Sunday, May 29, 2016

Airline Executives Gather at International Air Transport Association Convention and Look for Answers: Industry seems more stable now but investors worry about signs of trouble ahead

Kathryn's Report:

The Wall Street Journal
By Robert Wall and Doug Cameron
Updated May 29, 2016 8:38 p.m. ET

The airline industry has finally shaken off its boom-and-bust past, says the head of the world’s largest carrier, but investors aren’t buying it because familiar signs of trouble loom on the horizon.

Global air fares are falling as carriers add ever more aircraft, and low oil prices, which helped airlines land record profits of $33 billion last year, are inching higher. In addition, terrorism fears are weighing on bookings and, even as more passengers take to the skies, growth is stalling in some regions.

It’s a challenging mix for the 200-plus airline executives gathering in Dublin this week for the industry’s annual jamboree hosted by the International Air Transport Association, a big trade group.

The message they’d like to deliver echoes that of American Airlines Group Inc. Chief Executive Doug Parker in a well-publicized speech in March.

“We have an industry that also can be a real business like other businesses,” said Mr. Parker, who has spearheaded much of the consolidation that’s allowed airlines to become more efficient, and last year earn more than their cost of capital for the first time.

“The airline business has been fundamentally and structurally transformed and the valuations do not reflect such a transformation,” he said. “They’re not even close.”

Investors have shrugged and headed for the exits, dragging an index of global airline stocks down 6.4% since the start of the year. U.S. carriers have been hit hardest, with Mr. Parker’s American shedding a quarter of its value even as it poured profits into stock buybacks.

Demand isn’t the problem. Global passenger numbers rose 7% in the first quarter from a year earlier, driven largely by growth among carriers in Asia and the Middle East. Fliers are paying less, with global fares down an average 4% through April and are particularly weak on trans-Atlantic flights and in the U.S.

Average U.S. domestic fares haven’t risen in more than a year and airlines don’t expect them to stabilize before the end of 2016.

Hunter Keay, airline analyst at Wolfe Research LLC, last week boosted his airline investor sentiment gauge to 4, on a scale of 1 to 10, having pegged it at 1 or 2 for much of the year. “This is the 2016 version of good news, sadly,” he said of the recent raise.

The executives gathered in Dublin have few levers to pull to soothe disgruntled investors or those passengers facing long security lines at airports this summer.

Airlines can cut flights to gain more control over fares. Such U.S. carriers as Delta Air Lines Inc. have recently announced plans to trim capacity after the Labor Day holiday in September. In Europe, British Airways parent International Consolidated Airlines Group SA and Deutsche Lufthansa AG have also scaled back.

Executives have to be careful in Dublin. Antitrust laws bar them from discussing or coordinating fares in most markets. Comments made at last year’s IATA meeting in Miami form part of a class-action lawsuit lodged against four U.S. carriers, which all deny the charges.

Cheaper jet fuel has been the biggest driver of higher profits, but prices have been rising since January. Still, the airline industry should deliver strong earnings this year, said Peter Morris, chief economist at aviation consultant Ascend Worldwide Ltd. Many carriers in Europe and Asia are only starting to see the benefit from cheaper fuel as costly fuel hedges, made before crude tumbled, are replaced by ones made at more favorable rates.

“There have been a number of negative developments that have come up, but they don’t override the underlying achievement for profitability,” Mr. Morris said.

Also on the Dublin agenda is the prospect of a new cost headwind as regulators consider making carriers pay for carbon dioxide emissions.

Airlines are exempt from the global climate change deal struck in Paris last December, but pressure has been mounting on politicians and regulators to curtail the CO2 output from commercial flights. Environmental groups fret that the airline industry’s rapid growth could undermine other climate change initiatives unless limits are imposed.

The International Civil Aviation Organization, an arm of the United Nations, is trying to secure agreement on a mechanism to limit the industry’s C02 output without curtailing growth.

ICAO members pledged to improve the fuel efficiency of commercial aircraft by 2% a year and to see that any industry growth beyond 2020 won’t increase pollution. ICAO representatives convened this month to help bridge differences between member states about what the system might look like.

Exactly how much of an airline’s carbon emissions will need to be offset is still being negotiated. IATA estimates that the airline industry’s annual bill would be around $2.8 billion compared to projected profits this year of $36 billion, a forecast expected to be updated this week.

