Vol. 8 No. 75                                               WE COVER THE WORLD                                                             Friday July 17, 2009

 


    The financial pressures now weighing on the largest Brazilian airlines, TAM S.A. (TAM) and GOL Linhas Aéreas Inteligentes S.A. (GOL), are expected to persist through the remainder of 2009. This will have real repercussions for the entire Brazilian air cargo sector.
     Earlier this year, the financial ratings of both companies were downgraded, reflecting substantial increases in leverage and an expected challenging 2009 operating environment due to a slowdown in air traffic. Higher liquidity and refinancing risks, particularly in the case of GOL, are making both investors and customer nervous.
     These actions reflect the uncertainties regarding the severity and duration of the slowdown of demand for air transportation in Brazil and the resulting impact in companies’ operational metrics (load factor and yield). GOL’s recent ratings decline reflects the challenges to restore liquidity and credit metrics to levels commensurate with the current rating category. Recent measures by the regulatory agency to encourage competition and the entrance of a new airline operator should translate into a more competitive business environment and negatively impact tariffs.
     The slowdown in air traffic is already evident and will negatively affect the operating performance of both companies at a time of higher leverage and lower market liquidity. The main challenge for the companies will be to mitigate the demand decline along with the increased competition and to limit the effects on profitability and cash flow generation.      
     Efficient cost control and investment management, together with effective business strategies to moderate weak demand and an efficient yield management policy, will be factors of fundamental importance to minimize losses over the coming months.
     In the last five years, the robust growth of passenger flow in the Brazilian aviation has sustained GOL’s and TAM’s performance and their market consolidation strategies. Strong and increasing demand has allowed companies to operate at high load factors, which have enabled more aggressive pricing strategies without entirely cannibalizing profitability.      Significant fuel price increases throughout 2008, which represented around 40% of the industry’s cost structure, were mitigated by the companies’ ability in readjusting their tariffs.
     Global uncertainty and restricted credit availability have dramatically slowed margin recovery in the sector. The international financial crisis directly impacted load factors and yields, the two major profitability measures of the industry.      Furthermore, the strong foreign exchange devaluation affected the industry’s cost structure, as around 50% is based on the U.S. currency. By year-end 2008, the comfort brought by the decline in oil prices was counterbalanced by the reduced demand and by higher costs resulting from dollar appreciation.
     During 2009, analysts now expect the downturn to continue and load factors to decline. In 2008, air traffic in Brazil increased by 7.4%, the lowest figure since the market retraction in 2003. The performance was affected by a strong slowdown in the last four months of 2008. Until August, the demand had grown by 11%. In September, the increase was below two digits (4.6%), and in October and November—months with historical strong passenger flow— the traffic declined by 3.9% and 1.0%, respectively. A combination of demand slowdown and continued capacity increase (+13%) has resulted in industry load factor decline to 66% against 69% in 2007 and 70% in 2006.
     The National Civil Aviation Agency (ANAC) has been showing a strong interest to increase competition in the airline industry. Recent measures should negatively impact companies’ profitability, particularly given the economic slowdown.      In February, the agency announced the startup of operations at Santos Dumont airport in an effort to better use landing capacity. The airport has an operational limit capacity of 8.5 million passengers/year against a current effective flow of 3.5 million passengers/year. Santos Dumont airport was previously restricted to flights going to Congonhas airport in São Paulo and to small aircrafts (50 seats). ANAC’s decision will allow others carriers to offer flights from Santos Dumont to numerous other destinations.
     ANAC has implemented new rules in order to liberalize prices in the international market. In September 2008, ANAC announced the end of price floors for tickets originated in Brazil to South America, and last week they allowed gradual price reductions to other international destinations. However, as a result of pressure from the Brazilian airlines and other entities in the sector, ANAC may review these previously announced changes. According to the agency, the impact of the economic crisis on the industry may delay implementation of these measures. In the first phase of the original version of the April 2009 resolution, the tariff floors would be reduced by 20%, and then after three months, the tariff floors would be reduced to 50% of current levels. In October, the floor tariffs would go to 80% of current levels, and they would finally be extinguished in January 2010. Previously, companies could not charge tariffs lower than the limits established in 1993 and updated for the last time in 2005. TAM would be the most impacted by these new measures for having around 30%-35% of its revenues associated with international flights, a segment where the new measures would result in higher competition and revenue losses.
     The Brazilian aviation market is dominated by TAM and GOL, which together represent about 93% of the market. In the last five years, the sector recorded aggressive expansion, with passenger traffic increasing from 28 million in 2004 to 48 million in 2008.
Gordon Feller

Here again is the first Varig aircraft, a Dornier Wal flying boat from 1927 and the fabulous B707 that carried the brand and Brazil into the modern era and the last Varig tail and tube of the B737-800.

