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Volume 7, Issue 15, April 15, 2009 |
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Age and experience do not always pay off in the long run — a tough lesson being learned by domestic legacy airlines. According to new analysis, released by Oliver Wyman consultancy, the cost gap between legacy airlines (airlines in business for decades) and younger low-fare carriers remains significant. The gap, which was expected to shrink as time passed, means older airlines will have a difficult time matching low fares in the long term.
In reality, low-cost, younger carriers have been able to reduce costs even more, while the older airlines struggle to keep up, increasing the cost gap. Low-cost carriers have a bigger advantage in productivity and labor cost. Older airlines have more employees at high levels of seniority, translating to higher wages.
Essentially, the costs of operating the older airlines have kept them in second place in the price race. The large-scale operations bring higher labor and equipment costs. Additionally, planes and employees tend to sit around longer and gates are empty longer with older carriers. The larger, older airlines benefited greatly when the economy was stronger and business travelers were paying top rates for travel. Their international offerings and extensive networks translated to higher revenues.
Now, as airlines slash costs to survive the recession, older and younger airlines continue to separate into two groups — those that can survive by offering cheap tickets and those that may run out of money. The key to maintaining low cost is growth; another area where recent analysis gives low-cost carriers an edge. As they continue to grow, they will add new aircraft, cutting down on maintenance costs, and hire employees at the bottom of the wage scale. Airlines that are shrinking will have to make payments on grounded aircraft and leases on gates and space no longer in use.
Since 2003, low-cost carriers have steadily been attracting more domestic air travel. In 2003, they carried 26 percent of passengers; by 2007, they were carrying 31 percent. Legacy airlines carried 56 percent of passengers in 2003, a percentage that dropped to 48 percent in 2007. 
Korean Air has tapped Thomas Properties Group, Inc. to redesign the airline’s three-acre Los Angeles property, located on the corner of Wilshire and Figueroa. The property is currently home to the Wilshire Grand Hotel. The new development will boast offices, condominiums and hotel space. Korean Air is also helping make Los Angeles greener. Dozens of airline employees assisted hundreds of school children in planting trees on Union Avenue. The effort was part of the airline’s Million Trees Los Angeles initiative. In honor of its 40th anniversary, Korean Air is donating $40,000 a year for four years to the MTLA. For more on Korean Air, click here.
Hyatt Hotels and Resorts opened the 202-room Hyatt Regency in Dushanbe, Tajikistan — the first international brand in the city. The hotel is located in the city center, on Ismoili Somoni Avenue. Tajikistan is aimed to become one of the world’s leading producers of minerals and metals. The Hyatt Regency Dushanbe features 42 suites, 15,000 square feet of event and meeting space, Spa Sayohat and a fitness center. The spa and gym are slated to officially open this month.
The U.S. Transportation Department has granted tentative antitrust immunity approval, allowing Continental Airlines to join Star Alliance. The tentative approval also grants the airline permission to form an expanded trans-Atlantic joint venture with United, Lufthansa and Air Canada. DOT’s final decision will come May 31, giving outside parties three weeks to file objections, with seven days for response. In its decision, DOT mandated the joint venture must be implemented within 18 months. Read more about Continental’s business-class service here.
OpenSkies has completed its merger with L’Avion. The combined airline will be referred to as OpenSkies and marks the first European trans-Atlantic merger to include full integration. Changes include new cabin names (BIZ is now Biz Bed; PREM+ is Biz Seat), updated fleet livery, a new operating certificate location (France) and a crew and management comprised of top performers from both airlines. For more from OpenSkies, click here.
In other airline news, V Australia launched its second route, less than six weeks since its inaugural flight. The new route, from Los Angeles (LAX) to Brisbane (BNE), will operate three weekly flights. For more from V Australia, click here.
The Transportation Security Administration has plans to replace airport metal detectors with whole-body imaging machines. The new machines will provide images of the naked body. Originally the TSA planned to use the machines only for people who set off the metal detectors, but response to initial testing at 19 airports was so positive, the decision was made to replace existing metal detectors. There is no timetable for when the new technology will be installed, but it is expected to be used at most domestic airports, possibly as early as late summer/early fall. The new technology may also be able to detect explosive chemicals, which will bring an end to the liquids ban.
