FAA Extension Expands TSA PreCheck & Enhances Security

Transcription

1 AUGUST 2016 NEWSLETTER American Airlines quickly puts Cuba plans in place PAGE 3 United States-Havana Flights Are In PAGE 4 FAA Extension Expands TSA PreCheck & Enhances Security PAGE 2 1

2 FAA Extension Expands TSA PreCheck & Enhances Security By Elizabeth West Failing to come to an agreement on long-term reauthorization for the Federal Aviation Administration, committee leaders in the U.S. House of Representatives and Senate have agreed upon a 14-month extension just before the current authorization's July 15 expiration. The measure would extend funding for the FAA s programs through Sept. 30, 2017, at current levels, but awaits a final vote in both the House and Senate. Expansion of the Transportation Security Administration s PreCheck program is central to the measure. It directs TSA to partner with the private sector to develop enhanced enrollment and vetting methods to increase the number of trusted travelers and increase operational efficiency of TSA checkpoints. It also aims to reduce passenger wait times by optimizing TSA staffing models. Additional security initiatives target overseas airports with comprehensive security assessments and extend training, screening, equipment donation and cargo program certification to highrisk airports to bolster security standards for United States-bound flights. The FAA extension also addresses safety concerns like drone activity around both airports and critical infrastructure, as well as during emergency situations. It enhances the hiring process for air traffic control personnel and strengthens mental health screening requirements for pilots. It also requires training to help flight attendants recognize and respond to potential human trafficking victims. As important as what the measure includes is what it doesn t include: neither an effort to address an outdated air traffic control system nor initiatives to bolster airport infrastructure, both of which require long-term investment. In a statement, U.S. Travel Association president Roger Dow praised the House Transportation and Infrastructure Committee and the Senate Commerce, Science & Transportation Committee for supporting critical security and consumer needs with the FAA extension. "The language expanding TSA PreCheck gives the travel industry the most cause to celebrate. TSA PreCheck is a rare 'win-win' program that both bolsters security and vastly improves the airport screening experience for flyers," he said. "Above all, though, we stress that Congress must find a way to deal with our aviation system's crumbling, outdated infrastructure. If America is to remain an attractive, welcoming destination for all travelers, the next FAA reauthorization must include long-term fixes for our airports." House committee members Bill Shuster (R-Penn.) and Peter DeFazio (D-Ore.) and Senate committee members John Thune (R-S.D.) and Bill Nelson (D-Fla.) stated they are "committed to working together on a longer-term reauthorization that includes other important reforms benefiting all passengers and Americans who depend on a safe aviation system." 2

3 American Airlines quickly puts Cuba plans in place By Lewis Lazare Attention, Chicago: American Airlines is in a hurry to get you to Cuba. American (NASDAQ: AAL) was already the largest charter operator of flights to Cuba from the United States and is wasting no time making sure it gets a big chunk of the scheduled commercial service from the U.S., too. And American wants to make it easy for Chicagoans to be among the first to set foot in Cuba now that commercial air travel to the island nation is resuming. American has set Sept. 7, 2016, as the date for its first scheduled commercial flight a 10 a.m. departure from Miami to Cienfuegos, Cuba, a city on the island's southern coast. American also will launch flights to Holguin on the same day, with first flights to Camaguey and Santa Clara set to begin on Sept. 9. The first flight from Miami to Varadero, Cuba, will take off on Sept. 11. American currently operates eight daily flights to Miami from Chicago, which should make connecting to Cuba flights as the airline expands its service to the islands relatively easy. Though the flying time and distance to Cuba is short, American will use its larger Boeing 737 aircraft on many flights. But don't look for bargain fares to the island nation at least not yet. With the number of flights to Cuba still relatively few and far between and demand high, fares are priced accordingly. The American website today quoted a fare of $942 for a round trip flight from Chicago to Cienfuegos, departing Sept. 9 and returning Sept. 12. Travelers interested in making Havana their first destination in Cuba, will have to wait. The U.S. Department of Transportation said it will name the U.S. carriers cleared to fly to Havana later this summer. It could take up to 90 days after the DOT makes it announcement for Havana flights to begin. Chicago-based United Airlines (NYSE: UAL) did not request clearance to fly to second-tier Cuban markets. It only applied to fly to Havana. August

