Soaring fuel prices will not kill discount air fares in Australia, however Qantas and Virgin Blue must be careful that air fare rises does not kill consumer demand, analysts say.

Analysts have said that airline routes and profits are under threat, and Virgin may be forced to create its own version of Jetstar, Qantas’ discount subsidiary to compete.

Both Qantas and Virgin Blue have had to raise airfares in the past month as oil and jet fuel prices skyrocket.

Crude oil rose to $US134 a barrel this week and jet fuel was $US166 a barrel. Derek Sadubin, chief operating officer at the Centre for Asia-Pacific Aviation, an aviation research think tank, said the situation “is pretty dire”.

“If fuel prices stay high, we will see carriers take a close look at networks,” he said. “Logic would suggest that the worst-performing routes, the ones with lowest margins, will be cut first.

“If it gets to it, we will see them potentially grounding the older aircraft that have hungrier fuel consumption.”

Mr Sadubin said both carriers were treading very carefully with fare increases. “They realise that demand could be impeded through rising travel costs.” Air travel is booming, as cheap air fares fill aircraft with holidaymakers and more executives travel to do business.

However, Virgin has warned that its fuel bill will be $300 million more next year, and Qantas this week said higher fuel costs at current prices will add more than $2 billion to its fuel bill in 2008-09.

Fuel prices make up to 30% of airline costs, putting profits under pressure. Virgin Blue recently revealed net profit this financial year would be $100 million, down from $216 million in 2006-07. However, Qantas last month said the 2007-08 result would be at least 40% higher than the 2006-07 profit before tax.

JPMorgan analyst Matt Crowe said Qantas had many advantages over Virgin Blue, whose customer base was holidaymakers.

“Virgin Blue’s ability to raise fares to offset the fuel price rises is quite limited, and that’s why their profit has been annihilated in the second half of the year before they stepped in to increase their air fares,” he said.

In contrast, Qantas, with a bigger business class and corporate base, was more resilient. “We have seen quite aggressive fare rises from them and it has not had any effect on demand,” he said.

“The risk in the future is that it might, but Qantas is in a better position to overcome this spike in the oil price than Virgin Blue.”

Mr Crowe said Jetstar was also geared to holidaymakers, but given it was a small part of the Qantas group, Qantas could absorb it. “If Jetstar was a separate business with a share price, you’d probably see some pain there as well,” he said.

Mr Crowe said much of the pain Virgin Blue had experienced had been caused by Qantas. “Qantas, through Jetstar, is pushing aggressively the lower-cost service into the leisure market and that’s driving down fares,” he said.

“While Jetstar is profitable at that fare, Virgin Blue isn’t. A lot of this is a tactical response by Qantas to use Jetstar to put pressure on Virgin Blue.”

Mr Sadubin said that Qantas would set fare as it saw fit. “Virgin, being the second-largest carrier, will have to take a strategic decision whether they follow suit.”

Virgin Blue has embarked on a strategic review of its operations in light of the fuel price surge. Mr Sadubin said Virgin had considered an ultra-low-cost unit to tackle Jetstar and Singapore’s Tiger Airlines on leisure routes. “That’s a potential strategy because they have a fairly hefty cost differential with those low-cost carriers,” he said.

Mr Crowe said the fuel price turmoil did not mean the end of cheap fares. “The discount model is here to stay,” he said. “It may be that air fares are slightly higher because of fuel costs, but they have fallen dramatically in the past 10 years because of the introduction of low-cost carriers.”

Consumers liked the choice of the low-cost, low-service product and the more full-service product Qantas offered, he said. “Air travel has been falling in real terms for 10 years, and I don’t think that’s going to change.”

The world aviation industry has been in turmoil due to the surge in fuel prices with more then 12 companies going bankrupt.

This week, the world’s largest airline, American Airlines said it would scrap 75 planes, cut jobs, and reduce the number of domestic seats by 12%.

Mr Crowe said the US airline industry was far more competitive than Australia’s and was in a much worse situation.

“It would have to get pretty dire for that to happen here,” he said. “The only reason we have seen routes cancelled in Australia is pilot shortage, rather than withdrawing capacity from the market. I think we’re a fair way behind America. The US is also on the brink of recession, and we’re not.”

