=20 ---------------------------------------------------------------------- This article was sent to you by someone who found it on SFGate. The original article can be found on SFGate.com here: http://www.sfgate.com/cgi-bin/article.cgi?file=3D/c/a/2005/09/13/BUGL2EMMG5= 1.DTL --------------------------------------------------------------------- Tuesday, September 13, 2005 (SF Chronicle) Cloudy skies/Airline industry expects losses to go even higher David Armstrong, Chronicle Staff Writer Montreal -- Commercial airlines are on course to lose billions of dollars again this year, due chiefly to surging oil prices, high labor costs and ownership restrictions, the head of the world's largest airline industry organization said recently. "Airlines will spend $34 billion more for fuel this year than last, and about $1.4 billion of that will make its way to the bottom line. That will drive losses to $7.4 billion for 2005," said Giovanni Bisignani, director-general and chief executive officer of the International Air Transport Association, an airline lobbying and technical support organization with 270 dues-paying member airlines. The projection, based on a post-Hurricane Katrina survey of oil prices a= nd financial input from the association's members, is up substantially from an already-awful $5 billion prediction made earlier this year. This will mark the fifth straight money-losing year for the world's airlines. "We have lost $36 billion in the last four years," Bisignani said. "After $36 billion, $7.4 billion is a nightmare." The association estimates that U.S. airlines will lose $8 billion this year, offsetting profits by Asian carriers and a break-even performance by European airlines. Symptomatic of the U.S. industry's problems is Delta Air Lines, America's third-largest carrier, which has lost nearly $10 billion since 2001. Airline industry analysts have been predicting for months that Delta will join United Airlines and US Airways in Chapter 11 bankruptcy protection. On Monday, the Associated Press quoted an unnamed airline industry consultant who claimed that Delta will file for Chapter 11 Wednesday or Thursday. Delta spokespeople said no decision has been made. Bisignani made his remarks in a recent wide-ranging interview in the association's headquarters in Montreal, where the organization was founded in 1946. Nearly all the world's major carriers, including United Airlines, American Airlines, Air France, British Airways and Singapore Airlines, belong to the group, which says its members carry 94 percent of the world's air travelers. Bisignani, who was the CEO of Alitalia in the late 1980s and early '90s, when the now-troubled Italian flag carrier was profitable, became head of the airline association in 2002. He has since shaken up the organization that is roughly analogous to a United Nations for the aviation industry. He has replaced 60 percent of its staff, aggressively campaigned against high government aviation taxes and airport fees for airlines, and blasted governments for not thoroughly deregulating aviation. "We cannot accept the same set of rules we had 60 years ago, when we were flying DC-3s," he said. "We cannot consolidate, we cannot merge, we cannot fly where we want. That is the reason we are still losing money." Bisignani has also begun an ambitious initiative to simplify the business that calls for using only electronic ticketing, auditing airlines for safety, installing shared check-in kiosks and putting efficient radio-frequency identification chips in checked baggage. Additionally, he has met with national aviation authorities to shorten a= ir routes, a move he says is saving airlines about $1 billion in fuel each year, and lobbied for opening restricted routes to more competition. More broadly, Bisignani is trying to run the nonprofit association as if it were General Electric, a corporation he admires. "When I came here, I called Jack Welch and said, 'Jack, I need your knowledge,' " he recalled. Bisignani applied GE ways to analyze his group's management and hired some executives from outside the aviation industry in attempt to energize and streamline the organization. Bisignani said San Francisco International Airport understands what the group is trying to do. SFO, he said, has cut its landing fees and signed a memorandum of understanding with the airline association to help develop a check-in kiosk system to be shared by the airlines. Sharing the kiosks, he said, will save travelers time and the airlines money, eventually helping the airport to relieve congestion in the terminals. "It will be 18 to 24 months before we roll that system out," said SFO Airport Director John Martin, who said the kiosk project is "a good example of partnership between the airports and airlines." Of Bisignani, Martin said: "He represents the airline industry. Airports do not necessarily agree with his opinions and attitudes, but that doesn't really spill over to SFO. (His group) has recognized that SFO has been quite successful at reducing fees. We have reduced our fees 25 percent over the last two years." Despite the airline industry's losses, Bisignani says the world's carrie= rs are making progress in the teeth of a stunning series of setbacks: the Sept. 11 terrorist attacks using hijacked aircraft, the U.S. recession of 2001-03, the SARS outbreak and the Iraq war. Soaring fuel prices, he says, are aviation's "fifth horseman of the apocalypse." However, he also acknowledges that the airline industry suffers from some self-inflicted wounds: "We were fast to pay very high salaries (to pilots and others). We were slow to use the Internet." Now, he said, the world's airline industry is shaping up. He praised United Airlines, the bankrupt carrier that dominates SFO. "United is doing a good job" in Chapter 11, he said, and doing what other major carriers have to do: shrinking its workforce; squeezing concessions out of employees, vendors and creditors; and trying to make itself into a lean, profitable company. Airlines, he said, have also made great strides in passenger safety. The world's airlines, he said, recorded about the same number of fatalities in 2004, when they carried 1.8 billion passengers, as they did in 1946, when they carried just 9 million. Under the association's sponsorship, 58 world airlines have passed safety audits by independent examiners selected by but not directed by the organization. Dozens more are scheduled, he said, with a global gold standard of safety and maintenance the ultimate goal. In the political arena, Bisignani uses the group's size and scope to lob= by against new taxes on airline tickets, such as a proposal by French President Jacques Chirac to tax airfares to help fund development aid for Africa and other poor regions. "Politicians are saying, 'Let's tax the multimillionaire airline passenger,' " he scoffed. "It is a mode of transportation for normal people." He called Chirac's proposal "the silliest idea I've ever heard. Many developing countries receive 4o or 50 percent of their (gross domestic product) from tourism. This would mean decreasing the number of people who go there." Bisignani is also critical of laws that prohibit foreign investors from owning more than 49 percent of a U.S. carrier. Such laws, he said, aren't necessary for national prestige or national security and unwisely wall off airlines, especially the larger carriers, from badly needed international capital. Most of the expected worldwide loss of $7.4 billion this year will be posted by U.S. carriers, he said, with much of that due to the rise in oil prices, which the association expects to average $57 per barrel this year. Still, this year's losses pale next to those in 2001, when the world's airlines lost $13 billion. Despite aviation's travails, Bisignani said, the industry is continuing = to expand rapidly on a global scale, led by growth in China and India. It should grow by 8 percent this year, with nearly 2 billion passengers, he said, and average 6 percent growth through 2008. E-mail David Armstrong at davidarmtrong@xxxxxxxxxxxxxxxx ---------------= ------------------------------------------------------- Copyright 2005 SF Chronicle