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Monday November 16, 2009

Chinese government changed its policy regarding fuel surcharges and from Saturday is allowing individual airlines to choose the timing and amount of those surcharges instead of basing them on directives from authorities in Beijing. The government did stipulate that carriers should link surcharges on domestic routes with the domestic fuel price, meaning they can impose surcharges only when domestic fuel prices rise above CNY4,410 ($645) per ton. They can levy fuel surcharges at will on international routes. Fuel currently accounts for about 40% of the total operating cost of Chinese airlines, and the government had suspended surcharges for the 10 months prior to its ruling. Last week the domestic fuel price was raised 6.6% to CNY5,190 per ton. That will increase the annual fuel bills for China Southern Airlines, Air China and China Eastern Airlines by CNY125 million, CNY83 million and CNY 65 million respectively

Carriers naturally welcomed the new policy, with several immediately announcing surcharges of CNY20 on routes shorter than 800 km. and CNY50 on domestic routes longer than 800 km. Participating airlines were CA, Sichuan Airlines, Hainan Airlines, Shanghai Airlines, Xiamen Airlines and Shenzhen Airlines. Industry analysts said passengers will benefit because the policy offers another manner in which airlines can differentiate themselves from the competition (despite the initial synchronization among the aforementioned six carriers). China Securities Co. analyst Li Lei noted that airlines likely will impose much higher fuel surcharges on their monopoly routes than on ones with fierce competition.

Copa Airlines and AeroRepublica parent Copa Holdings reported third-quarter net income of $43.1 million, up 87.4% from a $23 million profit in the year-ago quarter, an increase it attributed to "a solid and resilient business model based on developing the most comprehensive and convenient network for intra-Latin America travel and a very competitive cost structure." It recorded a $5.1 million noncash fuel hedge gain and a $14.6 million charge related to the retirement of four MD-80s as AeroRepublica transitions to an all E-190 fleet. Excluding these special items, its quarterly net profit would have been $52.6 million.

Third-quarter revenue declined 7.2% to $323.7 million and operating income fell 19.6% to $45.9 million from $57.1 million in the 2008 third quarter. Consolidated traffic grew 8.4% to 1.93 billion RPMs on a 10.9% increase in capacity to 2.55 billion ASMs. Load factor fell 1.9 points to 75.8%. Yield decreased 14.5% to 15.9 cents as RASM sank 16.5% to 12.7 cents and CASM slid 14.2% to 10.9 cents. Copa Airlines ended the quarter with 28 737s and 15 E-190s, while AeroRepublica had 11 E-190s and one MD-80.

Boeing late last week moved the first 747-8 freighter out of its Everett assembly hall for painting, with flight testing set to start in the 2010 first quarter. First aircraft is destined for launch customer Cargoloux, one of nine airlines that have ordered a combined 78 747-8Fs. Boeing has sold 105 747-8s overall, including passenger and VIP variants. The -8F at 76.3 m. is 5.6 m. longer than the 747-400 freighter. The stretch provides 16% more revenue cargo volume, translating to four additional main-deck pallets and three more lower-hold pallets. In early October, Boeing pushed first flight back to early next year and first delivery to the 2010 fourth quarter while taking a $1 billion charge on its its third-quarter earnings (ATWOnline, Oct. 22). The delay, the program's second, largely was the result of the company's engineering resources being overtaxed by 787 delays.

Airbus said EASA has certified all A330 models for ETOPS "beyond 180 min.," which will be available as a customer-selectable option that will extend diversion distance up to 1,700 nm. (240 min. of flying at one-engine speed under "standard conditions").

Jazz Air parent Jazz Air Income Fund reported third-quarter net income of C$25.3 million ($24.1 million), down 20.2% from C$31.7 million in the year-ago period, on a 13.2% drop in revenue to C$379.7 million. The Canadian regional said expenses lowered 12% to C$344.9 million.

Air France last week announced a simplification to its European medium-haul product that from April 1 will feature just two classes of service, Premium business class and Voyageur economy. Stressing that its service "will not be that of a low-cost carrier," AF is cutting both fares and costs in the back of the aircraft. Economy passengers will pay to check a second bag and will have seat choice at check-in. For €10 ($14.95), they can reserve a booking and fare for "several days" before confirming, AF said. "Fares have been reduced and the simplified price range makes it easier to find the lowest price," it added. Business class passengers will be offered two options: A lower Premium Eco fare "for those seeking flexibility and efficiency at the best prices," and Premium Business, which features an open seat next to the customer.

Air Canada last week began offering a Preferred Seat option to economy passengers, allowing them to reserve "specific exit row and bulkhead seats with extra seat pitch" on all flights. Prices start at C$14 ($13.36) per segment.

Aeroflot announced a similar service last week called "Comfort+," which offers seats with increased pitch. Seats are available at airport check-in for RUB700 ($24.30).

Lufthansa Group airlines flew 15.84 billion RPKs in October, a 17.3% increase from the year-ago month owing to the addition of Austrian Airlines and bmi. Capacity was up 14.9% to 19.68 billion ASKs and load factor rose 1.7 points to 80.5%. LH Passenger Airlines flew 11.07 billion RPKs, up 0.7%, against a 1.9% cut in capacity to 13.8 billion ASKs. Load factor climbed 2.1 points to 80.2%.

Iberia flew 4.17 billion RPKs in October, down 5.1% from the year-ago month. Capacity fell 6.6% to 5.17 billion ASKs and load factor rose 1.3 points to 80.6%.

Cathay Pacific Airways and Dragonair flew 7.3 billion RPKs in October, down 2% year-over-year, while capacity dropped 10.1% to 8.87 billion ASKs. Load factor rose 6.8 points to 82.3%.

LAN Airlines flew 2.69 billion RPKs in October, up 15.7% year-over-year, against a 10.1% lift in capacity to 3.35 billion ASKs. Load factor rose 3.9 points to 80.2%.

BAA announced Friday the injection of £500 million ($828.4 million) into London Heathrow and Stansted. Money will comprise £200 million of new equity from shareholders and £300 million from BAA Airports Ltd. and FGP Topco Ltd., the holding company owned by the airport operator's three controlling shareholders. "Funding will be used to pay down debt, strengthen the group's medium-term financial ratios and facilitate its access to the capital markets," BAA said.

ILFC reported a third-quarter profit of $245.8 million, up 9.4% year-over-year, on a 3.7% lift in revenue to $1.35 billion. Nine-month profit climbed 16.6% to $685.7 million. As of Sept. 30 the lessor owned 991 aircraft, with 11 more classified as finance and sales-type leases, while providing fleet management services on another 99. It has 125 new aircraft scheduled for delivery through 2019 including five in the 2009 fourth quarter. "Given the current market conditions and that we currently do not have access to unsecured debt markets, new aircraft purchases may be limited for the foreseeable future," it said in a filing with the US Securities and Exchange Commission.