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Posts: 382/650
(15-Sep-2005 at 02:34)
Northwest and Delta Airlines File for Chapter 11

http://www.cbc.ca/story/business/nat...t20050914.html
Quote:
Delta and Northwest Airlines file for bankruptcy
Last Updated Wed, 14 Sep 2005 ##:##:58 EDT
CBC News

Two major U.S. airlines, Delta and Northwest, filed for bankruptcy protection from their creditors Wednesday. Both have been hampered by high fuel costs, and heavy debt.

This means that three of the four largest U.S. airlines are now in bankruptcy court.

Delta is the larger of the two, with a total debt of roughly $20.5 billion US, and total assets of $21.6 billion, as of June 30. With those assets, Delta's bankruptcy will be the ninth-largest in U.S. history, according to bankruptcy tracker New Generation Research Inc.

Both airlines have been hit hard by massive increases in jet fuel prices.

Additionally, Northwest has the highest labour costs in the industry, and has been losing money at the rate of $4 million US per day.

"We had developed a plan to restructure Northwest outside of Chapter 11 and have been implementing that plan," Doug Steenland, Northwest president and CEO, said in a statement. "Unfortunately, in addition to an uncompetitive cost structure, our efforts have been overtaken by skyrocketing fuel costs."

For months, Northwest had sought more than $1.1 billion US in concessions from its unions, warning that bankruptcy was a possibility -but only pilots had agreed. In August, rather than accept deep layoffs and pay cuts, the airline's mechanics went on strike. During the strike, the airline used replacement workers, but was forced to delay and cancel many flights.

Both airlines are expected to continue their normal schedules for the time being, which means passengers won't experience any immediate effects.

The two airlines bring to four the number of major U.S. carriers to enter Chapter 11, since the 9-11 attacks in 2001.
Unfortunately, in today's air travel market, there is excess capacity in the United States. One of these airlines will have to fold... wonder which one? Sounds like Northwest is the one, they are having the worst issues.

"If the United States were a 35-year-old man, I think he'd be in a mental institution. Violent tendencies... delusions of grandeur... medicate heavily." - Rick Mercer
"In the United States I have always believed that there was a big difference between Conservative and stupid. Boy is it getting harder to prove that one by the minute." - Rick Mercer
#1  
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(15-Sep-2005 at 02:47)


There's two more airlines that are about to file for bankruptcy as well. American West and I think it's United Air are planning on merging and creating a business model similar to that of Southwest (The only one I think that's actually doing well). People just aren't as giddy about flying as they used to, the airline industry is going to have to adapt or die off. American West and whoever they're merging with have the right idea, why can't Delta, Northwest, and the other two I can't remember right now just wise up and adapt as well?

Currently, the failing airlines have a policy of flying everywhere at near randomness. American West and United Air or whoever it is do this too, but they're planning on having a business model like Southwest, which has regular, scheduled flights only to major hubs.

Sygnalor the Accountinator
Able to file 1040's faster than a speeding bullet
#2  
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(15-Sep-2005 at 03:30)


NWA filing for bankruptcy comes as somewhat of a surprise to me. Just a month ago i read that as long as they could have the $1.2 billion cut incosts from the mechanic layoffs that no proctection would be filed for and they would operate normally.

If they do fold up it's going to hit the midwest pretty hard in travel costs, here in Michigan NWA is the cheapest line to fly on excluding the discount airlines.
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(15-Sep-2005 at 03:41)
Quote:
(Originally posted by Sygnal)

There's two more airlines that are about to file for bankruptcy as well. American West and I think it's United Air are planning on merging and creating a business model similar to that of Southwest (The only one I think that's actually doing well). People just aren't as giddy about flying as they used to, the airline industry is going to have to adapt or die off. American West and whoever they're merging with have the right idea, why can't Delta, Northwest, and the other two I can't remember right now just wise up and adapt as well?

Currently, the failing airlines have a policy of flying everywhere at near randomness. American West and United Air or whoever it is do this too, but they're planning on having a business model like Southwest, which has regular, scheduled flights only to major hubs.
I think the problem with comparing to Southwest is that they have brilliantly hedged their fuel prices (meaning they have bought their fuel a couple of years ago). I think with the current hedging with Southwest, the price per barrel for oil was about $20 bucks a barrel. So Southwest is paying at least 3 times less for fuel than any other carrier.

