Major Airlines To Cut Long-haul Flights To Thailand

[nikster]

You don't need to be all doomy and gloomy, it's pretty simple: Economy in the toilet (Americans aren't going anywhere now), oil + ticket prices sky-high = middle class tourists will stay home. Airlines are hit particularly hard so they'll shirink for a while until things go back up. Also, airlines go bust all the time even during boom times.

First company to introduce an all-electric plane will own the market

[tartempion]

Ahh the half empty brigade is in full force, and no worries I can afford whatever price is set.

When you will be the only passenger booked on a flight, guess once, your flight will be cancelled

[LaoPo]

Airlines try to hedge against soaring fuel costs Hedging, a sometimes profitable way to do better than your competitor but very risky as well....very !

Monday June 30, 12:34 pm ET

By David Koenig, AP Business Writer

Airlines look to complex hedging deals as oil climbs past $140 a barrel

DALLAS (AP) -- The computer screen on Scott Topping's desk at Southwest Airlines flickered with row after row of dates and numbers, but they had nothing to do with arrivals and departures.

They tracked the price of oil futures for the next several months, and they told a grim tale: No letup in sight from record prices for jet fuel.

"We're on a one-way street right now," Topping said as he hunched over the screen, shaking his head.

It's Topping's job to oversee Southwest's battle to control surging fuel costs. It is the most successful program of its kind in the airline industry.

In the first quarter of this year, Southwest paid $1.98 per gallon for fuel. American Airlines paid $2.73, and United paid $2.83 per gallon in the same period.

Since 1999, hedging has saved Southwest $3.5 billion. It has sometimes meant the difference between profit and loss. In the first quarter, hedging gains of $291 million dwarfed Southwest's $34 million profit.

Hedging is a financial strategy that lets airlines or other investors protect themselves against rising prices for commodities such as oil by locking in a price for fuel. It has been described as everything from gambling to buying insurance.

Airlines can hedge in several ways, making financial transactions with banks, energy companies or other trading partners.

They can buy contracts for crude oil or unleaded gasoline, and reap a gain if prices rise, offsetting the higher cost of jet fuel.

They can buy a "call option" that gives them the right to buy fuel at a certain price.

They can also use collar hedges, a combination of rights to buy and sell at set prices ("call" and "put" options). Collars provide protection from a decline in prices but less upside if prices rise.

Airlines also use swaps, contracts that require them to buy oil or fuel on a certain date at a set price. These are risky -- one party in a swap wins, the other loses.

Most airlines use a combination of strategies to reduce risk.

The transactions carry a price tag. Southwest spent $52 million on hedging premiums last year and $14 million in the first three months of this year.

As a result mostly of trades made years ago, Southwest has hedged 70 percent of this year's fuel needs at $51 per barrel instead of the current price of more than $140 per barrel.

But hedging premiums rise and fall with the price of the underlying commodity, making new trades very expensive. Southwest has not done much trading in the last several months.

Airline executives say hedging is not a bet on the direction of oil prices.

"We view our program as insurance," said Paul Jacobson, the treasurer of Delta Air Lines Inc. "Our goal is to minimize the volatility of fuel expenses. To do that, you've got to be in the market actively without an opinion as to what energy prices will do."

But hedging carries risks. Airlines can lose money if oil prices turn down and their options expire.

In 2006, Delta won approval from a bankruptcy court and creditors to get into hedging. But the airline got squeezed when oil prices dropped in midyear, and it reported a loss of $108 million from the trading.

Continental Airlines Inc. reported a loss of $18 million from hedging in the first quarter of 2007. But like Delta, Continental is still hedging.

At one time in the 1990s, most major U.S. airlines hedged some of their fuel costs -- even hiring experts from the oil industry to show them the ropes -- said Peter Fusaro, chairman of Global Change Associates, an adviser to hedge funds.

That changed after the recession and terror attacks of 2001, which plunged airlines into huge losses. Banks and energy companies that make hedging trades with airlines grew nervous.

"The problem was that most carriers had terrible creditworthiness and couldn't hedge," Fusaro said. "Counter-parties feared the carriers would renege on their trades."

Southwest was the only large U.S. carrier to remain profitable through the downturn. It benefited from higher labor productivity and lower ticket-sales costs. That, and a healthy balance sheet, allowed it to keep hedging when oil was a bargain, compared to today's prices.