      Don’t look now but Varig Brasilian Airlines founded in 1927 is finally done and probably gone forever.
     Of course the troubles and bankruptcy of Varig by now are old news but somewhere in all the turmoil and meltdown, there were people who would not allow the name and legacy to die as forces seemed to be lined up to keep the proud old name aloft.
     Something of the same thing happened to another pioneer Pan Am World Airways when it went bust a decade ago, and even to Swissair recently.
     Swissair has been reborn SWISS and is alive and healthy and even in a tough economy is holding its own as part of Lufthansa Group.
     Pan Am was lifted once by the late Marty Shugrue, Jr., and then again by Guilford Transportation but now is also gone, although Guilford apparently has a rousing business selling PAA flight bags and accessories even today.
     It seems revered airlines go away and then somebody brings them back but the long term results are mostly disappointing.
     Right now at once mighty Varig, all that is left is a website that directs enquiries to GOL.
     Even as recently as a year ago Varig was getting B737-800s to serve South American destinations, but now all of that is history.
     Taking the following time line makes Varig’s fall just unbelievable.
     Varig, a little less than five years ago in 2004, combined with its subsidiaries Rio-Sul and Nordeste, carried approximately 13 million passengers annually and had over 11,000 full-time employees.
     As of December 31, 2004, Varig had total operating revenues of $3.4 billion, of which about $3.15 billion was from flight operations.
     By May 2005, Varig's share of passengers flying into or out of Brazil was 43% for the South American market, 17% for the United States market, 35% for the European market, and 48% for the Asian market.
     As of February 2007, Varig held 4.54% of the domestic Brazilian market, doubling its previous 2.2% share of August 2006, but still well below the 25.02% held in August 2005, and only 21.64% of the International market, compared to 76.06% one year before. As of May 2008, Varig held 7.97% of the Brazilian domestic market and 16,68% of the international market.
     On 28 March 2007, Gol Linhas Aéreas Inteligentes, the parent company of budget carrier Gol Transportes Aéreos, purchased Varig for US$320 million. Gol announced that Varig would continue to operate under its original name.
     The fleet of 17 aircraft was to be increased to 34, consisting of 20 Boeing 737 and 14 Boeing 767.
     With the new fleet Varig would operate to 12 international destinations: Buenos Aires, Bogotá, Caracas, Frankfurt, London, Madrid, Milan, Paris, New York, Miami, Mexico City and Santiago. Varig's international flights would no longer include First Class, and be only Economy Class and Business Class.
     Key domestic services would be operated, including the Rio de Janeiro to São Paulo shuttle, using VARIG's 124 slots at Congonhas-São Paulo International Airport.
     On 21 June 2007, Constantino de Oliveira Jr., the CEO of Gol Transportes Aéreos announced VARIG's immediate future plans for its fleet and destinations.
     The plan included the acquisition of nine of the more fuel efficient Boeing 737-800 model and 10 Boeing 767.      Constantino also announced that the airline was in negotiations with both Boeing and Airbus for the acquisition of either Boeing 787 or Airbus A350 aircraft.
     The plan also included flights to Madrid, London, Paris, Milan, Rome and Mexico City by the end of 2007, and New York City and Miami in 2008.
     But instead last year Varig quit flights to Frankfurt, Rome, and London, Mexico City, Madrid and Paris, focusing its network in Brazil and South America.
     Varig’s decline went white hot as the world financial crises deepened and the carrier’s cancelled flight services left and right since close of 2008.
     In April Varig’s online booking service and frequent flyer program were integrated into Gol.
     Varig's website now directs customers to Gol's website.
     Last month in June 2009, VARIG's brand ceased to operate even a single flight.
     Today, what was left of Varig is now branded Gol Transportes Aéreos.
     What are left to us are memories across 82 years.
     Here again is the first Varig aircraft, a Dornier Wal flying boat from 1927 and the fabulous B707 that carried the brand and Brazil into the modern era and the last Varig tail and tube of the B737-800.
Geoffrey

(Exclusive) Spectacular Boeing 747-8 photo shot from the roof of the final assembly bay overlooking first three 747-8 Freighter wings. The wings are for three airplanes in the 747-8 Freighter flight test program. Boeing joined the wings to the center wing box for airplane number three early this week.


     It may be argued that the fate of Aloha Airlines Cargo at one time hung on a loaf of bread.
     If there is one thing that has defined cultures around the world since the beginnings of recorded history it is the bread.
     In any case people who are just crazy about the Love Bakery in Honolulu and await on the out-islands for their daily bread shipment, can give thanks that Aloha Cargo is still flying.
     Other folks, come to think about it, can also be glad that their overnight consignments are still airborne and they are sharing the lift of Love.
     On March 31, 2008 when Aloha Airlines halted scheduled passenger service its creditors were able to interest Seattle-based Saltchuk Resources, Inc. in purchasing a profitable Aloha Cargo because among other things it served The Love Bakery.
     The deal was touch and go and needed not only political help but also some spirited contribution from everyone working in air cargo at Aloha.
     Today, Aloha Air Cargo's aircraft fleet consists of five (5) Boeing 737-200 freighters with 16 -18 nightly departures out of Honolulu and two daily charters, including service to every major airport destination within the State of Hawai'i including Kahului, L_hu'e, Hilo and Kona.
     Through partnerships with other airlines and international carriers, Aloha Air Cargo also arranges shipments to any destination worldwide.
     Aloha Air Cargo carries diverse products such as; fresh bakery products, fish and seafood, produce, tropical fish, live animals, time sensitive shipments, cut floral and tropical fruit export products, general cargo and much more.