Unfortunately, I think I see Northwest is the airline to go completely kaput. A good chunk of their fleet is already 20 years old or more, they have not cut their costs, and frankly, I don't see them surviving unless they merge with someone else.

"If the United States were a 35-year-old man, I think he'd be in a mental institution. Violent tendencies... delusions of grandeur... medicate heavily." - Rick Mercer
"In the United States I have always believed that there was a big difference between Conservative and stupid. Boy is it getting harder to prove that one by the minute." - Rick Mercer
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(15-Sep-2005 at 06:14)
Well, I'm not suprised that they are having trouble - JetBlue and others will eventually take over the air business just because they can do things more cheaply and don't care to provide fancy services that no one cares about anyway.

However...Delta was my favorite airline. I'll be sad if it closes.

And JetBlue doesn't fly out of Des Moines, Iowa.
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(Posted as The Only One)
Posts: 1502/3861
(15-Sep-2005 at 12:28)


Quote:
(Originally posted by Archael)

NWA filing for bankruptcy comes as somewhat of a surprise to me. Just a month ago i read that as long as they could have the $1.2 billion cut incosts from the mechanic layoffs that no proctection would be filed for and they would operate normally.

If they do fold up it's going to hit the midwest pretty hard in travel costs, here in Michigan NWA is the cheapest line to fly on excluding the discount airlines.
The money saved from the one union is just a drop in the bucket. If they did the same thing with the others then there may be hops.

On a side note I took Northwest up to Minn/St Paul for a buddies wedding a few weeks ago. Great service.

Never Forget

September 11, 2001
#6  
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Donated $11.20
(15-Sep-2005 at 15:40)


The #1 cost for airlines is labor, #2 is fuel.

Airlines that have been in business longer have higher labor costs than newer airlines, and as Reich mentioned some of those new airlines like Southwest have healthy balance sheets and can afford to contractually lock in the cost of fuel (at least for a time).

In the long run, there's no way around the cycle. Labor unions will want to protect employees with ever growing wage scales based on tenure, and new start-ups will jump in with some cash and very low initial labor costs and drive out the establishment...

Man is the only animal that blushes, or needs to.-- Mark Twain
#7  
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(15-Sep-2005 at 18:36)
i'm sorry but i think its the responsbility of the Labor unions to lower their pay instead of becoming backrupt..but oh well..don't fly much anyways
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(15-Sep-2005 at 18:38)
Quote:
(Originally posted by tylerrrrr)

i'm sorry but i think its the responsbility of the Labor unions to lower their pay instead of becoming backrupt..but oh well..don't fly much anyways
In Northwest's case, it was not the pay cuts that were the issue. The union was willing to take a 22% pay cut or more. The issue was the layoff of 54% of the mechanics. The union disagreeded with the number of people cut from NWA.

Edit: Another issue was that it appeared that Northwest was negotiating in bad faith. They refused to go to non-binding arbitration, when the union suggested it. Also, training and hiring replacements for a year before the strike started made it really appear that Northwest was spoiling for a fight.

"If the United States were a 35-year-old man, I think he'd be in a mental institution. Violent tendencies... delusions of grandeur... medicate heavily." - Rick Mercer
"In the United States I have always believed that there was a big difference between Conservative and stupid. Boy is it getting harder to prove that one by the minute." - Rick Mercer

Last edited by Reichstag, 15-Sep-2005 at 18:40.
#9  
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(15-Sep-2005 at 22:09)


Quote:
(Originally posted by Reichstag)

In Northwest's case, it was not the pay cuts that were the issue. The union was willing to take a 22% pay cut or more. The issue was the layoff of 54% of the mechanics. The union disagreeded with the number of people cut from NWA.

