectively owned by major tour operators. In 2005 it was bought and the new management team, including Ali Sabançi, the US-educated scion of one of Turkey’s best-known industrial families, realized the time was ripe for change.

Turkey’s economy was booming and liberalization of domestic air services had taken place in 2003. However, Turkey’s airline landscape had been domi-nated for decades by national carrier Turkish Airlines and no private airlines had stepped up to the plate to create a domestic network.

“We realized that whenever there’s a dominant national player and a country liberalizes, the nimble players will prosper,” Sabançi said. Pegasus aimed for the gap in the domestic market and within two years had the biggest market share of all the country’s pri-vately owned carriers.

“Whenever there is a protected market sector [that is liberalized], that market explodes,” he noted.

Pegasus embarked on a “twin migration strategy”—from charters to scheduled services and from mid-cost

to low-cost. The biggest initial barrier turned out to be internal, with personnel resistant to change. To get them to buy into the new strategy, the airline set up a profit-sharing scheme that he says was unheard of in Turkish industry, in which 10% of pre-tax profits went to staff.

There was also initially some pushback from pas-sengers. They liked the lower fares, but disliked paying for onboard services such as food and drink. The car-rier pointed out they had previously been paying for those services upfront in Turkish Airlines’s headline price. Customers now understand they have a choice in whether they have a drink or sandwich (or even pre-order hot meals), Sabançi said.

“With the exception of someone who pays to fly first-class on a route like Frankfurt to Rio de Janeiro, this is a commodity business. People don’t want to spend their money on their travel, they want to spend it at their destination.”

Pegasus currently operates a fleet of 40 Boeing 737-800s and two 737-400s. Its home base is Istanbul Sabiha Gökçen International, the city’s second airport. It serves 20 points within Turkey and more than 30 internationally.

—Alan Dron

Pegasus_ATW_JAN13.indd 48 12/14/12 2:16 PM



Russian MarketRussia is also seen as fertile ground for Pegasus, but there are particular problems to operating there.

“Around four years ago … we realized that to be able to be in Russia we needed to have a partner. We met one person who was presented to us as the owner of a portfolio of airlines, including one called Sky Express. It looked very much like an LCC, operating Boeing 737-400s. The only problem was, it turned out that he didn’t own the company he was trying to sell to us.”

Despite such pitfalls Pegasus is starting to get use-ful traffic flows between Istanbul and major Russian regional centers such as Krasnodar, near the Black Sea and Omsk, in southwest Siberia. The service from Omsk to Istanbul, with its onward connections, is currently the only route for citizens of the Siberian city to travel to Europe.

But Pegasus remains blocked from both Moscow and St. Petersburg because the current bilateral desig-nates only a single carrier from either nation can fly between them and Istanbul. National carriers Turkish Airlines and Aeroflot take those roles.

However, Sabançi anticipates that the growth of public pressure will eventually force nations to open up their airspace to more competition: “The customer always wins.”

The same situation applies to increasing flights between Turkey and the Arabian peninsula, where Pegasus is pushing for flight rights: “As people get more sophisticated, they realize low-cost flying isn’t a threat, it’s a benefit to the population.”

Meanwhile, as it lobbies for more flights, Pegasus

remains interested in an IPO. This has been mooted for some time and the carrier actually pulled back from such a development around 18 months ago, but now, “all the stars seem to be aligning” and an offer-ing is anticipated sometime within the next two years.

Despite earlier pronouncements, one development that is definitely off the table is long-haul, low-cost flights. New York and Bangkok had been mooted as potential early destinations, but Sabançi says that only one such carrier, Air Asia X, has successfully adopted this model, and he remains unsure of exactly how suc-cessful it has been.

Long-haul services are currently “not even in our five-year plan,” although the possibility of tap-ping into the long-haul market through codeshares remains. The potential from Russia, Central Asia and the Middle East will be more than enough to keep Pegasus busy, he believes.

“As people get more sophisticated, they realize

low-cost flying isn’t a threat, it’s a

benefit to the population.”

—Pegasus chairman Ali Sabançi

Pegasus_ATW_JAN13.indd 49 12/14/12 2:16 PM


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2627

28

Airbus A320-100 rollout 1987

Boeing B-247 first flight 1933Tupolev TU-334 first flight 1999Boeing 747-8 Freighter first flight 2010

Boeing 747-100 first flight 1969Boeing 737-700 first flight 1997Embraer E-190 rollout 2004

Douglas DC-4 (C-54) first flight 1942 Douglas XC-112A (DC-6) first flight 1946

Airbus A310-200 rollout 1982Boeing 757-200 first flight 1982Embraer E-170 first flight 2002

Douglas DC-5 first flight 1939 McDonnell Douglas MD-90 first flight 1993Airbus A320 first flight 1987

Lockheed L-10 Electra first flight 1934McDonnell Douglas DC-9 first flight 1965

Aer Lingus Viscountphoto by Mel Lawrence

This sharp-looking airliner portrait taken at

This sharp-looking airliner portrait taken at

This sharp-looking airlinerLondon Heathrow in June of 1962 displays the

lines of this Aer Lingus/Irish Air Lines Viscount

800 to good advantage. The aircraft is in the

carrier’s Green Top livery (you were expecting

some other color?), and if you need further

visual evidence of nationality, take a look at th

visual evidence of nationality, take a look at th

visual evidence of

e

shamrock on the tail. EI-AJK, St. Cillian (Aer

Lingus aircraft have long been named for saints),

is four years old here, having been delivered in

February 1958.The Vickers Viscount was one of a number

of aircraft types developed by the Brabazon

Committee in the UK during the late 1940s.

It was designed from the outset for turboprop

propulsion, a major technological advance

versus the large number of piston-powered

designs originating elsewhere, including the US.