Now, Southwest is the only big carrier that has most of its fuel expenses hedged at below-market prices. And analysts say it will be the only one to earn a profit this year.

While other carriers plan to slash flights later this year -- some contracting by more than 10 percent -- Southwest expects to grow, although more slowly than it would like.

And Southwest has avoided the kind of fees that annoy passengers. It doesn't charge for checking luggage or buying a ticket over the phone, doesn't add a fuel surcharge to the fare, and still gives out free sodas and snacks.

But how long will the joy ride last?

The bulk of Southwest's hedges expire gradually by 2012. Replacing them would be very expensive and risky. One plan under study is to go back to hedging only against catastrophically higher oil prices -- say, $200 per barrel.

Unless oil prices stabilize or even decline, the airline could face a crisis covering higher fuel costs in just a few years.

"It's starting to have an impact on their operating plan," said Betsy Snyder, an analyst for the debt-rating service Standard & Poor's. "They're cutting back growth plans for the first time ever and exiting some unprofitable routes."

Chairman and Chief Executive Gary Kelly said the fuel hedges have bought his airline time to adjust to higher energy costs. Now he wants to find $1.5 billion in new revenue to make up for shrinking fuel hedges.

Among possible sources of the money are higher fares, international service, in-flight entertainment for a charge, and selling hotel rooms on its Web site.

Snyder thinks Southwest can pull it off by following its current strategy of expansion in places like Denver, Philadelphia and Baltimore, where rivals are cutting flights.

"This is a company," Snyder said, "that has always taken advantage of others' misfortune."

---YAHOO!/FINANCE

LaoPo

[nikster]

PS: It has nothing to do with Thai competence/incompetence, politics, destroying Samui (or any other place), greed, whatever. It really has nothing to do with Thailand at all.

[lomatopo]

It is actually true that base fares have not risen very much over the past 18 months. What is driving up the total price of the fare is the additional YQ Fuel Surcharge.

From LHR to BKK ~ 290 GBP. LAX to BKK ~ 375 USD.

So a 900 USD base fare might have yielded a 1,050 all in price 18 months ago, now it is closer to 1,400.

Some airlines are still not charging a YQ Fuel Surcharge, e.g. CI, but expect that to change momentarily. BR only just added them.

Airlines are using YQ fuel surcharges, instead of raising base fares, for one reason: all discounts are applied against base fares in corporate contracts and discounts are not applied to YQ fuel surcharges. Many airlines make whatever profit they can from business and first class cabins, and last minute full-fare ecomony purchases (Y/:o. Airlines offer corporate contract discounts of up to 35%. If they rasied the base fares they'd actually get less top-line revenue and would reduce RASM (revenue per available seat mile). Airlines position the YQ fuel surcharges as "temporary". Who can blame them, short of a monopoly route, government assistance, profits from hedging fuel, they are in a dangerously thin margin business.

Thailand needs to backfill western tourism with that from Russia, China, SE Asia, Middle East.

[tropo]

It is all about priorities - if you want to go to Thailand, don't waste money on $4.00 cups of coffee, stop smoking, and suddenly you have a $100 extra at the end of the week!

Scrimp and save in the west to go to LOS and live the good life!!!

It doesn't help much for non-smokers and non-$4 coffee drinkers.

Believe it or not, you can buy $4.00 cups of coffee in Thailand no trouble at all. A decent coffee at McDonalds can even set you back $3.00.

[LaoPo]

Airlines plan to cut flights

Major Chinese airlines are moving fast to tackle the mounting pressure from escalating fuel prices and shrinking market demand. China Southern Airlines and China Eastern Airlines said they plan to cut long-haul international flights to reduce costs.

China raises fuel surcharges on domestic routes by up to 50%

Southern Airlines to suspend flights

China Southern Airlines has announced it will suspend eight international flights from Guangzhou to Southeast Asia countries this month, the Nanfang Daily reported yesterday.

The flights involve Ho Chi Minh City and Hanoi, Vietnam; Angkor, Cambodia; and Phuket, Thailand.

Just a few 'airline' related news messages past month.

---ChinaDaily

LaoPo

[jfchandler]

My EVA flight from BKK to Los Angeles in the past two weeks was basically full for the Taipei to L.A. segment.... as it usually is.... Only difference, the price this year was several hundred dollars higher than the same ticket...one year ago...