Edit: Another issue was that it appeared that Northwest was negotiating in bad faith. They refused to go to non-binding arbitration, when the union suggested it. Also, training and hiring replacements for a year before the strike started made it really appear that Northwest was spoiling for a fight.
true i read several notices at the reservations office and the airport that made it very plain that even during the strike flights would operate normally through the hiring of replacements.
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(15-Sep-2005 at 22:30)
Quote:
(Originally posted by Archael)

true i read several notices at the reservations office and the airport that made it very plain that even during the strike flights would operate normally through the hiring of replacements.
Northwest was hiring and readying replacements a entire YEAR before they went to the negiotating table. They did the same to the pilots as well (in the end, the pilots agreeded to the cut, and the replacements weren't needed). It costs money to bring people in to replace striking workers. Lots of money. Money that could have been better spent elsewhere. Northwest pretty much dug themselves into this mess by having very bad relations with their labour... a quick survey of airlines that are profitable show that most of these airlines have good relations with their labour (Westjet, Southwest, JetBlue, Signapore Airlines, Qantas, All-Nippon (ANA), Air New Zealand, Lufthansa, Air France - KLM, British Airways, Cathay Pacific, and Air Canada (to an extent)). It just goes to show you that if you treat your employees like crap, don't expect your employees to help out when the company runs into trouble.

"If the United States were a 35-year-old man, I think he'd be in a mental institution. Violent tendencies... delusions of grandeur... medicate heavily." - Rick Mercer
"In the United States I have always believed that there was a big difference between Conservative and stupid. Boy is it getting harder to prove that one by the minute." - Rick Mercer
#11  
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(16-Sep-2005 at 01:11)


what surprises me is that in the same period, european airlines have done fine. When I say fine, they are all operating at relativly good levels, there is little chance of bankruptcy and many are returning good profits. This is with far smaller internal markets availiable to them. In fact in recent years smaller airlines have done extremely well, those such as easy-jet and ryanair and have seen soaring profits since 2001.

Now i'm not trying to sound smug, and i'm certainly not suggesting that european airlines are in great positions financially compared with how they have been previously, but there is also little chance that 3/4 of europes top airlines are going broke.

Now i don't know where the problem lies, or indeed if it is anything to do with where they are from, just something i noticed.

Getting banned is not smart, nor cool. - Swifty
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(16-Sep-2005 at 01:51)


Quote:
(Originally posted by Jasse)

what surprises me is that in the same period, european airlines have done fine. When I say fine, they are all operating at relativly good levels, there is little chance of bankruptcy and many are returning good profits. This is with far smaller internal markets availiable to them. In fact in recent years smaller airlines have done extremely well, those such as easy-jet and ryanair and have seen soaring profits since 2001.

Now i'm not trying to sound smug, and i'm certainly not suggesting that european airlines are in great positions financially compared with how they have been previously, but there is also little chance that 3/4 of europes top airlines are going broke.

Now i don't know where the problem lies, or indeed if it is anything to do with where they are from, just something i noticed.
Howe much are those airlines getting in subsidies?

"I KEEK A TOUCHDOWN!" - Garo Yepremian
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Posts: 3942/3991
(16-Sep-2005 at 01:56)


Quote:
(Originally posted by Sister Klon)

Howe much are those airlines getting in subsidies?
Nothing in the slightest, they are independant companies who work independantly from governments, at least so far as the two i listed are concerned. There was once an issue over local subsidies to ryanair but they were later ruled illigal and in monetary terms ran into the low millions.

As for the larger companies, i mean people like BA who don't recieve any state subsidies and i can only assume the same is true of the others large european companies.

Getting banned is not smart, nor cool. - Swifty
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(16-Sep-2005 at 01:58)
Quote:
(Originally posted by Sister Klon)

Howe much are those airlines getting in subsidies?
Ziltch. Nota. Z-E-R-O. Most are private airlines, like Virgin Atlantic, which is turning in a major profit (others are Easyjet, Ryanair, Lufthansa). Only a handful are state owned, and those are being slowly turned private. It is mainly because European airlines have a stronger product (better customer service, quality, and consistancy), and way better relations with their labour. Very rarely do European airline workers strike. Try taking a flight on Virgin Atlantic or British Airways to London and return using a U.S. airline. The quality of service is radically different between them.

"If the United States were a 35-year-old man, I think he'd be in a mental institution. Violent tendencies... delusions of grandeur... medicate heavily." - Rick Mercer
"In the United States I have always believed that there was a big difference between Conservative and stupid. Boy is it getting harder to prove that one by the minute." - Rick Mercer
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(16-Sep-2005 at 02:01)


Big airlines going down are bad news for midsize towns like mine that aren't really convenient to major hubs...I think that means that more than half the flights out of my town are about to go kaput.

And since State Farm is based here, that means they get jacked on costs, which get passed on to every man, woman and child insured by them.