Initially targeted at the requirements of British

European Airlines (which was the first to order

the type), the proposed capacity was expanded

considerably to the 40-seat range, which

enhanced global sales prospects considerably.The Viscount proved to be a success in the

marketplace, with over 400 sold worldwide. US

carriers Capital, Continental and Northeast all

operated fleets of Viscounts. Aer Lingus operated

both the earlier Series 700 and the later and

larger Series 800 Viscounts on its European

network, including frequent service to principal

UK points, in particula

January 2013S m T W T F S1 2 3 4 56 7 8 9 10 11 1213 14 15 16 17 18 1920 21 22 23 24 25 2627 28 29 30 31

march 2013S m T W T F S1 23 4 5 6 7 8 910 11 12 13 14 15 1617 18 19 20 21 22 2324 25 26 27 28 29 3031

July 2013SundAy

MondAyTueSdAy

WedneSdAy ThurSdAyFridAy

SATurdAy

June 2013

S m T W T F S1

2 3 4 5 6 7 8

9 10 11 12 13 14 15

16 17 18 19 20 21 22

23 24 25 26 27 28 29

30

1 2 3 4 5 6

7 8 9 10 11 12 13

14 15 16 17 18 19 20

21 22 23 24 25 26 27

28 29 30 31

auguST 2013

S m T W

4 5 6

11 12 13

18 19

25 26 27

Douglas DC-1 first flight 1933

First Douglas mail plane, the

M-1, starts manufacturer’s

flight trials 1926

Boeing Model 40 mail plane

first flight 1925

Convair 110—prototype of

the Convair 240 first

flew 1946

Boeing 787 rollout 2007

Vickers Viscount

first flight 1948

Boeing 737-900 rollout 2000

Louis Bleriot piloted the

Bleriot XI across the English

Channel 1909

Boeing’s Model 80, a

12-passenger trimotor

biplane, first flight 1928

deHavilland DH-106 Comet 1

first flight 1949

Bombardier CRJ1000 first

production flight 2009

Embraer EMB 120 Brasilia

rollout 1983

Mohawk BAC-111

photo by George Hamlin

Prior to the opening of Newark, New Jersey’s new

terminal facilities in 1973, the observation decks

on what would come to be called the North

terminal was an excellent place to observe and

photograph airline operations. Portions of both

concourses (to be replaced by three complete

terminals) could be accessed, providing close-

up views of much of the operation, as well as

Newark’s earlier terminal building, at the left

above the Texaco fuel truck.

Mohawk Airlines, one of the Local Service

airlines launched after World War II, served all

three main NYC airports, and, for that matter,

was effectively the only airline service at this

point (January 23, 1972) at the White Plains/

Westchester County Airport, located to the north

of the city. Here, MO is showing off two examples

of the city. Here, MO is showing off two examples

of the city. Here, MO is showing

of its jet aircraft, in the form of the BAC-111

twin-jet.

The British-built aircraft was ordered by several

US carriers, including American Airlines, which

used what it called “400 Astrojets” (the number

referring to the series designation of their

aircraft), and in some cases competed directly

Please send me ATW’s 2013 Classic Airliner Calendar (ID: ATWCAC1312)

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Boeing’s Model 80, a

deHavilland DH-106 Comet 1

first flight 1949

20

scounts on its European

scounts on its European ervice to principal

network, including frequent s

network, including frequent sUK points, in particula

UK points, in particulaases competed directly ases competed directly

referring to the series designreferring to the series design

SPeCIAL OFFerGet a 2012 calendar Free with the purchase of the 2013 calendar.

212ATWpages.indd 62 11/13/12 2:13 PM

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It was the aviation news of 2012 that received far too little attention. Airbus’s top brass acknowledged pub-licly, to a room full of reporters at the Farnborough Airshow no less, that there will be no all-new narrow-

body commercial aircraft entering the market for at least another 18 years.

“Why 2030? Because that’s when the new engine technology will be coming forward,” Airbus COO-customers John Leahy explained.

Indeed, aircraft engine manufacturers GE Avia-tion, Pratt & Whitney and Rolls-Royce—and the joint ventures in which they participate—have taken center stage. It is they, not the airframe

manufacturers, who are driving both near-term orders and future aircraft development.

“Engine technology since the beginning of the jet age has driven sales,” Leahy said. Maybe so, but since Airbus and Boeing decided to re-engine the A320 and 737, respectively, rather than launch a new single-aisle jet aircraft, that notion has never been truer.

The A320neo, to be powered either by the GE/


Jumps in aircraft efficiency largely fall on

engine manufacturers. By aaron Karp

Engineering Innovation

FIRST PW1100G-JM engine being assembled in West Palm Beach. Photo courtesy Pratt & Whitney.

Engine_ATWJAN13.indd 51 12/17/12 9:46 AM




Snecma joint venture CFM International LEAP-1A powerplant or the Pratt & Whitney PW1100G engine, has secured nearly 1,600 firm orders since the program was launched in late 2010. It is slated to enter service in 2015. The 737 MAX, to be powered exclusively by the CFM LEAP-1B, has tallied nearly 1,000 firm orders since its launch in the 2011 sum-mer. It is scheduled to enter service in 2017.

Both Airbus and Boeing appear content to transi-tion from the current variants of their workhorse narrowbodies to the re-engined versions later this decade, and then ride those models through the end of the 2020s. That means the 737, which originally entered service in 1968, and the A320, which first flew commercially in 1988, will have significant, extended runs.

Airbus, in fact, tried to limit the changes between the classic A320 and the neo, leaving the engine manufacturers to provide the vast majority of the promised improvement in efficiency. “When we brought out the neo, we were proud that it had 95%

commonality with the [classic A320],” Leahy said.

Fueling demand“Over the next 20 years, 75% of the airplanes that will be delivered will be in that [narrowbody] seg-ment,” Pratt president David Hess told ATW last year. “That’s why we’ve decided to focus the next-generation product family in that 10,000-40,000 lbs. thrust segment.”