4 United States-Havana Flights Are In By Amanda Metcalf The U.S. Department of Transportation has tentatively approved eight U.S. airlines to fly United States-Havana flights as diplomatic relations between the United States and Cuba thaw. Flights can begin in the fall. While 20 United States- Havana round-trips per day were available, 12 airlines applied for 60 flights. The DOT awarded service to areas with substantial Cuban-American populations and to aviation hubs, according to a press release, which said the department also prioritized variety of airports, choice of nonstop and connecting flights and type of airline, from network to low-cost to ultra-low-cost. The DOT's proposal: Alaska Airlines: once a day from Los Angeles American Airlines: four times a day from Miami & once a day from Charlotte Delta Airlines: once a day from New York John F. Kennedy International Airport, once a day from Atlanta & once a day from Miami Frontier Airlines: once a day from Miami JetBlue Airways: twice a day from Fort Lauderdale except once a day on Saturdays, once a day from JFK & once a day from Orlando Southwest Airlines: Twice a day from Fort Lauderdale & once a day from Tampa Spirit Airlines: Twice a day from Fort Lauderdale United Airlines: Once a day from Newark International Airport & once a day on Saturdays from Houston Objections to the DOT s choice of carriers to fly to Havana are due by July 22, and answers will be provided by July 29. The DOT expects to reach a final decision this summer. What Kind of Travel Is Allowed According to an agreement that U.S. Transportation Secretary Anthony Foxx and U.S. State Department Assistant Secretary for Economic and Business Affairs Charles Rivkin signed on Feb. 16 to resume scheduled air service between the two countries after more than 50 years, the U.S. Department of the Treasury Office of Foreign Assets Control authorizes travel from the United States to Cuba for family visits; official business of the U.S. government, foreign governments and certain intergovernmental organizations; journalism; professional research and professional meetings; education; religion; public performances, clinics, workshops, athletic, other competitions and exhibitions; "support for the Cuban people"; humanitarian projects; private foundation, research and educational work; exportation, importation or transmission of information or information materials; and certain authorized export transactions. The agreement also allows use of U.S. credit and debit cards in Cuba and removes a per diem the U.S. had placed on authorized travelers' expenses, so there is no limit on what travelers can spend on living expenses, goods and consumption. Charter flights from the United States to Cuba will continue to be unlimited. The DOT previously had awarded flights between the United States and other Cuban cities. Qatar Airways Buys into Lata By ABC News' Becky Perlow and Erin Dooley Qatar Airways plans to invest $613 million to acquire as much as 10 percent of Latin American airline group Latam's total shares. Latam will conduct a shareholders meeting by Sept. 2 to approve the investment. Both carriers are members of the Oneworld alliance and project the deal will close by the end of this year. 4

5 U.S. Airfares See Fifth Consecutive Quarter of Decline By Michael B. Baker The average U.S. airfare declined 7.8 percent year over year to $361 during the first quarter, the lowest inflation-adjusted level since 2010, according to the U.S. Department of Transportation. Fares have declined every quarter since the fourth quarter of 2014, when the average fare was an inflation-adjusted $398. Special Message from United Club Regarding O'Hare and Newark By Kimberly Egan Happy summer from United! We hope your travels allow you to enjoy time at one of our 45 United Club locations worldwide. Read below for an important announcement about one-time passes and to learn more about our new United Polaris Lounges. We are currently renovating our United Club locations at ORD. During this time, one-time passes cannot be purchased or used at the United Club locations in Terminal 1. We look forward to welcoming all guests once renovations are complete. To ensure United Club capacity remains comfortable so members can unwind and recharge, both EWR Terminal C Club locations will limit one-time pass sales and usage throughout busy afternoon periods. Please note that acceptance of United Club one-time passes is subject to location capacity controls. We apologize for any inconvenience. Brand-new United Polaris Lounges will be available exclusively to our international premium cabin travelers, offering luxurious amenities never before offered by United. United Polaris Lounges will feature a pre-flight dining option, an extensive buffet with hot and cold selections and table service. Specially curated wines, premium spirits, craft brews and handcrafted cocktails are available to accompany. All lounge locations will offer spa-like shower facilities and travelers can sit back and relax in a tucked-away area with daybeds, soft lighting and gentle white noise, preparing guests for a restful flight. The first lounge location is expected to open in Chicago (ORD) in December 2016, with additional hub locations to follow. Learn more about United Polaris Lounges here. August

6 Delta Will Cut Capacity Thanks to Flat Business Travel Demand & Brexit By Michael B. Baker Delta Air Lines will cut capacity to the United Kingdom this year in light of economic uncertainty surrounding Brexit, and it will scale back domestic capacity growth amid declining yields from corporate business. Delta's second-quarter operating revenue declined 2 percent year over year, a drop of $260 million. Foreign currency pressure contributed $65 million to that drop, but Delta also sees little growth in corporate demand and "stubbornly low business fares," according to Delta president Glen Hauenstein. "Absolute volumes for business traffic remain solid, but they did not keep pace with Delta's growth," he said. As such, Delta will moderate domestic capacity growth after the summer travel months and will cut three percentage points in domestic capacity by the fourth quarter, Hauenstein said. Additionally, for its winter schedule, Delta will cut capacity to the United Kingdom by six percentage points, and joint-venture partner Virgin Atlantic also will cut capacity, CEO Ed Bastian said. Their combined winter capacity to the United Kingdom will decrease between 2 percent and 4 percent compared with last year, he said. During the second quarter, Delta increased capacity 3.2 percent year over year, and traffic increased 3 percent, causing its load factor to dip 0.1 percentage points to 75.5 percent. Yield declined 4.7 percent. Delta also is expanding the presence of its Basic Economy fare, a no-frills fare that allows no refunds, changes or advance seat assignments. Delta has introduced the fare to cover about half its domestic revenue base and plans to have full domestic coverage by sometime next year, Bastian said. Delta has introduced Basic Economy to more than 50 international markets, as well, and expects to expand to all Delta markets by The carrier reported a net income of $1.5 billion for the second quarter, up 4 percent from a year prior. 6