R.I.P. Kirby Puckett 1960-2006, a true champion and credit to his team and community.
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(16-Sep-2005 at 02:13)


Quote:
(Originally posted by Reichstag)

Ziltch. Nota. Z-E-R-O. Most are private airlines, like Virgin Atlantic, which is turning in a major profit (others are Easyjet, Ryanair, Lufthansa). Only a handful are state owned, and those are being slowly turned private. It is mainly because European airlines have a stronger product (better customer service, quality, and consistancy), and way better relations with their labour. Very rarely do European airline workers strike. Try taking a flight on Virgin Atlantic or British Airways to London and return using a U.S. airline. The quality of service is radically different between them.
Good to know, I wasn't accusing I was curious. And I know that US airlines have gotten large amounts of subsidies after that whole 9-11 thing. They've gotten constant bailouts from the government for many years. I think the current situation is a symptom of it.

Here's an old article that sort of predicted the current situation - sort of. It really didn't take into account the total incompetence of the Managers of American companies.
Quote:
Turning off the tap

Oct 25th 2001
From The Economist print edition


State cash for Swissair and Sabena disguise the true picture


THIS week, a consortium comprising the Swiss government, leading Swiss companies and individual donors stumped up SFr4.25 billion ($2.6 billion) to enable most of Swissair to be reversed into its regional affiliate, Crossair. Meanwhile, Belgium's national airline, Sabena, in which Swissair is a big investor, is likewise being kept aloft by short-term government loans.

At first glance, these cases suggest that Europe is back to its old tricks, doling out generous subsidies to “strategic” companies. But they may prove exceptional. The European Union's transport commissioner, Loyola de Palacio, is determined not to cave in and restart the endless round of handouts that were poured into companies such as Air France, Iberia and Olympic Airways in the 1990s. The European Commission has allowed governments to cover the insurance risks and costs faced by airlines since the terrorist attacks last month, and is willing to consider compensation for flights cancelled when American airspace was closed for four days. However, Ms de Palacio has made it clear that aid is limited, even though the French and Italian governments have got out the begging bowls. She has vocal support from low-fare airlines, such as EasyJet and Ryanair, whose business is still booming as they cut fares further to keep their aircraft profitably filled.

The upshot of all this is that America and Europe are heading in different directions in handling the aftermath of the September 11th tragedy for the airline industry. America's federal government is providing $5 billion in cash, and a further $10 billion in loan guarantees, to shore up an industry that was heading for combined losses of $3 billion even before the disaster. Europe's flag carriers were also heading into the red as transatlantic traffic slowed. They are now complaining that their failure to secure an American-style rescue could put them at a disadvantage—for instance, if American carriers discount transatlantic fares to grab market share.

The EU's tough stance could have some beneficial effects, forcing Europe's big carriers to seek their own salvation. British Airways (BA), for instance, confirmed this week that it is talking with KLM about some sort of alliance with the Dutch carrier. It is also working hard to get its main alliance with American Airlines (AA) blessed with antitrust immunity on both sides of the Atlantic. BA is hurting badly because it depends on transatlantic routes for nearly all its profits.

BA is increasingly desperate to win approval for its “virtual merger” with AA by the end of the year. American regulators are unlikely to give the go-ahead unless Britain signs an “open skies” deal allowing American carriers greater access to London's Heathrow airport. By the end of the year, however, Brussels will probably have won in the courts the right to negotiate such deals at the level of the EU rather than national governments. That might complicate and delay BA's plan to pool its operations with AA.

Once an EU-United States open skies deal is done, perhaps next year, the European aviation market will be truly liberalised—allowing, for instance, BA to fly to New York from Paris or Brussels, and Lufthansa to do likewise from London. This will unleash real competition on long-haul routes and undermine any remaining justification for national flag carriers. No wonder many agree with Lufthansa's boss, Jürgen Weber, who recently predicted that within a few years there will be only three big European carriers: BA, Lufthansa and Air France.

"I KEEK A TOUCHDOWN!" - Garo Yepremian

Last edited by Sister Klon, 16-Sep-2005 at 02:18.
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(16-Sep-2005 at 02:26)


sorry for the double post, but it seems those airlines ARE getting help.

Quote:
EU rules against some Belgian subsidies for Ryanair

By Eric Pfanner International Herald Tribune

Wednesday, February 4, 2004




Ryanair, the Irish airline that pioneered budget air travel in Europe, saw one of its most aggressive expansion tactics reined in slightly on Tuesday.