[chlear909]

well after years of doing everything possible to make people leave,Its working,such smarts

and they still wont get it for awhile it looks.ill still go in december a few weeks to avoid visa snaggle.

got all my investments out tho etc..as a so called 'poor english teacher(8 years) 'there ,i got smart, then rich ,then gone,,

the poor thais will suffer the most from it sadly,and they are such fine people my heart crys for them.

[aussimike]

Prime destination, doubt it will be as dire as the article makes out.

wrong -- no longer considered a prime destination, considering the ongoing political problems, and alternative rising destinations in particular Vietnam, which is challenging Thailand as the place to go. Also with the opening up of China and the flow on from the Olympics - the land of smiles needs to wake up - create better infrastructure, offer better discounts of accommodation instead of fleecing tourists, and create a safer destination, no one wants to come here with the possibility of further military getting involved in politics again.. potential tours also watch the news !!!!!!!

[Tinkelbell]

You gals & boyz don't seem to know Thailand.

Thai-style 'adaptation' to the new situation will of course mean that prices

and rip-offs will increase to compensate for the loss of income.

Yup, you are right. Thai logic when things are slow charge double

Your treads bought back a memory of my Thai friend who once owned a restaurant in Miami many years ago. From the started he opened for lunch and dinner daily. Later the lunch business was not that busy, seemed he wasn't making any profit.

So what he did, he stoped serving lunch, just opened for dinner only.

When I saw the prices on the menu inflated more than 50%-80 % more on almost every dish ( I was a regular, naturally I was familiar with the prices.) I reminded him may be this was not a good policy, it might kill his business. what he said surprised me........ " I rather to cook one dish sold for $10 ( dinner price) than 2 dished at $5 ( lunch price) each. Even I have less half of customers, I still make twice the money...." .

Now you can see, this is a typical way for most Thais to do - when business slows, they will raise the price to off-set the lost.

[SebD]

You gals & boyz don't seem to know Thailand.

Thai-style 'adaptation' to the new situation will of course mean that prices

and rip-offs will increase to compensate for the loss of income.

Yup, you are right. Thai logic when things are slow charge double

Your treads bought back a memory of my Thai friend who once owned a restaurant in Miami many years ago. From the started he opened for lunch and dinner daily. Later the lunch business was not that busy, seemed he wasn't making any profit.

So what he did, he stoped serving lunch, just opened for dinner only.

When I saw the prices on the menu inflated more than 50%-80 % more on almost every dish ( I was a regular, naturally I was familiar with the prices.) I reminded him may be this was not a good policy, it might kill his business. what he said surprised me........ " I rather to cook one dish sold for $10 ( dinner price) than 2 dished at $5 ( lunch price) each. Even I have less half of customers, I still make twice the money...." .

Now you can see, this is a typical way for most Thais to do - when business slows, they will raise the price to off-set the lost.

So how much was that, that he makes from zero customers at $10 rather than 2 customers at $5 per head, again?

[Heng]

SIA was still pretty packed as of 2 weeks ago, on all legs: BKK-SIN-LAX-SIN-BKK in biz class. Economy looked to be packed solid as well. Important to remember that airlines cutting back isn't always just because of the financial health of consumers... but of the airlines themselves. And like regular folks, some airlines are simply in better financial health than others.

[sangfroid]

I remember a time when prices went UP during low season in the bars!

Well look at Thai Elite for a prime example, they want to attract more members by increasing the fee from 1M to 1.5M

Typical logic around here.

(Please no Thai Elite flames, I only used it as a prime example of attracting more by making it more expensive.)

In a lot of countries if something costs more its because its either better made or lasts longer. In Thailand if something is more expensive it's the same old thing at an inflated price because they didn't sell enough the first time around.

The only place you will find logic in Thailand is in a dictionary (A well known Thai told me that)

[flightcrew1]

Hmmm. I generally work the 2nd half of international flights into Thailand (HKG - BKK or NRT - BKK) as I'm based here and have not noticed any decrease in passenger loads yet. Though in the last couple of years we are using smaller aircraft from those two cities into BKK 747 v. 777 so of course this means the passenger loads are decreased by 25 pct.

[NanLaew]

If it wasnt for Thai women...no farang would come here.

This post has been submitted by IAMSOLAME: Yesterday, 2008-06-30 23:16:50

[bob/nyc]

Prime destination, doubt it will be as dire as the article makes out.

I agree regardless of internal price increases in Thailand they are still very cheap for the likes of Europeans and Americans. Heck I opened the Daily telegraph this morning to see Etihad offering return flights from London to BKK for only 420 UK pounds, admittedly for Sept/oct travel.