7 United Cleared of Charges in Port Authority Bribery Investigation By Michael Baker United Airlines will pay a $2.25 million penalty, but will not face prosecution, related to a federal corruption investigation that led to the departure of former CEO Jeff Smisek last year, according to a letter from the office of the U.S. attorney for the District of New Jersey. The investigation centered on United's quid pro quo establishment of a flight between Newark and Columbia, S.C., at the behest of The Port Authority of New York & New Jersey's then-chairman David Samson. Samson pled guilty to the bribery charges and, under the terms of his plea agreement, faces a maximum prison term of two years, the office announced. His sentencing is scheduled for October. In its letter, the attorney's office said it would not prosecute United because it cooperated with the investigation, conducted its own internal investigation and improved its antibribery and anticorruption policies and training. Jamie Fox, a former United lobbyist and consultant, faces separate bribery charges. Southwest shows it is still an LCC at heart By Robert Silk In the years since its founding as an intra-texas low-cost carrier (LCC) in 1967, Southwest Airlines has grown into the second largest U.S. airline as measured by the capacity of its domestic route network. But though many have long since stopped viewing Southwest as an LCC, analysts say that the airline s approach to dealing with weakening industry demand over the remainder of this year reveals that its business model is still influenced by its low-cost roots. In the broadest sense of all, Southwest is still an LCC, and LCCs win more with cost advantages than with revenue advantages, said Seth Kaplan, managing partner of the newsletter Airline Weekly. Each of the four major U.S. carriers United, American and Delta along with Southwest reported softening demand during earnings calls last month. Southwest, for example, projects that its unit revenue, defined as how much money it makes per seat for every mile it flies, will be down 3% to 4% this quarter compared with a year earlier. The carriers attribute the softening market to a more competitive fare environment for close-in bookings and to weak corporate-travel demand. August

8 SOUTHWEST STILL... CONTINUED For legacy carriers United, American and Delta, difficulties in the transatlantic market, in large part related to foreign currency weakness and to the fallout from Brexit, are other causes of concern. Southwest does not fly to Europe, though it does serve Latin America. In response to softening demand, each of the Big Three announced plans to curtail capacity growth for the remainder of this year. Reducing growth doesn t make sense to this year s bottom line, Southwest CEO Gary Kelly said during the carrier s second-quarter earnings call on July 21. We ve not been able to model a scenario where it was profit positive for us to do that, he said. Southwest s approach sparked a sharp question during the call from UBS Securities stock analyst Darryl Genovesi, who noted that capacity cuts from the legacy carriers will likely help Southwest. Why, Genovesi asked, is Southwest resistive to coordinating with its main competitors on capacity and pricing, at least to the extent that such things could be done without violating antitrust laws? With Southwest having grown to be as large a player as it is in the industry today, isn t it kind of required that, overall, the industry is healthy in order for Southwest to be healthy? Genovesi asked. Kelly, in what was likely a well-advised effort to avoid any issues related to antitrust laws, declined to answer the question. Kaplan, though, said that Southwest simply has a different decision matrix than the legacy carriers when it comes to capacity expansion. He said that as a general rule, legacy carriers have higher cost structures than LCCs due to less favorable union contracts and more expensive offerings such as fancy airport lounges and differentiated products, including business-class cabins. Because their costs are higher, such airlines tend to react to weakened demand by reducing capacity in an effort to cut costs and drive ticket prices higher. In contrast, LCCs have much lower overhead than their legacy competitors. So their key to higher profitability is to create additional efficiencies through route expansion. More routes mean lower gate fees on average and more efficient use of aircraft, for example. Because overhead is lower, LCCs can expand longer than legacy airlines in a weakened fare environment. That difference is evident in the current rate of expansion of various U.S. airlines. While the Big Three are adding just a point or two of capacity this year, the ultra-low-cost carriers Spirit and Allegiant increased their available seat miles by 24.7% and 16.9% respectively through the second quarter. The LCC JetBlue, meanwhile, said it anticipates growth of 8% to 9.5% for the full year, though it, like the Big Three, did reduce planned capacity growth by.75% in June. Southwest s growth rate this year of 5% to 6% falls in between the LCCs and legacies, reflecting what both Kaplan and airline industry analyst Bob Mann of RW Mann and Co. say is its status, both in pricing and overhead: somewhere between the LCC it was two decades ago and the legacy carriers with which it is now on par with regard to the size of their domestic networks. Because Southwest is now bridging that gap, it still competes a bit more directly for route space with the upstart airlines than do American, United and Delta. There s a smaller difference between Southwest and the irritants who want to grow rapidly, Mann said. Kaplan added, In terms of capacity, it is always a little more important for Southwest to grow than it is for Delta, American and United. 8