But far from ending the growth of low-fare carriers on the Continent, a decision by the European Commission, involving discounts that Ryanair negotiated at an airport in Belgium, highlights the success and continued promise of the budget strategy, analysts and rival carriers said.

Since 1985, when Ryanair was founded, it has given birth to a whole new market for impulse travel in Europe, based on the model pioneered by Southwest Airlines in the United States. Ryanair's low fares have inspired dozens of imitators, most prominently EasyJet. And its model of flying from major metropolitan areas to secondary airports in the charming hinterlands of Europe has prompted thousands of Britons to buy weekend homes in the sunshine of Spain and the south of France.

With the marketing savvy it showed in its aggressive fare-cutting, Ryanair had sought to portray its battle with the European Commission in David-and-Goliath terms, with the plucky upstart airline taking on the bureaucrats in Brussels. The commission had objected to an arrangement that Ryanair struck with a publicly owned airport in Charleroi, about an hour south of Brussels, that granted the airline a number of discounts and subsidies.

But the decision Tuesday was less severe than many analysts had expected. About 70 percent to 75 percent of the subsidies will be allowed to stand, the European Union transport commissioner, Loyola de Palacio, said at a news conference in Brussels. The decision is expected to cost Ryanair less than €4 million, or $5 million — and, perhaps more important, it will allow airlines to continue to negotiate discounts with airports such as Charleroi.

De Palacio did say that average fares from Charleroi, one of Ryanair's Continental hubs, might rise by about €6 to €8 as a result of the decision.

But air fares throughout Europe have already been falling sharply as a result of the growth of the no-frills sector, which now makes up about 15 percent of the total market. That is still substantially less market share than in the United States.

Analysts predict further growth in Europe, with fares falling further as these carriers continue to open new routes. Indeed, Ryanair itself predicted last week that average fares in the current quarter would fall by about 30 percent, on average, from a year earlier, putting pressure on its earnings.

While Ryanair's stock price plunged last week in anticipation of an adverse ruling and because of concern about the carrier's tightening profit margins, the shares bounced back strongly on Tuesday as investors breathed a sigh of relief at the ruling in Brussels. They traded in Dublin at €5.05, up 8 percent.

Michael O'Leary, the chief executive of Ryanair, said the carrier would appeal the commission decision to the European Court of Justice.

"The European Commission should not be interfering in the operation of the free market," he said in a statement.

He previously has threatened to sue other European carriers that receive state aid in various forms. But analysts said the decision would not deal a significant blow to Ryanair's business model, even if it forces some adjustment in fares or the agreements it reaches with other airports.

"It's a blow to Ryanair but it's not the knock-out blow some pessimists have been talking about," Henk Potts, a fund manager at Barclays Private Clients, told Bloomberg News.

Significantly, the commission did not decide that all discounts negotiated with airports like Charleroi are illegal. De Palacio said such agreements were viable as long as they were aimed at regional development, were transparent and did not favor one operator over another.

The decision will "help the development of low-cost operations, which are very clearly what consumers want, whilst also ensuring equitable conditions of competition for all airlines," she told reporters in Brussels.

Though other low-cost carriers had been worried about the ruling on Charleroi, for fear that it might have curbed their own arrangements with airports in other regions, Ryanair's biggest rival, EasyJet, praised the decision.

"Today's ruling is good news for Europe's airlines as it removes a very substantial degree of uncertainty that has been hanging-over European aviation for some time," said Ray Webster, chief executive of EasyJet, in an e-mailed statement. "It also makes a very clear commitment to the development of the low-cost airline sector."
Ryanair, the Irish airline that pioneered budget air travel in Europe, saw one of its most aggressive expansion tactics reined in slightly on Tuesday.

But far from ending the growth of low-fare carriers on the Continent, a decision by the European Commission, involving discounts that Ryanair negotiated at an airport in Belgium, highlights the success and continued promise of the budget strategy, analysts and rival carriers said.

Since 1985, when Ryanair was founded, it has given birth to a whole new market for impulse travel in Europe, based on the model pioneered by Southwest Airlines in the United States. Ryanair's low fares have inspired dozens of imitators, most prominently EasyJet. And its model of flying from major metropolitan areas to secondary airports in the charming hinterlands of Europe has prompted thousands of Britons to buy weekend homes in the sunshine of Spain and the south of France.