He noted that commercial aircraft and engine sales remain robust despite global economic uncertainty: “The price of jet fuel … is proving to be a two-edged sword. On the one hand, it’s challenging the airlines in terms of preserving their profitability. On the other hand, it’s stimulating a recapitalization of their fleets so they can replace older aircraft with newer, more fuel-efficient, re-engined aircraft. We’re seeing a very robust order stream.”

The world’s airlines have become increasingly fo-cused on fuel, concerned both by its persistently high cost and the emissions produced by burning it. While aircraft manufacturers can and do produce innova-tions to increase operating efficiency, the big leaps in fuel burn improvement being sought by airlines are primarily dependent on the engine manufacturers.

It is undeniable that, behind the scenes, there was a push by some at Boeing to develop an all-new nar-rowbody that would have entered service in the 2019-2020 timeframe. But the manufacturer ultimately decided that re-engining was a “low risk, low capital way” to tap into market demand for more fuel ef-ficient aircraft, as was explained by Boeing chairman, president and CEO Jim McNerney when the decision was made in 2011.

Rolls-Royce RepoRts coRRuptionconceRns to uK authoRties

Rolls-Royce in December contacted the UK’s Serious Fraud Office (SFO) over concerns that some overseas intermediaries have been involved in bribery and corruption.

The move followed a request earlier in 2012 from the SFO for information about allegations of malpractice in Indonesia and China. In a statement, Rolls-Royce said its own investigations had “identi-fied matters of concern in these and in other over-seas markets.”

While it is too early to predict the outcomes of regulators’ inquiries, they could include the prosecu-tion of individuals or of the company itself. It pledged

to cooperate fully in any official investigations.The company added it had “significantly

strengthened its compliance procedures in recent years, including a new global ethics code and a new intermediaries policy,” and has also expanded its compliance activities. As a further measure, it appointed an independent senior figure to lead a review of current procedures and deliver a report to the board’s ethics committee.

“I want to make it crystal clear that neither I nor the board will tolerate improper business conduct of any sort and will take all necessary action to ensure compliance,” Rolls-Royce CEO John Rishton said. “This is a company with exceptional prospects and I will not accept any behavior that undermines its future success.” —Alan Dron

While aircraft manufacturers

can and do produce innovations

to increase operating efficiency,

the big leaps in fuel burn

improvement being sought by

airlines are primarily dependent

on the engine manufacturers.




Boeing executives determined, he said, that “getting a massive production system up and run-ning by 2019” for an all-new aircraft could prove problematic. Airbus and Boeing essentially made a calculation that the 12%-15% fuel efficiency improvement promised by the re-engined models couldn’t significantly be topped by an all-new model—especially considering the production costs involved. As Leahy said, the aircraft manu-facturers will now wait on the engine producers to make the next big technological jump, one that would justify the production costs associated with a new narrowbody program. And that leap in engine technology is likely at least 15 years away, Airbus and Boeing believe.

Investing in technologyThe engine manufacturers, on the other hand, have not been reluctant to invest in new technology. Pratt, which has spent over $1 billion developing its geared turbofan (GTF) PW1000 series of engines, is at various stages of testing four versions of the GTF. In addition to being a choice to power the A320neo, PW1000 series engines also will be affixed to Bombardier’s CSeries, Mitsubishi Aircraft Corp.’s MRJ and the Irkut MC-21.

In recent remarks delivered at a ceremony signify-ing completion of the first PW1100 A320neo test engine, Pratt commercial development chief engineer Graham Webb noted that the East Hartford, Conn.-based company has worked “for over 20 years to develop and mature the revolutionary gear turbofan architecture [and] we are all now able to provide game changing benefits to airline customers in terms of re-duced fuel burn, emissions, noise and operating cost.”

He said the engine’s fan drive gear system “is the

fundamental enabler for the architecture which drives unprecedented gains in propulsive and also transfer efficiency … Our hybrid metallic fan blades, coupled with the composite fan case and fan exit guide vanes … enables significant weight savings while providing world-class performance … The advanced high efficiency core contains the latest in aerodynamic technologies.”

Pratt estimates there is a global market for 45,000 engines over the next two decades to power commercial aircraft in the 120-230 seat range. While last year it bought out Rolls-Royce’s shares in the International Aero Engines joint venture that builds V2500s to power A320 family aircraft, Pratt and Rolls have formed a new JV to explore the development of a next-generation engine for mid-size aircraft.

The companies have said the JV will focus on “high bypass ratio geared turbofan technology” and “collabo-rate on future studies for next generation propulsion systems, including advanced geared engines, open rotor technology and other advanced configurations.”

Rolls has probably been the most optimistic in terms of the potential of an open rotor design to power new narrowbody aircraft likely to be launched by Airbus and Boeing in 15 or more years.

CFM’s LEAP program, in addition to powering the 737 MAX and being an option on the A320neo, is also the sole Western engine for COMAC’s 150-seat C919, China’s attempt at manufacturing a narrowbody competitor to the 737 and the A320. With orders for 50 new engines at the recent Zhuhai Air Show, the LEAP program has secured orders for 4,352 engines valued at more than $52 billion at list prices.

GE/CFM also continues research on future designs, including an open rotor. “CFM will investigate innova-tive architectures, building a robust portfolio that will support a variety of new aircraft designs,” it said.

Imag

e co

urte

sy C

FM I

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Every major carrier in Europe is suffering. How would you sum up Swiss International Air Lines’ position? Basically, Swiss has to question itself about its current position. We are expecting a profit for 2012, but this profit will be significantly lower compared to 2011. This means that for two years, Swiss has shown a negative trend in earning results. This is something we have to worry about. In other words, we didn’t reach our goal to change that [nega-tive] trend direction. We have to work hard to be able to again make substantial earnings. Currently, we are far away from that point. There is a lot of work for Swiss to do.

