ALL NEWS. NO SNARK. (OK, SOME SNARK.)
By Joe Brancatelli
May 1, 2008 -- As a matter of complete and absolute disclosure between columnist and frequent flying reader, I must make this disclosure: Every one of the following news items merits its own column, complete with my patented snarky remarks, my stupendously brilliant analysis and my never-ending cascade of obscure references to the Simpsons, Sondheim, The Prisoner or some other pop-culture icon.
Unfortunately, I only write one Brancatelli File a week and I've got to squeeze all of these column-worthy items into one little packet. So let's not waste any more electrons and get right to the news.
AIRFARES AND SURCHARGES AND BIG SIX MATH, OH MY…
Let's start with this given: Fuel costs for the legacy airlines are skyrocketing because the price of oil has skyrocketed and the Big Six were too stupid or too pennywise to emulate Southwest Airlines' ultra-aggressive fuel-hedging strategy. And let's assume this: The airlines are going to pass the higher costs to us in the form of higher fares and fuel surcharges.
Now the $64 (or thereabouts) question: Have the airlines simply passed along their higher costs or are they ripping us business travelers off? (I know you know the answer, but suspend your disbelief at least until I show you the figures, okay?)
According to the statements released by the airlines along with their first-quarter financial results, the Big Six paid a combined $2.9 billion more for fuel than they did in the first quarter of 2007. In this year's first quarter, they flew approximately 144 billion revenue passenger miles. (That's the total number of miles an airline carried paying passengers.) If you hit your computer's calculator key, you'll see that means the Big Six claimed they paid an extra 2 cents in fuel for every mile they flew a paying passenger in the first quarter. Meanwhile, the government says the average flight is about 721 miles. That means the airlines paid an extra $14.42 per passenger for fuel in the first three months of the year.
What did they charge us? According to Rick Seaney, the obsessive fare watcher at FareCompare, the airlines raised the domestic fuel surcharge $15 during the first quarter. (International fuel surcharges are as high as $250 on some routes.) In addition, the Big Six raised basic airfares four times in the first quarter; the increases added $17-$34 more to each one-way fare. In other words, a total first-quarter price hike of $32-$49 each way.
Yeah, I know you're not surprised. But think about it: The Big Six may be the only businesses on the planet that can overcharge their customers for fuel and still lose money…
MEANWHILE, IN THE SECOND QUARTER…
If the above troubles you, let's consider the speed with which the airlines have been raising fares and fuel surcharges during the first 31 days of the second quarter. According to Seaney, the domestic fuel surcharge has already jumped twice, for a total of $20-$60 roundtrip. Fares have also risen twice this month, adding another $8-$100 roundtrip.
APPLES AND ORANGES, FARES THEN AND FARES NOW…
As fees and fares rise precipitously, apologists for the major carriers are trotting out an old cant: Fares are still lower now than they were X years ago. That talking point isn't actually true, a matter we'll analyze and discuss in coming weeks. But even if it were, the fare being paid today is no longer an apples-to-apples comparison to the fare being paid, say, at the dawn of deregulation in 1978.
Thirty years ago, the basic coach fare included 34 inches of legroom (it's 30-32 inches today); an in-flight meal (you pay today); a seat assignment anywhere you chose (some carriers now charge for the "preferred seats"); two checked bags weighing 70 pounds (today it's a single, 50-pound bag); and free curbside check-in (now you pay). The price you paid then included a paper ticket (today you pay for anything other than E-tickets); no charge for where you made the purchase (now you pay for phone or airport ticketing); and interlining (most airlines today refuse to honor another carrier's ticket). Then there is this: Back-in-the-day fares were refundable (most aren't today); could be changed free of charge (now the change fee is up to $150); were good for standby travel (today that's a $25 fee); and they included all taxes and fees. (Today's fares don't cover fuel surcharges, security fees, airport facility charges and other ups and extras.) Lastly, consider the fact that fares back then covered more nonstop itineraries, more traditional jet travel and faster flights with fewer delays.
ABOUT THAT PECULIAR EOS AIRLINES BANKRUPTCY…
When Eos Airlines tanked on Sunday, I was shocked, but not surprised. After all, it was the fifth airline of the month to fold. Still, the first reports said the airline filed for Chapter 11 with $70 million in assets and less than $35 million in liabilities. That was both shocking and surprising.
Now that the supporting paperwork has been filed, the shutdown of the all-business-class airline that flew between New York/Kennedy and London/Stansted seems even more peculiar. And if you can look past the top-line number (Eos burned through about $120 million since it launched in the fall of 2005), the reason for its closure is fascinating.
According to an affidavit filed by the airline's chief financial officer, Eos had secured a promise of $50 million in new funding from an existing investor. Before the unnamed investor would close, however, he/she/it demanded concessions from Eos' suppliers. Eos approached its aircraft lessors and, when confronted with the concession request, the lessors promptly issued default and termination notices. Eos management eventually convinced the lessors of six of the seven aircraft to rescind the notices. That wasn't enough for the unnamed investor, however. He/she/it claimed that the Department of Transportation was "concern[ed]" by the term sheet of the new funding. Then the investor simply pulled out, claiming he/she/it "was no longer interested."
The closure comes while new Boeing 757s were being outfitted with the airline's 48-seat configuration, Eos employees were in the Middle East planning new service and the airline's Newark-Stansted route was ready to launch next week.
CONNECT THE OPEN SKIES DOTS…
As you know, there is now an "open skies" regimen between the United States and the European Community. It means carriers can pretty much fly wherever they wish across the Atlantic. The four major U.S. carriers not previously serving London's Heathrow Airport promptly launched flights there in March. British Airways is creating an airline called OpenSkies to fly between New York and the continent. Air France is already flying between Los Angeles and Heathrow. The only transatlantic mega-player not yet heard from: Lufthansa.
But consider this: Lufthansa recently bought a 19 percent share of JetBlue Airways. The German carrier announced last week that it would exercise its long-held option to buy bmi, which already flies to Manchester, England, from Chicago and Las Vegas. Bmi also has more slots at Heathrow than any carrier except BA. Today, JetBlue hired Robin Hayes, BA's top man in North America, to be its chief commercial officer.
Is it so hard to imagine that, sometime soon, Lufthansa essentially uses JetBlue to launch a lower-fare, higher-frills subsidiary to fly to Heathrow? Lufthansa's got the aircraft, the slots, the people, JetBlue's soon-to-open new terminal at Kennedy and a strong JetBlue presence in gateway cities such as Boston, Washington, Fort Lauderdale and Orlando.
That's it for this week. Be seeing you. Hey, that was a Prisoner reference. Good to know there was room for at least one … or six of one.
ABOUT JOE BRANCATELLI Joe Brancatelli is a publication consultant, which means that he helps media companies start, fix and reposition newspapers, magazines and Web sites. He's also the former executive editor of Frequent Flyer and has been a consultant to or columnist for more business-travel and leisure-travel publishing operations than he can remember. He started his career as a business journalist and created JoeSentMe in the dark days after 9/11 while he was stranded in a hotel room in San Francisco. He lives on the Hudson River in the tourist town of Cold Spring.
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This column is Copyright © 2008 by Joe Brancatelli. JoeSentMe.com is Copyright © 2008 by Joe Brancatelli. All rights reserved.