With the marketing savvy it showed in its aggressive fare-cutting, Ryanair had sought to portray its battle with the European Commission in David-and-Goliath terms, with the plucky upstart airline taking on the bureaucrats in Brussels. The commission had objected to an arrangement that Ryanair struck with a publicly owned airport in Charleroi, about an hour south of Brussels, that granted the airline a number of discounts and subsidies.

But the decision Tuesday was less severe than many analysts had expected. About 70 percent to 75 percent of the subsidies will be allowed to stand, the European Union transport commissioner, Loyola de Palacio, said at a news conference in Brussels. The decision is expected to cost Ryanair less than €4 million, or $5 million — and, perhaps more important, it will allow airlines to continue to negotiate discounts with airports such as Charleroi.

De Palacio did say that average fares from Charleroi, one of Ryanair's Continental hubs, might rise by about €6 to €8 as a result of the decision.

But air fares throughout Europe have already been falling sharply as a result of the growth of the no-frills sector, which now makes up about 15 percent of the total market. That is still substantially less market share than in the United States.

Analysts predict further growth in Europe, with fares falling further as these carriers continue to open new routes. Indeed, Ryanair itself predicted last week that average fares in the current quarter would fall by about 30 percent, on average, from a year earlier, putting pressure on its earnings.

While Ryanair's stock price plunged last week in anticipation of an adverse ruling and because of concern about the carrier's tightening profit margins, the shares bounced back strongly on Tuesday as investors breathed a sigh of relief at the ruling in Brussels. They traded in Dublin at €5.05, up 8 percent.

Michael O'Leary, the chief executive of Ryanair, said the carrier would appeal the commission decision to the European Court of Justice.

"The European Commission should not be interfering in the operation of the free market," he said in a statement.

He previously has threatened to sue other European carriers that receive state aid in various forms. But analysts said the decision would not deal a significant blow to Ryanair's business model, even if it forces some adjustment in fares or the agreements it reaches with other airports.

"It's a blow to Ryanair but it's not the knock-out blow some pessimists have been talking about," Henk Potts, a fund manager at Barclays Private Clients, told Bloomberg News.

Significantly, the commission did not decide that all discounts negotiated with airports like Charleroi are illegal. De Palacio said such agreements were viable as long as they were aimed at regional development, were transparent and did not favor one operator over another.

The decision will "help the development of low-cost operations, which are very clearly what consumers want, whilst also ensuring equitable conditions of competition for all airlines," she told reporters in Brussels.

Though other low-cost carriers had been worried about the ruling on Charleroi, for fear that it might have curbed their own arrangements with airports in other regions, Ryanair's biggest rival, EasyJet, praised the decision.

"Today's ruling is good news for Europe's airlines as it removes a very substantial degree of uncertainty that has been hanging-over European aviation for some time," said Ray Webster, chief executive of EasyJet, in an e-mailed statement. "It also makes a very clear commitment to the development of the low-cost airline sector."
Ryanair, the Irish airline that pioneered budget air travel in Europe, saw one of its most aggressive expansion tactics reined in slightly on Tuesday.

But far from ending the growth of low-fare carriers on the Continent, a decision by the European Commission, involving discounts that Ryanair negotiated at an airport in Belgium, highlights the success and continued promise of the budget strategy, analysts and rival carriers said.

Since 1985, when Ryanair was founded, it has given birth to a whole new market for impulse travel in Europe, based on the model pioneered by Southwest Airlines in the United States. Ryanair's low fares have inspired dozens of imitators, most prominently EasyJet. And its model of flying from major metropolitan areas to secondary airports in the charming hinterlands of Europe has prompted thousands of Britons to buy weekend homes in the sunshine of Spain and the south of France.

With the marketing savvy it showed in its aggressive fare-cutting, Ryanair had sought to portray its battle with the European Commission in David-and-Goliath terms, with the plucky upstart airline taking on the bureaucrats in Brussels. The commission had objected to an arrangement that Ryanair struck with a publicly owned airport in Charleroi, about an hour south of Brussels, that granted the airline a number of discounts and subsidies.

But the decision Tuesday was less severe than many analysts had expected. About 70 percent to 75 percent of the subsidies will be allowed to stand, the European Union transport commissioner, Loyola de Palacio, said at a news conference in Brussels. The decision is expected to cost Ryanair less than €4 million, or $5 million — and, perhaps more important, it will allow airlines to continue to negotiate discounts with airports such as Charleroi.