What are your financial expectations for 2012? Swiss announced a CHF124 million profit ($135

million) for the third quarter, down 22% on the same period last year. Compared to last year, we are not performing as well. It is important for Swiss to reach an 8% margin. But for 2012 we are expecting just a 5% margin and that means we are far away from our target. These results do not keep us on track to remain sufficiently profitable to finance our future investments in the longer term.

Again, this 24-month negative trend is worrying.

How you can turn things around? The strong Swiss franc creates a special situation for our airline, giving us a disadvantage in terms of cost of about 30% com-pared to other European Union carriers. Swiss there-fore has to work much more efficiently and must be more focused on its costs than other airlines. We have made a lot of headway in the past. Our overhead costs are nearly 25% lower nowadays than they were three years ago. But there is still potential for improvement. Efficiency management of the fleet could be better.

There is no alternative other than to work very hard on our cost management. What that means in detail will be worked out within many projects as part of the Lufthansa earnings-improvement program SCORE. Everyone in our company will be involved.

Do you expect to have to cut salaries? No, I don’t think we are in that position now. But improving productivity, for example getting more flying hours, would be a good idea.

Are you talking with your employees about

Swiss International Air Lines, which is owned by Star

Alliance’s Lufthansa Group, was for the longest time a

benchmark in the European airline industry in terms of

profitability, service and setting new trends. But a tough

operating environment has resulted in Swiss losing its lead

position regarding cost competitiveness within the group.

Harry Hohmeister has been with Swiss International Air

Lines CEO since July 2009. He joined Lufthansa in 1985 and

held a number of executive positions within the company,

initially with co-responsibility for European fleet and

schedule planning and development. In February 2000 he

moved to Thomas Cook Airlines, joining Swiss as a member

of the management board and head of network in 2005.

Eyes on the Goal

IntervIew

Harry HoHmeister CEO, SWISS IntErnAtIOnAL AIr LInES

by Kurt Hofmann

QA_ ATWJAN13.indd 54 12/17/12 11:50 AM



these cost-cutting ideas? There have been no concrete talks yet. But our employee representatives know that Swiss cannot continue the way as it has done in the past. Our employees realize that we have to return to stronger profits and change the cost structure to make Swiss ready for the future. I believe we can work on these issues very constructively in 2013 and perhaps we can also stop the negative trend this year.

How does your cost structure compare to other Lufthansa Group airlines like Brussels or Austrian? Our position has been affected by the strong Swiss franc. Comparing our position within the group against Brussels Airlines and Vienna (Aus-trian Airlines), we switched into a negative direction. We used to hold the top position (within Lufthansa Group airlines). Today, if you look at Swiss from the international perspective, we are just somewhere in the middle field. That’s why we have to work on our cost structure.

Swiss operates the Airbus A340-300. When will you replace them? It is clear that there will be a replacement decision regarding the A340-300. But we have to be realistic. We can only order new aircraft when we can afford them. First, we have to make good money. Swiss is involved in all fleet orders made by the Lufthansa Group. But at the end of the day, we take the risk and the responsibility for our own decisions.

Easyjet has a strong position in Geneva. Swiss now bases its crews there, offering more flexible fares, installing a separate management struc-ture. Is this a competitive move against Easyjet? Personally, I am not that interested in Easyjet. I’m much more focused on serving our customers in Ge-neva better and on expanding our presence there. In Geneva you see two types of passenger needs. Easyjet serves a different clientele from Swiss, although of course there are some overlaps.

Since 2006, we have tripled our passenger numbers in Geneva and reached a size that warrants its own management team.

Lufthansa and Germanwings are changing their business models in Europe to make their continen-tal businesses profitable. What does that mean for Swiss? We will talk with Germanwings about that in January with CEO Thomas Winkelmann.

You are a member of the Austrian Airlines board. How do you see their restructuring progressing over the past 12 months? The measures Austrian implemented created the turnaround and Austrian became a leader for the industry in terms of restruc-turing. What other carrier can demonstrate that in this tough environment? The carrier set new standards in terms of improving efficiency, reducing costs, and also improving results and operating routes so that Austrian can make money.

So there is a lot of similar work for Swiss to do? As with all carriers, an airline is a permanent construction site.

“Our EmpLOYEE rEprESEntAtIvES knOW tHAt SWISS cannot continue the way as it has done in the past.”

QA_ ATWJAN13.indd 55 12/17/12 11:50 AM


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TRENDS Aircraft Data | 58 Deliveries | 59 Traffic | 60 TRENDS


TRENDS

US * 2012 2011 % chg

RPKs (mil.) 778,756 767,976 1.4

ASKs (mil.) 943,035 940,621 0.3

Pass. (000) 433,000 427,900 1.2

Pass. LF (%) 82.6 81.7 0.9

FTKs (mil.) 52,408 54,860 -4.5

* January-July. Source: US DOT BTS.