Cheap ?? For whom ?? Maybe Europeans, but not Americans. I just paid $1875 r/t on Thai Airways to NYC, on one of there last direct flights. Thats not cheap based on past prices, so speak for yourself. Also Etihad has the lowest prices from Bangkok anyway, so thats not surprising.

[oldgit]

I booked my return flight between Bangkok - London last week at a cost of 37,950 baht,via the Thaivisa Travel team,with Qatar Airways.Previously,I had been a frequent flyer with Emirates but,with the price of their economy seats at 55,000 baht,I would be a fool to continue to fly with them.If others feel like me,they will suffer the consequences.

A word on the declining standards of Thai Airways.A friend booked a return seat,business class, from Bangkok - London two months ago and was then told,the day before he was due to fly out,that "he must take a later flight because a government official needed his seat." Its not that they are losing money because there are less tourists travelling to Thailand,as far as they are concerned.It's because of their appalling behaviour to the paying passenger that's their undoing.This is not an isolated case.

[Tawai]

A word on the declining standards of Thai Airways.A friend booked a return seat,business class, from Bangkok - London two months ago and was then told,the day before he was due to fly out,that "he must take a later flight because a government official needed his seat." Its not that they are losing money because there are less tourists travelling to Thailand,as far as they are concerned.It's because of their appalling behaviour to the paying passenger that's their undoing.This is not an isolated case.

Has he also been informed about the compensation he is to get in such a case ?

[oldgit]

As far as I'm aware,there was no mention of compensation by them.I'm seeing him in six weeks so I will raise the issue.

[anon467367354]

It is all about priorities - if you want to go to Thailand, don't waste money on $4.00 cups of coffee, stop smoking, and suddenly you have a $100 extra at the end of the week!

Scrimp and save in the west to go to LOS and live the good life!!!

It doesn't help much for non-smokers and non-$4 coffee drinkers.

Believe it or not, you can buy $4.00 cups of coffee in Thailand no trouble at all. A decent coffee at McDonalds can even set you back $3.00.

I'm sorry, I just have to ask if that was a "typo" Did you mean to say "A decent coffee at McDonalds"? I think there's a better chance at finding a "decent" cigarette out there somewhere. Just a thought, nothing serious.

[farang555]

gee whiz! some of you make it sound like the only reason for frang to come here is because of thai girls.

im sure los has many things to offer!

[britmaveric]

Check dates again - still same price for IAD-NRT-BKK in Oct r/t.

[lomatopo]

A word on the declining standards of Thai Airways.A friend booked a return seat,business class, from Bangkok - London two months ago and was then told,the day before he was due to fly out,that "he must take a later flight because a government official needed his seat." Its not that they are losing money because there are less tourists travelling to Thailand,as far as they are concerned.It's because of their appalling behaviour to the paying passenger that's their undoing.This is not an isolated case.

This happens quite frequently on TG and has been going on for years. There are many first-hand reports of people getting bounced out of First Class while already seated on the aircraft when any sort of VIP, Royal/retinue shows up. I always worry about this when I fly TG, but have never had a problem. My last flight BKK-FRA we waited on the aircraft three (3) hours for a single VIP first class pax. I was half-expecting to get bounced but luckily there were two open FC seats. Said VIP was a middle-aged matronly looking Thai woman who was evidently of very high station judging from the behavior of the cabin staff, flight deck officers and other Thai pax.

[zepplin]

Airlines to cut long-haul flights to Thailand next year

BANGKOK: -- Several major airlines including Thai Airways International are cutting long-haul flights into Thailand next year in line with a forecast 12-per-cent drop in the number of inbound tourists, said the Association of Thai Travel Agents.

ATTA president Apichart Sankary said that although the Tourism Authority of Thailand targets 17 million visitors next year, only 15 million may arrive.

Starting from today, THAI will suspend its New York-Bangkok service. The company has also reduced flight frequencies, re-routed flights with particular impact on its US operations and introduced other cost-cutting measures.

"Other airlines such as Lufthansa are also considering reducing long-haul flights between Thailand and Europe," said Apichart.

Thailand is expected to miss this year's visitor target of 15.7 million. ATTA, which encompasses inbound travel agencies, expects the number to reach only 15 million.