De Palacio did say that average fares from Charleroi, one of Ryanair's Continental hubs, might rise by about €6 to €8 as a result of the decision.

But air fares throughout Europe have already been falling sharply as a result of the growth of the no-frills sector, which now makes up about 15 percent of the total market. That is still substantially less market share than in the United States.

Analysts predict further growth in Europe, with fares falling further as these carriers continue to open new routes. Indeed, Ryanair itself predicted last week that average fares in the current quarter would fall by about 30 percent, on average, from a year earlier, putting pressure on its earnings.

While Ryanair's stock price plunged last week in anticipation of an adverse ruling and because of concern about the carrier's tightening profit margins, the shares bounced back strongly on Tuesday as investors breathed a sigh of relief at the ruling in Brussels. They traded in Dublin at €5.05, up 8 percent.

Michael O'Leary, the chief executive of Ryanair, said the carrier would appeal the commission decision to the European Court of Justice.

"The European Commission should not be interfering in the operation of the free market," he said in a statement.

He previously has threatened to sue other European carriers that receive state aid in various forms. But analysts said the decision would not deal a significant blow to Ryanair's business model, even if it forces some adjustment in fares or the agreements it reaches with other airports.

"It's a blow to Ryanair but it's not the knock-out blow some pessimists have been talking about," Henk Potts, a fund manager at Barclays Private Clients, told Bloomberg News.

Significantly, the commission did not decide that all discounts negotiated with airports like Charleroi are illegal. De Palacio said such agreements were viable as long as they were aimed at regional development, were transparent and did not favor one operator over another.

The decision will "help the development of low-cost operations, which are very clearly what consumers want, whilst also ensuring equitable conditions of competition for all airlines," she told reporters in Brussels.

Though other low-cost carriers had been worried about the ruling on Charleroi, for fear that it might have curbed their own arrangements with airports in other regions, Ryanair's biggest rival, EasyJet, praised the decision.

"Today's ruling is good news for Europe's airlines as it removes a very substantial degree of uncertainty that has been hanging-over European aviation for some time," said Ray Webster, chief executive of EasyJet, in an e-mailed statement. "It also makes a very clear commitment to the development of the low-cost airline sector."
Ryanair, the Irish airline that pioneered budget air travel in Europe, saw one of its most aggressive expansion tactics reined in slightly on Tuesday.

But far from ending the growth of low-fare carriers on the Continent, a decision by the European Commission, involving discounts that Ryanair negotiated at an airport in Belgium, highlights the success and continued promise of the budget strategy, analysts and rival carriers said.

Since 1985, when Ryanair was founded, it has given birth to a whole new market for impulse travel in Europe, based on the model pioneered by Southwest Airlines in the United States. Ryanair's low fares have inspired dozens of imitators, most prominently EasyJet. And its model of flying from major metropolitan areas to secondary airports in the charming hinterlands of Europe has prompted thousands of Britons to buy weekend homes in the sunshine of Spain and the south of France.

With the marketing savvy it showed in its aggressive fare-cutting, Ryanair had sought to portray its battle with the European Commission in David-and-Goliath terms, with the plucky upstart airline taking on the bureaucrats in Brussels. The commission had objected to an arrangement that Ryanair struck with a publicly owned airport in Charleroi, about an hour south of Brussels, that granted the airline a number of discounts and subsidies.

But the decision Tuesday was less severe than many analysts had expected. About 70 percent to 75 percent of the subsidies will be allowed to stand, the European Union transport commissioner, Loyola de Palacio, said at a news conference in Brussels. The decision is expected to cost Ryanair less than €4 million, or $5 million — and, perhaps more important, it will allow airlines to continue to negotiate discounts with airports such as Charleroi.

De Palacio did say that average fares from Charleroi, one of Ryanair's Continental hubs, might rise by about €6 to €8 as a result of the decision.

But air fares throughout Europe have already been falling sharply as a result of the growth of the no-frills sector, which now makes up about 15 percent of the total market. That is still substantially less market share than in the United States.

Analysts predict further growth in Europe, with fares falling further as these carriers continue to open new routes. Indeed, Ryanair itself predicted last week that average fares in the current quarter would fall by about 30 percent, on average, from a year earlier, putting pressure on its earnings.