1. July . 2. June *Includes Regional operations. Source: ATW Research, direct airline reports.

RANK AiRliNe RPKs (000)

1 Delta * 23,300,872

2 United Continental 21,170,844

3 Air France KLM 17,216,000

4 AMR Corp. 15,830,503

5 Emirates 1 15,281,756

6 Lufthansa 15,145,000

7 Southwest † 13,111,308

8 British Airways 9,767,000

9 Qantas Group 1 9,597,000

10 LATAM Airlines Group 8,659,000

11 Cathay Pacific 8,110,404

12 US Airways 7,795,798

13 Singapore Airlines 7,468,000

14 Air Canada 5,923,000

15 ANA 1 5,421,909

16 Korean Air 2 5,329,450

17 Turkish Airlines 5,167,000

18 Thai Airways 2 4,690,000

19 JetBlue 4,309,494

20 Japan Airlines 4,010,456

toP 20 RePoRtiNg AiRliNeS SYSteM tRAFFic/NoveMbeR 2012

eURoPe 2012 2011 % chg

RPKs (mil.) 736,514 704,124 4.6

ASKs (mil.) 926,333 903,739 2.5

Pass. (000) 315,565 306,671 2.9

Pass. LF (%) 79.5 77.8 1.7

FTKs (mil.) 27,195 28,299 -3.9

Source: AEA

ASiA PAciFic 2012 2011 % chg

RPKs (mil.) 643,008 608,862 5.6

ASKs (mil.) 824,474 792,769 4.0

Pass. (000) 171,824 160,780 6.9

Pass. LF (%) 78.0 76.8 1.2

FTKs (mil.) 49,036 51,104 -4.0

Source: AAPA

lAtiN AMeRicA 2012 2011 % chg

RPKs (mil.) 187,909 173,960 8.0

ASKs (mil.) 245,902 231,286 6.3

Pass. (000) 123,958 115,597 7.2

Pass. LF (%) 76.4 75.2 1.2

FTKs (mil.) 3,518 3,445 5.2

Source: ALTA

WoRlD AiRliNe tRAFFic JANUARY-octobeR 2012

1. .October. 2, September. * Includes Regional operations. Source: ATW Research, direct airline reports.

iAtA tRAFFic gRoWth bY RegioN (%)octobeR 2012

RPK ASK PASS lF FtK AFtK

october 2012 vs. october 2011

Africa 3.3 2.4 68.4 -0.5 2.7

Asia Pacific 2.9 3.4 76.7 -6.8 -4.6

Europe 2.3 1.5 80.0 -4.3 -1.7

Latin America 8.7 6.0 75.3 0.9 8.6

Middle East 11.6 10.9 75.3 13.4 8.6

North America -0.3 -1.5 83.3 -5.3 -5.4

Industry 2.8 2.3 78.8 -3.5 -2.2

YtD 2012 vs. 2011

Africa 7.4 6.9 67.7 5.9 10.3

Asia/Pacific 5.9 5.2 77.6 -6.0 -2.3

Europe 5.4 3.3 80.1 -3.3 0.9

Latin America 10.0 8.2 76.2 -1.8 8.0

Middle East 16.0 12.5 77.9 14.3 12.0

North America 0.8 -0.2 83.1 -1.2 -2.2

Industry 5.3 4.0 79.4 -2.0 0.5

Source: IATA

Rob

Fin

lays

on

Trends_Jan13.indd 57 12/18/12 10:01 AM


TRENDS


SHARE IN WORLD INDEX

CTS/ GAL.

$/BBL $/MT INDEX VALUE

2000=100

VS. 1 MONTH

AGO

VS. 1 YR.AGO

Jet Fuel Price 100.0% 305.5 128.3 1011.3 350.8 0.1% 2.1%

Asia & Oceania 22% 300.6 126.2 997.3 360.7 -1.0% -0.1%

Europe & CIS 28% 310.0 130.2 1026.1 350.8 0.1% 2.8%

Middle East & Africa 7% 296.9 124.7 983.9 372.4 -0.6% 0.6%

North America 39.0% 305.4 128.3 1012.0 341.0 0.8% 2.8%

Latin & Central America 4% 316.1 132.7 1022.2 367.7 1.7% 3.2%

Impact on the global airline industry's fuel bill this year:

New fuel price average for 2012 $129.8/b

Impact on 2012 fuel bill +33 billion

JET FUEL PRICE MONITORNOVEMBER 30, 2012

US ONTIME PERFORMANCE OCTOBER 2012

Ranked by % of arrivals ontime at all reported airports. Source: US DOT.

AIRCRAFT DATA

Demographics as of September 2012. Source: Aviation Specialists Group, Inc.

777 FREIGHTER A330-200F 747-8F

MTOW, 000#s

766.8 500.4 - 513.7 975

Engine Types

GE90-110B1 64; GE90-110B1L 1

PW4170A 4; Trent 772B-60 10

Genx-2B67 25

# in Fleet 65 14 25

# of Operators

13 6 7

# on Order 62 38 48

Geographic Distribution

Europe 13 3 10

Africa- Mid East

10 2

Asia- Pacific

14 9 10

North America

25 5

South America

3

Avg. Age of Fleet

1.9 1.3 0.9

Source: US DOT Form 41 filings. Costs do not include taxes, into-plane fees, or expenses associated with hedging programs. Based on last carrier submissions, the gallons used above represents 99.9% of the total consumption by Major, National and Large Regional carriers.

US FUEL COST AND CONSUMPTIONOCTOBER 2012

Operation Total gallons (000)

Cost/ gallon

(cents)

Chg. month (cents)

Chg. year

(cents)

Total Domestic 853,157 309.0 5.0 27.0

Total International 521,055 299.0 16.0 16.0

System Total 1,374,212 305.0 9.0 23.0

Aircraft Year Built 2013*

2018** 2023** 2028**

777F 2010 $140.2 $114.6 $92.2 $73.1

A330-200F 2010 $78.5 $63.8 $51.4 $40.8

747-8F 2011 $173.5 $137.1 $109.5 $86.7

AIRCRAFT VALUES

Values assume half-life, half-time condition. * Current Market Value—Most likely trading price under current market conditions, rounded to nearest US$ million. ** Future Base Value—value in a balanced market, inflated at 1.5% p.a., rounded to nearest US$ million. Source: AVITAS, Inc.

FBV @ 1.5% Inflation

0 20 40 60 80 100

AmericanJetBlueUnited

ExpressJetFrontier

SkyWestAmerican EagleVirgin America

SouthwestUS Airways

MesaDelta

AirTranAlaska

Hawaiian

0.0

0.2

0.4

0.6

0.8

1.0

n.a.