Source = e-Travel Blackboard: C.F

RESIDENTS of Australia’s red centre may see Boeing’s new fuel-efficient 787 Dreamliner in action before much of the rest of the world.

Boeing is looking at Alice Springs as a possible site for its flight-testing program.

While a final decision has yet to the made, 787 program chief Pat Shanahan said yesterday that Alice Springs was being considered for tests of the new airliner’s ability to cope with hot weather.

It would be part of a wider flight-test program involving six aircraft and scheduled to get under way from the fourth quarter of this year.

Other flight-test locations include Roswell in New Mexico, Bolivia, Iceland and Alaska.

Mr Shanahan said the flight tests, particularly those involving the crucial first aircraft, would allow Boeing to understand the structural and aerodynamic behaviour of the aircraft.

He said Boeing was hoping that the flight tests would result in minimal changes, though he cautioned that it could also throw up “potential discoveries”.

“If we’ve got a good airplane it will fly well; if we have a crop duster we’ll discover it,” he said.

Mr Shanahan’s comments came as Boeing allowed media to see for the first time the 787 production line at its giant factory at Everett, near Seattle.

The ambitious program to build the world’s first mostly composite aircraft is at least 15 months late because of problems with the manufacturer’s global supply network.

Boeing is now due to deliver its first aircraft to All Nippon Airways in the third quarter of next year, and the company plans to build just 25 aircraft next year, significantly down from the 109 originally planned by the end of 2009.

Qantas is the world’s biggest customer for the new plane and has 65 firm orders for a combination of 250-seat 787-8s and bigger 787-9s.

It has made the 787 a major plank of its future strategy and was supposed to get the first plane in August.

The delays mean it will not receive its first plane until late next year and 787-9s will not arrive until 2012 — changes that are expected to result in the airline receiving several hundred million dollars in compensation from Boeing.

Mr Shanahan confirmed that the US aerospace giant was looking at ways to ramp up production, which could cut down delays for some customers, but said this was unlikely to help Air New Zealand and Qantas get their 787-9s before 2012.

“We built the schedule back in April and that’s the schedule that we’re working to,” he said.

Asked when the company expected production to catch up, he said Boeing was running studies on lifting production rates, but this was still probably four or five years away and decisions did not have to be made “this weekend”.

He also said he hoped to lock in a configuration for the still-bigger 787-10, demanded by Qantas and Emirates, about a year from now. “We’re still studying the market.”

Overall, he believed the program was in a much better condition than it was six months ago and would be in better condition still in three months.

“We’ve put together a production system and the people in Everett are determined and have the will to get the job done,” he said.

The program reaches a major milestone next month when power will be connected to systems on the first aircraft. Mr Shanahan said this was when the 787 became an aircraft and not just a collection of wires and structures.

“I don’t expect any surprises,” he said. “I feel really good about this commitment in our progress.”

Qantas announced that it would increase its international and domestic fares for tickets issued in Australia from 4 June onwards.

Qantas CEO, Geoff Dixon said that international and domestic fares would increase by 4 per cent and 3 percent respectively.

“Oil and jet fuel prices continue to break records, with West Texas Intermediate spot crude oil passing US$134 a barrel overnight and Singapore Jet Fuel today trading at nearly US$166 a barrel.�

Mr Dixon said Qantas had increased its fuel hedging and now had cover for 59 per cent of expected crude oil requirements in 2008/09 at $US111.81 a barrel WTI, Inclusive of option premium.

“Despite our hedging activities, fare increases, surcharges, and strong focus on managing costs across our operations, we will not cover these higher fuel costs, which at current prices will add more than A$2 billion to our fuel bill in 2008/09.
“We are continuing to target further efficiency improvements which now include a review of the network and schedules of Qantas, QantasLink and Jetstar,� Mr Dixon said.

Airline disruptions, rail strikes, airport closures. Bird flu and the London Tube bombings.

Ongoing significant travel events have triggered the ever increasing need for rigorous destination and security intelligence. From pandemics and fires to impending natural disasters and union strikes, automation and centralized information build business resilience while reducing risks to travel plans.

Today, companies recognize the need to prepare and protect employees, evaluate risks and respond to events around the world.