LOOKS LIKE THE THAIS MIGHT HAVE TO START TO IMPROVE SERVICE,AND STOP RIPPING PEOPLE OFF OTHERWISE THEY WILL GET EVEN FEWER TOURISTS AND THEN THEY WILL BE BACK TO GROWING BANANAS AND COCONUTS.JUST YESTERDAY FOR EXAMPLE I WAS OFFERED A LITRE BOTTLE OF HONEY FOR 350 BHT AND ENDED UP AFTER TELLING HIM IM NOT A STUPID FERANG BOUGHT 2 BOTTLES FOR 160 BHT FOR BOTH.THEY WILL TRY AT EVERY OPPERTUNITY HERE -MAKES YOU ANGRY.GOES ALL THE WAY UP THE TOURIST CHAIN ,AND PEOPLE DONT LIKE BEING RIPPED OFF.

While domestic tourism will be more sluggish than last year due to political conflict, Apichart attributed the lower number of foreign visitors to efforts in Europe and the United States to lure tourists from the Middle East.

Maitree Narukhatpichai, president of Phuket Tourism Association, admitted that foreign tourists' bookings for the island this month had dropped 15-20 per cent from last year's level due to political tensions, which were driving away visitors from major markets.

Seni Phuwasethavorn, president of the Koh Samui Tourism Business Association, said the high season would not be as active as last year due to the higher cost of travelling.

For instance, the ferry fare from Surat Thani to the island will soon be increased by 20 per cent. Currently, Samui's hotel occupancy rate is at 60 per cent, down from 70-80 per cent in the same period last year.

-- The Nation 2008-06-30

Related travel link:

http://travel.thaivisa.com

[Wombat6]

The Tourist Authorities are finding various excuses for the decline in Tourism...perhaps they could have some influence on the stupid practice of closing Bars for 2/3 days while and election is being held (not good if someone is only here in LOS for a week) or discontinue the discrimination against Tourists with the pricing policies for some venues or the gradual reduction of trading hours of Bars/entertainment venues or the corruption mentality of Police/Officials etc. etc.

[gwynt]

I find this rather odd as Gulf Air tells me there are no seats available in July,

High Season is the reason they give................

I think TAT is telling porky pies............

Gulf have no seats because every Saudi/Arab is escaping the unbearable heat and they love Thailand

[britmaveric]

Expect the TAT will say: Tourists numbers actually increase. (we all know how the tat loves to tell porkies)

[Robbie Dye]

Doom/gloom is the trend these days, take the optimistic approach and half the battle is won.

Thai Airways are running scared. lack of investment has left them with too many gas guzzling aircraft and light years behind their major competitors such as Singapore and Malaysian Airlines. They admit to internal squabbling and basically are politically motivated and have not a clue how to run an airline, are we surprised? They are selling their Airbuses when in fact they should be mothballing the appaulling 747's which is where they are losing big money. On this sort of performance they will not be around in 5 years time. The Baht is going down, how far remains to be seen, and that will help the hotels be more competitive, but this whole thing about fuel surcharges is hurting everyone, but agin some airlines were smart and pre-bought their fuel and others, who have of course been mentioned here, did not and we are all going to pay the price if we chose to fly with them. I would say it is nonsense that many flights will be cut, they are all running nice loads and making money, especially the ones via the Middle East! Chocks away!

[NedKelly]

It's an interesting situation as in Thialand over the past 2 years or so there has been a real boom in the number of hotel and resort properties developed. Obviously this sort of development would take time to plan before implementation so add another 12-18 months onto that. What I see now is that this boom has not slowed - in fact it appears to have increased with a massive number of new properties announcing their plans to open of build hotels and resort over the next 12 to 18 months.

So, if there are more hotel rooms and less tourists, the already low occupancy rates at many hotels will only get worse. Now is a fantastic time to squeeze hotels for good rates if you want accommodation. All you need to do is make a call to the sales people, get a name, ask the occiupancy rate at present and then when they say 45% or 50% or 60% yo ucan ask for a better rate than they advertise on their website.. you migth be lucky enough to score a win as they wont be doing anything wrong by their business partners (overseas and local agents with contracts) - the rate they can quote you wont be advertised anywhere so they can offer whatever they want. Bargain as hard as you would for a pair of fake Nike's at Patpong ! Worth the try !

Anyway if arrival numbers drop and hotels continue to build, lookout for some good sales on hotels as well. There are many pointers on the horizon towards a gloomy or at least not so glossy future in travel.