2012

2011

Trends_Jan13.indd 58 12/14/12 4:15 PM


TRENDS


AIRLINE MODEL ENGINE DELIVERY

BOEING DELIVERIES

AIRCRAFT DELIVERIESNoVEmbER 2012

Source: Airbus

AIRLINE MODEL DELIVERY

AIRBUS DELIVERIES

Source: Boeing

Aviation Capital Group 737-800 CF 1-NovNorwegian 737-800 CF 1-NovSouthwest Airlines 737-800 CF 1-NovUnited Airlines 737-900ER CF 2-NovLion Air 737-800 CF 5-NovSouthwest Airlines 737-800 CF 5-NovUnited Airlines 737-900ER CF 5-NovAmerican Airlines 737-800 CF 6-NovBBAM 737-800 CF 6-NovPhilippine Airlines 777-300ER GE 6-NovQatar Airways 787-8 GE 6-NovAlaska Airlines 737-900ER CF 7-NovBOC Aviation 737-800 CF 8-NovChina Southern Airlines 737-800 CF 8-NovTurkish Airlines 737-900ER CF 8-NovFedEx 777F GE 9-NovILFC 737-800 CF 9-NovLOT Polish Airlines 787-8 RR 9-NovMalaysia Airlines 737-800 CF 9-NovALC 737-800 CF 13-Novflydubai 737-800 CF 13-NovGOL Airlines 737-800 CF 13-NovLAN Airlines 767-300ER GE 13-NovEthiopian Airlines 737-800 CF 14-NovComair Ltd. 737-800 CF 15-NovAir China 737-800 CF 16-NovEmirates 777-300ER GE 16-NovLion Air 737-900ER CF 16-NovSouthwest Airlines 737-800 CF 16-NovAmerican Airlines 737-800 CF 19-NovCargolux Airlines 747-8F GE 19-NovTUI Travel PLC 737-800 CF 19-NovAmerican Airlines 737-800 CF 20-NovBBAM 737-800 CF 20-NovEthiopian Airlines 787-8 GE 20-NovTAM 777-300ER GE 20-NovUnited Airlines 737-900ER CF 20-NovDHL Int'l. 767-300F GE 21-NovQatar Airways 787-8 GE 21-NovUnited Air Lines 787-8 GE 21-NovVolga-Dnepr UK Ltd. 747-8F GE 26-NovSouthwest Airlines 737-800 CF 28-NovAir Berlin 737-800 CF 29-NovAir China 737-800 CF 29-NovChina Eastern 737-700 CF 29-NovDubai Aerospace Enterprise 777F GE 29-NovEmirates 777-300ER GE 30-NovPegasus Airlines 737-800 CF 30-Nov

Avianca (TACA Int'l. Airlines) A320 3-NovJuneyao Airlines A320 3-NovCIT (Asiana Airlines) A321 7-NovTAM A319 7-NovEasyJet A320 8-NovJetBlue Airways A320 8-NovChina Southern Airlines A321 9-NovAirAsia A320 10-NovAirAsia (Thai AirAsia) A320 10-NovEmirates A380 10-NovInterjet A320 10-NovSMBC Aviation Capital (Garuda) A320 10-NovAirAsia (Indonesia AirAsia) A320 14-NovEtihad Airways A320 14-NovLATAM Airlines Group A320 14-NovQantas Airways (JetStar Japan) A320 14-NovSichuan Airlines A320 14-NovBOC Aviation (Jetstar) A320 15-NovAir Berlin A320 16-NovIndigo A320 16-NovSpirit Airlines A320 16-NovVirgin Atlantic A330-300 16-NovBOC Aviation (Dragonair) A320 17-NovTUI Travel Aviation Finance Co. (Corsair Int'l.) A330-300 17-NovChina Eastern Airlines A319 20-NovVolaris A320 20-NovAvianca A320 21-NovAWAS (Royal Jordanian Airlines) A320 21-NovChina Eastern Airlines A320 21-NovInterjet A320 21-NovCIT (Qantas Airways) A330-200 24-NovQatar Airways A320 24-NovTibet Airlines A319 24-NovAir Astana A321 27-NovCathay Pacific A330-300 27-NovCIT (Garuda Indonesia Airways) A320 27-NovTransasia Airways A330-300 27-NovVolaris A320 27-NovAWAS (Philippine Airlines) A320 28-NovGECAS (Peach Aviation) A320 28-NovThai Airways Int'l. A380 29-NovTiger Airways (Mandala Airlines) A320 29-NovCebu Air A320 30-NovUS Airways A321 30-NovVietnam Airlines A321 30-Nov


TRENDS


Source: IATA

Airline Pass.(000)

% Chg. RPks (000) % Chg. Load Factor%

Change Month

ASIAAir New Zealand 1,054 10.2 2,134,000 2.2 81 .7 -0.6 Oct.

ANA 4,041 0.4 5,421,909 2.7 68.3 -1.2 Oct.Asiana 1 886 5.2 2,415,759 5.2 7 1 .1 -3.1 Sept.Bangkok Airways 1 63 12.5 70,616 16.6 50.9 -5.5 Sept.Cathay Pacific 2,361 3.8 8,110,404 -3.5 79.2 0.7 Nov.China Airlines 1 949 2.9 2,584,317 0.3 76.7 2.2 Sept.EVA Air 1 587 9.3 1,996,776 2.5 75.7 -1.3 Sept.

Garuda 1 282 4.3 965,720 -0.5 75.6 0.6 Sept.Japan Airlines 2,041 -24.1 4,010,456 -8.0 74.7 4 . 6 Nov.Korean Air 1 1,346 4.1 5,329,450 3.9 78.0 3.6 Sept.