Mitigating risk is an essential responsibility of companies charged with providing a duty of care. And that responsibility is increasingly cutting across organizational boundaries, says Leslie West, senior vice president of Client Data Solutions (CDS) for BCD Travel:

“Customers are increasingly asking groups like travel management, human resources and health and security departments within their companies to work together to protect their employees. In this cross-functional environment, it is vital to have a solution that couples the categorization of travel disruptions, risk exposure and crisis situations with relevant information and business processes to safeguard travelers, before and during their trip.  As a result, we have seen a 55 percent increase in customers adopting DecisionSourceTM: Security Manager in 2007 over its previous year – evidence of the trend, need, and value BCD Travel offers customers.”

Companies should be able to answer tough questions such as:

* What is the political, cultural and economic climate in countries around the world?
* Where are my travelers right now?
* Has an event occurred that puts my travelers at risk?
* How can I reach travelers in time of need?

Pull and push information to travelers

Accurate and timely information is the cornerstone of effective risk mitigation. Having the right information at the right time – and on the appropriate device – benefits travelers and the travel program prior to booking, at booking, and while en-route.

Relevant information takes a wide variety of forms, ranging from security and risk briefings on countries and major cities worldwide to weather alerts, cultural etiquette and consular requirements.

An abundance of data requires a blend of automation and process to prevent information overload, says West. As part of its DecisionSource: Security Manager risk mitigation solution, BCD Travel provides travelers and travel managers with destination information and security intelligence from over 400 different sources, based on specific filters set at the company and employee level. Subscribers may filter delivery of security and travel news alerts by destination, urgency level  and category; such as health, weather and transportation type.

The categories currently in use by DecisionSource: Security Manager customers include:

• Any major airline or airport disruption
• Travel warnings from official Government sources
• Any weather condition that has a significant effect on major transportation systems
• Any event that causes widespread cancellations, delays of more than two hours or a total shutdown of a major airline, airport or railway
• Flights canceled for other reasons
• Any violent attack that causes damage or injuries at a major hotel
• Direct impact on travel from an outbreak of disease

Although destination and risk information is available through DecisionSource: Security Manager, realistically, travelers with access to valuable information may not always seek it out. For that reason, clients can enable the solution to proactively send relevant e-mails, based on event severity categories they’ve set as well as PNRs booked, to potentially impacted travelers.

Monitor, protect and respond with traveler tracking

Today, says West, over 185 BCD Travel customers are using DecisionSource: Security Manager to collect data from over 50 countries to track and monitor travelers and provide risk intelligence for their travel programs.

Coupled with specific traveler reservations, detailed situational views are updated every 60 minutes, giving companies the ability to locate travelers across the globe, while incorporating en route changes, same plane travel and flight tracking, and hotel bookings

With this overview, West says, action is a click away: “It’s crucial to have both a pictorial global view and traveler-level detail. In the event the company has the need to deploy an incident response team, they can easily share the details by printing, exporting, or e-mailing the details to the appropriate individuals within the company.�

Understand and act with relevant, viable data

Different companies and travel programs have different needs when it comes to pulling data from risk mitigation technology. At BCD Travel, DecisionSource: Security Manager incorporates a full library of reports. Among the most commonly used:

• Hot Spot:  Quick snapshot around the globe of U.S. Department of State or Foreign and Commonwealth Office’s cities and locations of risk, combined with travelers in those locations
• Flight Arrival / Departure Grid:  Quickly identify numbers of travelers arriving or departing certain cities by date or date range
• Flight Arrival / Departure Detail:  Getting more specific to identify the travelers and airports
• Flight, Hotel or City Incident Reports:  Across flights, hotels, or a city itself, companies can quickly find travelers
• Same Plane Travelers:  Due to possible insurance or overall risk mitigation policies, companies can report on employees traveling on the same plane.  Reporting on dimensions like number of travelers, business unit, flight number or carrier, companies can provide the appropriate level of care for their employees

In addition to analyzing travel plans prior to travel for risk management, there are many opportunities to further support travel programs and reveal both cost and safety when looking at pre-travel reservation data. Tracking policy compliance issues, shifting market share to preferred vendors, identifying meeting opportunities or even preventing unnecessary trips – all aid in aligning spend before it occurs.