I Banning House Road, Two Harbors
P.O. Box 5086
Avalon, CA 90704
tel 310 510 4228
Chewing gum magnate, William Wrigley, Jr., purchased Catalina Island — a mainstay of California tourism — from the three Banning brothers, businessmen and adventurers, who ran the steamship line to Catalina. The brothers had built a lovely home on the island in 1910, overlooking two harbors. The original house, and a nearby cottage, is now operated as the 11-room Banning House Lodge, the only hotel on the Two Harbors side of Catalina Island.
From April to September this part of Catalina Island is filled with yachtsmen from the mainland and tourists who come over on the Catalina Express from Long Beach. During the off-season, however, there are few visitors: I was the only guest during an off-season stay at the Banning House Lodge. My room and private bath, on the east side of the cottage, was large and airy, but a bit old-fashioned. A king bed, sofa and small table were the only other furnishings in the room; no TV, radio, or phones are in any of the rooms in the cottage or the main house, but cell phone service is available. The view was stunning with large windows overlooking both Isthmus Cove and Catalina Harbor. In the nearby hills a family of bison munched on wild grass and white sage.
The rooms in the Craftsman-style main house looked comfortable and pleasantly reminiscent of rural guesthouses in the 1950s — before iPod docking stations, plasma flat screens and electronic door locks became the standard. Banning House is an upscale property, beautiful and sparse, with friendly, personal service. A continental breakfast, with fresh fruit and baked items, cereals and fresh-squeezed orange juice, is served daily. During summer weekends complimentary hors d’ouerves and wine are served on the outdoor patio.
A short walk down the hill from Banning House brings visitors to Twin Harbors’ one-room schoolhouse and its only restaurant, Harbor Reef. A small grocery store and snack bar are the only other commercial establishments for the island’s 200 year-round residents. I enjoyed the relative isolation and solitude during my off-season visit. Although you can often see the lights of the California mainland twinkling 23 miles away, across the Catalina Channel, a visit to the Banning House is a step back in time, a perfect destination for a small executive retreat or a romantic tryst.
Score: ••••• Ron Bernthal
LAN is offering low fares on business-class travel between Los Angeles (LAX) and Santiago (SCL). Fares are available for as low as $4,500 roundtrip. LAN’s business-class cabin features fully flat seats, state-of-the-art entertainment systems and gourmet meals. Visit the Web site for more information. The Iguazu Grand Hotel and Panoramic Hotel Iguaza, both in Argentina, have introduced an exclusive offer for LANPASS members. The frequent flyer members can now earn free mileage when booking stays at either hotel. LANPASS members will earn 750 bonus miles for stays at the Iguazu Grand Hotel and 500 miles at the Panoramic Hotel Iguaza. Click here for more on LAN.
Virgin Atlantic Airways is celebrating spring by offering sale fares to London. Special Upper Class fares are available from Boston (BOS), Chicago (ORD), Los Angeles (LAX), Miami (MIA), New York (JFK), Newark (EWR), Orlando (MCO), San Francisco (SFO) and Washington, D.C. (IAD). Travel must be booked by June 13; valid for travel between April 21 and June 27. Visit the Web site. Bid now on a pair of Virgin Atlantic premium economy-class tickets in Global Traveler’s online auction. Travel to London has never been so affordable. Bid here.
Delta is offering an award travel sale for SkyMiles and Northwest WorldPerks members on tickets booked by April 20; valid for travel from April 20 through June 15. Frequent flyers booking economy-class award travel will save up to 20 percent, while travelers booking first-, BusinessElite, or business-class award travel will save up to 25 percent. SkyMiles members can learn more here; Worldperks members click here. Through June 30, frequent flyers can earn 50,000 miles for round-trip business-class travel to the United Kingdom. Premium economy passengers will earn 25,000 miles for U.K. travel. Visit the Web site.
Air China and Shanghai Airlines are now offering Star Alliance Upgrade Awards. The program allows customers to redeem frequent flyer points for upgrades on any Star Alliance flights. United Airlines will also resume offering this program to its frequent flyers. All applicable upgrades are processed electronically and are available for one class of travel upgrades, from economy to business or business to first. Visit the Web site. To learn more about Air China, read GT’s exclusive interview with the general manager of North America here.
Through April 30, Aspen’s Sky Hotel is offering Sweet Tax Relief. The hotel will cover all applicable room taxes for deluxe accommodations and offer guests late checkout and grab bags filled with candy. Sky Hotel is also offering the $109 and a Bottle of Wine package, available through May 22. The package includes discounted accommodations and a bottle of wine. For more information, call 800 882 2582 or visit the Web site.