While Ryanair's stock price plunged last week in anticipation of an adverse ruling and because of concern about the carrier's tightening profit margins, the shares bounced back strongly on Tuesday as investors breathed a sigh of relief at the ruling in Brussels. They traded in Dublin at €5.05, up 8 percent.

Michael O'Leary, the chief executive of Ryanair, said the carrier would appeal the commission decision to the European Court of Justice.

"The European Commission should not be interfering in the operation of the free market," he said in a statement.

He previously has threatened to sue other European carriers that receive state aid in various forms. But analysts said the decision would not deal a significant blow to Ryanair's business model, even if it forces some adjustment in fares or the agreements it reaches with other airports.

"It's a blow to Ryanair but it's not the knock-out blow some pessimists have been talking about," Henk Potts, a fund manager at Barclays Private Clients, told Bloomberg News.

Significantly, the commission did not decide that all discounts negotiated with airports like Charleroi are illegal. De Palacio said such agreements were viable as long as they were aimed at regional development, were transparent and did not favor one operator over another.

The decision will "help the development of low-cost operations, which are very clearly what consumers want, whilst also ensuring equitable conditions of competition for all airlines," she told reporters in Brussels.

Though other low-cost carriers had been worried about the ruling on Charleroi, for fear that it might have curbed their own arrangements with airports in other regions, Ryanair's biggest rival, EasyJet, praised the decision.

"Today's ruling is good news for Europe's airlines as it removes a very substantial degree of uncertainty that has been hanging-over European aviation for some time," said Ray Webster, chief executive of EasyJet, in an e-mailed statement. "It also makes a very clear commitment to the development of the low-cost airline sector."
It seems the Ryanair case was misrepresented. It only ruled a portion of subsidies illegal. IT's still getting that other 70+ percent.

"I KEEK A TOUCHDOWN!" - Garo Yepremian
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(16-Sep-2005 at 03:31)


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(Originally posted by Sister Klon)

sorry for the double post, but it seems those airlines ARE getting help.



It seems the Ryanair case was misrepresented. It only ruled a portion of subsidies illegal. IT's still getting that other 70+ percent.
they are not subsidies as you would expect, they are more like payments from local governments to encourage them to fly there. It would be like a small town in texas paying delta money to make them fly there frequantly. It is not governments propping up their own airlines because they are failing, but rather foreign governments encuraging tourism.

I am not quite sure whether i agree with it or not, I oppose subsidies as they are, the US are in the wrong, those belgian ones are in the wrong, boing and airbus are also in the wrong, as are US and EU farmers, I could go on because i believe it is unfair, it breeds innefficiency, discourages the free market, competition and free trade, and ultimately is an unfair cost on whoever ends up funding them. There are certain rules that make subsidies permissible, helping a new industry emerge at a time when it is unsustainable without but later will, if the losses to jobs would be severly detrimental to the economy (although in the long run, if this is the case then this is the case, the economy will only improve through advancement) and if it is essential that the business stay afloat. What i do not agree with is doing it for political reasons, to keep afloat inefficient companies (there's one for US steel) and a whole other range of things.

These airlines are not essential (were one to fail another will take its place, there will always be flights on offer and sufficient competition to keep the markets fair), their jobs do not uphold the economy, and they have had a long time to sort themselves out. Its time for the sake of the worlds economy, efficiency and productivity that these subsidies stop (and i mean the vast majority of them, not just airlines), it won't happen though due to politics. The Us won't stop helping boing, because it would fall further behind airbus (not very good politicly (and so much for the beacon of free trade)), the French will not allow CAP to end (i pick out the french because they are the ones who promised not to allow it to change when Britain requested it, and they are the ones who most profit from it).

Um but getting back to what i actually intended to say, from what i can make out, the deals that ryanair recieve do not constitute a subsidy, if a duch town needs planes to fly there and it is not cost efficient for an airline to make those flights, then if that local area feels like spending its own money to advance itself, in a move which obvioulsy does not hamper competition, efficiency or free trade I see no ultimate problem with it. The one cloudy area is its potential to benefit over other airlines, however tough luck is my opinion, competitivness and competition are two things, you can be a sucessful company without needing the biggest profit margins.

Getting banned is not smart, nor cool. - Swifty
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