 

 

Unveiling of Hawaii's Fresh Express: (From Left) Mike Walters (President, Love's Bakery) and Mike Malik (President, Aloha Air Cargo)

      In addition to Love’s Bakery, Aloha has contracts with DHL, Federal Express, UPS, and the U.S. Postal Service and others.
     Aloha Air Cargo is the only overnight carrier to offer refrigeration capabilities at all Hawaiian island locations.
     Now in a turnaround of sorts, as the Hawaii Superferry has gone out of business, Love’s Bakery is now festooned all over an Aloha Cargo Boeing 737-200 aircraft, No. 834 as it flies daily from Honolulu to Kauai, Maui and the Big Island, full of freshly baked goods.
     The aircraft makes daily deliveries not only to Kahului on Maui, but also services Lihue on Kauai and Kona and Hilo on the Big Island.
     “Together, Love’s Bakery and Aloha Air Cargo can deliver our products ‘fresher’ and faster than any other mode of transport across Hawaii,” Mike Walters, president and CEO of Love’s Bakery said of the new deal.
     Aloha Air Cargo President Mike Malik added:
     “Aloha Air Cargo is extremely pleased to extend our partnership with Love’s Bakery.”
     Mike also might have added:
     “It’s good to be alive.”
Geoffrey

     Air Cargo News FlyingTypers leads the way again as the world’s first air cargo publication to connect the industry to the broadly expanding and interactive base for social commentary—Twitter.
     Here are updates from Twitter so far this week. To be added to this 24/7/365 service at no-charge contact: acntwitter@aircargonews.com

July 17:   What is needed is one more big airplane? Report that An-124 may go back into production in the Volga. Only 56 were ever built but 2,300 jobs would be created at the comeback.

    

July 17:   MASKargo says it sees recovery later 2010. "Inquiries come from as far as Rio De Janeiro and Buenos Aires, but we don't fly there," MAS said.
Huh?

July 17:   Lots of Luck Dept.—Air India losing Rs 250 crore a month, says it has a turnaround plan while asking for government loan of Rs 3,000 Crore. Goes to committee July 25.

July 17:   Busted This Winter? . . . Summer used to mean profits, but USA airlines report losses again next week. Predict USAirways & UAL might not make it through 2010 winter.

July 16:   Good Maneuver… Air Transport Association’s John Heimlich (left): “One year’s profit /loss can't determine financial health, it’s years of weakness that has mattered.”

July 16:   Martinair Holland added Chennai to its 2X weekly B7747ERF run. Routing is as follows HKG/HYD/SHJ/AMS.

July 16:   Danny Ferrante, (right) BAX Cargo sweetheart of a guy died five years ago and JFK cargo Aug 20 Charity Golf ever since. dannygolf09@gmail.com.

July 16:   BA all business A318s LCA/JFK 2010 tech at SNN as first Eire stop to UK since PAA Clippers created Atlantic service 70 years ago in 1939.

July 16:   Japan and China to launch first ever regular flights between Tokyo's Haneda Airport and Beijing Capital International Airport on Oct. 25.

July 16:   IATA Cargo 2000 gets high marks as Qatar Airways CEO Akbar Al Baker (lef) calls C2K " a proven solution for implementation and measurement.”

July 16:   Daquing Airport opens in September with China Southern flying to PEK PVG via Dalian and Qingdao Hangzhou-Guangzhou and Xi'an-Chengdu.

  

July 16:   Singapore Airlines adds Melbourne as sixth city SQ A380 serves. Sydney was the first when SQ began operating A380 in October 2007.

July 15:   Air China said first-half profit jumped up 50% as lower fuel costs and travel demand signals normalizing business on the mainland.

Mit bier und pretzels…and containers! October 6-9 2009, Inter Airport Europe, 17th International Exhibition for Airport Equipment, Technology, Design & Services is in Munich, Germany at its new venue, the Munich Trade Fair Center. Show promises 500 exhibitors from 27 countries. Contact: www.interairport.com/europe

Women In Air Cargo
  Our exclusive series “Women In Air Cargo” asks our readers to send some words and a picture about somebody that you know who is female and has made a difference in air cargo.
  This effort is not limited to just success or failure, it is meant to raise awareness about the legions of unique women who in most cases are unsung heroines in the air cargo industry.
  So write and we will share your story with our readers around the world.
 

 

 

 

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