Malaysia Airlines 1 677 -5.2 2,777,304 -7.8 75.4 -2.6 Sept.Philippine Airlines 1 266 -3.4 968,161 -8.7 57.2 -6.0 Sept.Qantas Group 4,220 7.4 9,597,000 3.4 79.8 -1.6 Oct.Royal Brunei 1 77 -30.1 294,787 -33.5 7 1 . 3 -1.5 Sept.Silkair 1 250 5.8 393,138 13.9 68.9 -2.7 Sept.Singapore Airlines 1,531 9.7 7,468,000 9.1 77.7 2.5 Nov.Thai Airways 1,578 6.5 4,690,000 4.1 71.7 2.5 Sept.Vietnam Airlines 1 390 3.3 1,254,950 8.0 79.0 6.8 Sept.1. International only.

EUROPEAdria 66 -1.0 70,637 11.0 56.8 -2.0 Nov.Aer Lingus 680 -0.4 1,014,000 0.9 76.6 1.5 Nov.Air Baltic 176 -13.0 179,679 -18.7 61.0 -13.0 Nov..Air France KLM 6,005 2.3 17,216,000 2.2 81 .2 1.5 Nov.Austrian Airlines 863 2.3 1,295,000 -1.2 75.3 5.3 Nov.British Airways — — 9,767,000 7.6 77.7 3.3 Nov.Brussels Airlines 518 -2.3 806,260 5.4 68.6 0.6 Oct.Croatia 119 6.1 80,473 7.0 63.3 -3.8 Nov.Czech 213 -19.9 267,064 -13.4 67.0 6.9 Nov.easyJet 4,117 7.7 — — 89.6 1.3 Nov.Finnair 663 10.1 1,793,200 10.5 73.0 4.5 Nov.Iberia — — 3,598,000 -5.8 75.7 -1.9 Nov.Lufthansa 2 7,691 -1.3 15,145,000 -0.5 75.5 1.4 Nov.Lufthansa Cargo 4 — — 770,000 -1.7 72.4 2.6 Nov.Norwegian 1,459 12.0 1,458,872 12.0 76.0 -1.0 Nov.Ryanair 4,680 5.0 — — 80.0 0.0 Nov.Scandinavian Airlines 2,142 1.7 2,149,000 6 . 2 69.1 -0.1 Nov.Swiss 3 1,245 -0.2 2,823,000 4.5 79.6 1.6 Nov.Turkish Airlines 3,177 17.8 5,167,000 4.6 63.4 -7.4 Nov..Vueling 964 17.0 892,000 26.4 77.1 0.6 Nov.

Wideroe 252 12.6 74,000 11.8 58.5 0.8 Nov.

1. International only. 2. Includes Lufthansa Regional and Lufthansa Italia. 3. Includes Edelweiss Air. 4. RPKs are FTKs; LF is Cargo LF, for Cargo only airlines.

LATIN AMERICAAviancaTaca 1,983 12.2 — — — — Oct.Copa Airlines* — — 1,767,165 26.5 76.7 1.9 Nov.Gol — — 3,029,900 4.0 69.1 3.3 Oct.Grupo Aeromexico 1,242 0.6 1,948,000 2.6 76.1 -1.7 Nov.LATAM Airlines Group 5,573 11.6 8,659,000 10.1 76.9 2.5 Nov.

MIddLE EAST/AFRICAEmirates 3,240 16.6 15,281,756 17.1 76.8 -0.7 Oct.

NORTH AMERICAABX Air 3, 4 — — 71,366 4.1 — — Aug.Alaska 1,495 4.3 3,242,000 9.4 86.4 0.0 Nov.Allegiant 524 15.4 802,387 23.0 85.7 -4.0 Nov.Air Canada — — 5,923,000 4.6 78.1 2.2 Nov.

AIRLINE TRAFFIC BY REGION

Trends_Jan13.indd 60 12/18/12 10:18 AM


TRENDS


Airline TrAffic BY reGiOn

Source: IATA

Airline Pass.(000)

% chg. rPks (000) % chg. load factor%

change Month

Air Wisconsin 4 562 9.8 191,579 18.8 77.6 2.7 Aug.AMR Corp. 1 6,881 1.1 15,830,503 1.0 81.2 -1.1 Nov.Atlas 3, 4 — — 435,625 10.3 — — Aug.Comair 4 284 -41.2 250,217 -29.3 83.6 4.4 Aug.Compass Airlines 4 377 12.5 444,800 10.3 82.4 0.1 Aug.

Delta * 12,999 0.6 23,300,872 1.2 82.5 1.1 Nov.Evergreen Int'l. 3, 4 — — 71,270 -36.9 — — Aug.FedEx 3, 4 — — 1,381,310 2.7 — — Aug.Frontier Airlines 4 949 -10.1 1,555,494 -3.8 93.1 2.5 Aug.Hawaiian Airlines 791 11.8 1,719,197 24.9 82.4 -2.0 Nov.Horizon Air 569 8.2 279,966 8.1 79.8 0.5 Nov.JetBlue 2,340 6.5 4,309,494 5.7 81.5 -1.8 Nov.Kalitta Air — — 148,264 -5.1 — — Aug.Mesa Airlines 4 676 -9.5 511,088 -8.7 86.3 6.5 Aug.Polar Air Cargo 3, 4 — — 146,767 -2.8 — — Aug.Porter Airlines — — 110,860 -11.9 54.5 -11.4 Nov.PSA Airlines 4 447 8.0 290,093 20.1 80.1 6.0 Aug.Republic Airlines 4 880 -5.4 724,100 -9.9 83.3 2.8 Aug.Shuttle America 4 544 19.8 554,804 17.0 77.8 9. 2 Aug.SkyWest Inc. 2 4,808 8.0 3,968,235 4.8 81.0 0 . 7 Nov.Southern Air 3, 4 — — 204,572 39.5 — — Aug.Southwest † 8,850 -3.3 13,111,308 -1.5 80.0 -1.6 Nov.Spirit Airlines 4 947 23.5 1,409,481 18.1 86.5 -1.4 Aug.United Continental 7,035 -4.2 21,170,844 -2.9 81.6 0.0 Nov.UPS 3, 4 — — 910,849 -2.1 — — Aug.US Airways 4,487 2.9 7,795,798 4.0 85.1 1.3 Nov.Virgin America 4 600 28.5 1,548,188 31.0 82.3 -3.4 Aug.