Original article can be found here:

Devils Lake Regional Airport (KDVL) on track to have biggest year for passenger boardings

Kathryn's Report:

DEVILS LAKE -- After dropping an unreliable airline and switching to an air service with direct flights to Denver, Devils Lake Regional Airport is on track to have its biggest year for boardings.

For the last five months, the airport has outpaced itself in boardings. As of the end of April, Devils Lake had boarded 1,965 passengers, a 55 percent increase from last year at that time.

The May count isn't official yet, but it should come in around 500, airport manager John Nord said.

"Right now we are ahead of schedule," he said. "The month of May, while we don't have all of the final numbers in, it will be a record month for May."

The boardings are a stark comparison to its 2012 and 2013 numbers when the airport had a contract with Great Lakes Airlines, which suspended its contract in early 2014. The airport boarded a total of 2,998 passengers in 2012, dropping off from the nearly 5,500 passengers that used the airport in 2011 before Great Lakes replaced Delta Airlines and Airlines. Great Lakes boarded even fewer passengers--2,667--in 2013.

SkyWest Airlines, which has direct flights to Denver, beat out Great Lakes for an Essential Air Service bid at Devils Lake, but it couldn't take over air service until June 2014, leaving the airport without service from February to May after Great Lakes left the airport, Nord said.

But even without those months, the airport saw a jump in boardings. Devils Lake served 2,889 passengers in 2014. Last year, that number almost doubled to 5,104 passengers.

Devils Lake is kicking a trend plaguing other airports in the state: a dramatic drop in boardings. Dickinson Theodore Roosevelt Regional Airport, which saw its boardings triple by the end of April 2014 compared to the previous year, lost 69 percent of its April passengers compared to the April 2015 count, the largest dip among airports in North Dakota.

The decrease is likely due to an oil slowdown amid low oil prices. At the heart of an oil boom, which boosted air traffic to the point of airports adding flights and planning for expansions, Sloulin Field International Airport in Williston boarded 10,150 passengers in April 2015, a record for that month.

But that airport also took a hit to its count, shedding almost half of its April boardings passengers in one year.

Even airports in eastern North Dakota haven't been immune to decreasing passenger numbers. Hector International Airport in Fargo boarded 133,807 passengers this year as of April, a decrease by more than 11 percent of its boardings by the end of April 2015. Grand Forks International Airport, with 48,136 boardings, lost about 3,000 passengers, or about 6 percent, in the same timeframe.

As of April, North Dakota airports have boarded 57,095 fewer passengers than last year at that time, a 14 percent decrease.

The passenger numbers for North Dakota airports may have dropped dramatically, but they are still above pre-oil boom counts, said Kyle Wanner, director of the North Dakota Aeronautics Commission.

"Each community has it's own set of challenges," he said, adding farm commodities and a low Canadian dollar is also impacting travel to North Dakota. "Today, they may have less passengers than their peak years in '14 and '13, but historically, they have incredible air service still. You kind of have to put it into perspective."

It's hard to tell if airports are losing passengers to surrounding cities, Wanner said. Some markets leak customers to others, but it's a two-way street--Grand Forks customers may drive to Devils Lake and vice versa. Customers are free to choose which airport they feel has the best deal.

"We're still very healthy as far as our passenger numbers go," he added.

Like Devils Lake, Jamestown Regional Airport has seen large increases, which Nord also attributed to SkyWest taking over for Great Lakes' Jamestown EAS contract. That airport, which flew only 2,672 passengers in 2013 when Great Lakes was its primary air service, has surpassed that yearly total in March. So far this year, the airport has boarded 3,378 passengers, up 39 percent from 2015 year-to-date numbers in April.

"Our boardings aren't based on the oil boom," Nord said. "Our boardings are based on the normal folks that finding us and realizing there is value in flying out of the Devils Lake area."

He also said free parking does attract customers, especially when most airports in the state charge for parking.

"That's a big deal for people," he said, adding many passengers are surprised when he tells them there is no charge for parking. "There isn't much left in life that is free."

The Devils Lake passenger market has increased quite a bit over the past several years, Nord said. SkyWest signed a two-year contract that will begin in July. The contract also adds another flight to the airports already 11 roundtrips.

The jump in numbers also prompted the airport to install a fueling tank for SkyWest so it can handle heavier loads, Nord said. Instead of filling up in Jamestown, SkyWest will be able to fuel in Devils Lake sometime in June.

"We're a small airport and people are still finding out about us," he said. "Once they start coming here ... I see a lot repeat passengers coming here."

Original article can be found here: