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A Few Bumps But Mostly Clear Skies For P.R. Airline Sector

Expect some changes, some growth, & continued competition among carriers this year


February 10, 2005
Copyright © 2005 CARIBBEAN BUSINESS. All Rights Reserved.

Rampant losses of around $5 billion in 2004, high fuel costs and stiff competition are causing much turbulence for the U.S. airline industry but, with the exception of a few bumps, airlines serving Puerto Rico should enjoy mostly clear skies.

One such bump will be felt in May when Norwest, currently providing a direct link to the Midwest, reduces its nine weekend flights to one. Otherwise, expect some changes, some growth, and continued competition among carriers, which should spell out attractive fares for travelers in and out of Puerto Rico.

A big change will take place in June when Delta Air Lines, the nation’s third-largest carrier, relinquishes the competitive San Juan-New York route to its low-fare subsidiary Song, pitting the latter against low-cost carrier JetBlue and with American Airlines.

US Airways is readying for expansion this year with the addition of Fort Lauderdale to its roster of stateside destinations with direct links to the island. American Airlines’ regional carrier, American Eagle, also plans growth in the form of a new service to Vieques and to Isla Margarita, Venezuela, scheduled to begin sometime this year.

"The Caribbean as a whole is a valuable center for us," said US Airways spokesperson Amy Kudwa, speaking from corporate headquarters in Arlington, Va. "Puerto Rico is an important market and traditionally has performed well."

This month, the airline kicks off new twice-daily service from San Juan to Fort Lauderdale, its new southern Florida gateway, in an expansion that involves connecting key U.S. cities in the Northeast and Florida to 10 Caribbean and Latin American destinations. US Airways, the nation’s seventh-largest airline, is currently in Chapter 11 of the U.S. Bankruptcy Code. The airline reported a net loss of $236 million for the fourth quarter of 2004, up from $98 million for the same period in 2003.

In June, Delta will turn over the highly competitive San Juan-New York JFK route to its low-fare subsidiary, Song. The move–part of a major re-haul aimed at sharpening competition with discounter JetBlue–also calls for Song to take over Delta’s routes from JFK to Los Angeles International, San Francisco, and Seattle. Song isn’t new to Puerto Rico: two years ago it kicked off a twice-daily flight service from San Juan to Orlando.

Delta, which barely avoided filing for bankruptcy protection last fall, posted a record $2.2 billion loss in the last quarter of 2004. Its local station manager, Michael Luciano, said a companywide reorganization begun last year resulted in salary reductions but no cuts in the island’s work force of 110. In fact, the company decided to add another 20 employees to boost customer service, some of whom are currently in the process of being hired, he said.

For now, no changes are in store for Iberia L.A.E., which runs a daily flight to Spain. Commercial Manager Marina Grijalba offered a reserved forecast for the year, tempered by the fact that travel to Europe is now more expensive due to the dollar’s deflation vis-à-vis the euro. While this is bound to have an effect, Grijalba said it hasn’t been felt yet, perhaps because of a $500 round-trip promotion Iberia ran in January. She didn’t discount the airline might resort to more promotions during the year to drum up business, should it be warranted.

American Airlines and American Eagle expect to continue their current schedule of approximately 110 daily flights, according to Minnette Vélez, manager of corporate communications. The largest domestic airline in the U.S., American reported a $387 million loss for the fourth quarter of 2004, up from $111 million for the same period in 2003. Parent company AMR said that in order to cut costs it would defer delivery of 54 of its 56 mainland jets from Boeing this year and keep a close eye on work force reductions.

Vélez wouldn’t comment on potential labor cuts here but said American and its regional carrier have approximately 2,200 employees based in Puerto Rico.

Meanwhile, JetBlue was among the few airlines in the country to scratch a profit in the fourth quarter of $2.4 million. Still, the $2.4 million it earned for the quarter was an 88% decline in profits from the same period in 2003, when JetBlue reported $19.5 million in revenue. Jim Small, JetBlue’s local general manager, was off the island and unavailable for comment.

As of December, Northwest Airlines is running nine weekend flights to Detroit, Memphis and Minneapolis, down from 16 last year, said Caribbean Station Manager Ezra Figueroa. The cut, he said, has boosted load factor to 98%.

The fourth-largest carrier in the U.S., Norwest, lost $420 million in the fourth quarter of 2004. Its CEO said the company planned to review whether $950 million in labor cuts is sufficient to return the airline to profitability. Figueroa said reducing flights to one in May makes sense because most of the traffic during spring and summer is to the East coast (Orlando and New York). More flights to the Midwest will be added in October, he said.

This Caribbean Business article appears courtesy of Casiano Communications.
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