WestJet — — 2,335,000 8.3 82.6 5.0 Nov.

World Airways 3, 4 — — 62,649 -52.1 — — Aug.

* Includes Regional operations. † Includes AirTran. 1. Combined American Eagle, Executive Airlines and American Connection. 2. Combined traffic for SkyWest Airlines, Atlantic Southeast Airlines and ExpressJet Airlines. 3. FTKs in place of RPKs. 4. DOT data. To submit your airline traffic data to ATW, please contact Kathy Young at [email protected].

US MiShAndled BAGGAGe OcTOBer 2012

0 1 2 3 4 5 6

American EagleMesa

SkyWestExpressJet

UnitedHawaiian

SouthwestAlaska

AmericanFrontier

US AirwaysDelta

AirTranJetBlue

Virgin America

Ranked by reports per 1,000 passengers. Source: US DOT.

n.a.

2012

2011

Ranked by complaints per 100,000 passengers. Source: US DOT.

US cOnSUMer cOMPlAinTS OcTOBer 2012

0.0 0.5 1.0 1.5 2.0 2.5 3.0

UnitedAmericanHawaiian

Virgin AmericaFrontier

US AirwaysAmerican Eagle

SkyWestJetBlueAlaska

DeltaMesa

ExpressJetAirTran

Southwest

2012

2011

n.a.

Trends_Jan13.indd 61 12/17/12 1:47 PM



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COMMENTARY

In 2005 European Union Regulation 261/2004 on passen-ger rights in aviation came into

force. Its main objective was to dissuade airlines from excessive overbooking (leading to denied boarding) or cancel-lations for commercial reasons. When passengers fall victim to this and are left stranded, airlines see commercial gains. The regulation provided an incentive for airlines to change their behavior in this respect by compelling them to provide care and assistance and to pay passengers financial compensation of between €250 and €600 ($325 and $780), depending on the distance of the flight.

In November 2009, however, the European Court of Justice expanded this EU regulation by extending this entitlement to financial compensation to passengers whose flights are delayed by three hours or more. This came as an unwelcome shock because by doing so the court went against the explicit choice of the legislators and was effectively act-ing as legislator itself. Moreover, such an extension seemed contrary to the basic purpose of the regulation because, unlike denied boarding and cancellation, flights are rarely if ever delayed on the decision of the airline and there is no commercial gain involved, only costs.

The court was given an opportunity to reconsider its position in two further referred cases, but in its judgment on these

references delivered Oct. 23, it confirmed its previ-ous ruling.

While this may seem good news for passen-gers, it has serious con-sequences for the bal-ance of the relationship between passengers and airlines. A high level of protection of passengers’ interests must have a limit, and must not be to the detriment of economic viabil-ity and safe operation of airlines.

Moreover, the ruling is demonstrably incorrect from a legal point of view. The main basis on which the court justified its extraordinary decision was that it was required by the EU law principle of equal treatment, in that passengers who suffer a delay should be treated in the same way as those passengers whose flights are cancelled and are entitled to compensation. However, if such pre-cisely equal treatment is really required by the law (which is highly question-able) then the proper legal solution is for the court to declare the cancellation provisions invalid — not rewrite the legislation.

Moreover, the court held that this “principle” took priority over the principle of legal certainty, without giving any justi-fication for this astounding preference.

The court did not agree with argu-ments that such an interpretation is con-trary to the obligations of the EU and its member states as parties to the 1999 Montreal Convention. The court also rejected arguments that such a remedy is disproportionate, largely because it was not convinced by the evidence that the financial effect on airlines would be very significant, or that fares would rise

or services be reduced as a result. However, the financial consequences for airlines (and passen-gers in the longer term) remain to be seen. It is “ivory tower thinking” not to consider it dis-proportionate that a pas-senger who arrives at his destination three hours

late should in some cases fly at no cost and in others actually make a profit.

The court did confirm that passengers are not entitled to compensation if the airline can show the delay was caused by “extraordinary circumstances which could not have been avoided even if all reasonable measures had been taken.” The court adequately uses the phrase “beyond the actual control of the air carrier.” While this seems self evident where delays are caused by weather, strikes and ATC, there may be a need for clarification with respect to unex-pected flight safety shortcomings in the regulation. As to unforeseeable technical failures occurring while the aircraft is in operation, it should be noted that the aviation industry focuses on their avoid-ance in the interests of safety.

This decision can only be understood from a policy perspective. From a legal perspective it is a disgrace.

The Commission will shortly propose a revision of the regulation. This may well include provisions on compensa-tion for delay. If such provisions are proposed and then adopted, it will be after they have been properly debated and subjected to the democratic legisla-tive procedures, and not as a result of the court’s unjustified interference in the legislative process.

Legal TravestyThe European Court has abandoned the rule of law with its passenger rights bill. Pablo Mendes de Leon

Pablo Mendes de Leon is a professor of air and space law and director of the International Institute of Air and Space Law at Leiden University in The Netherlands and John Balfour, Consultant, Clyde & Co.

“

QQ The views expressed here are the author’s own.

ATW welcomes commentary submissions by experts on issues of interest to the global air transportation industry. To submit a commentary or get information on submission guidelines, contact Editor-in-Chief Karen Walker at [email protected] or call 1 301 755 0165.

Commentary_JAN13.indd 64 12/14/12 1:56 PM



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