News Update: US carriers abide by China’s Taiwan ruling

https://www.todayonline.com/world/us-airlines-plan-accept-china-demands-naming-taiwan?cid=emarsys-today_TODAY%27s%20evening%20briefing%20for%20July%2025,%202018%20%28ACTIVE%29_newsletter_25072018_today

Refer Much Ado About China’s Geography, June 30, 2018
https://airlinesairports.wordpress.com/2018/06/30/much-ado-about-chinas-geography/

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As fuel prices go up, so will fares

IT looks like the good times are running out. Airlines, faced with rising fuel costs, are raising fares. Delta Air Lines for one is expecting its fuel costs for 2018 to be US$2 billion higher than they were a year ago. Its CEO Ed Bastian warned travellers that “with higher fuel prices, you;re going to expect to see ticket prices go up as well.”

And Delta is not the only airline heading in that direction. Other carriers are likely to follow suit if they have not already done so.

On the other side of the Pacific, Air New Zealand (Air NZ) and Jetstar have raised domestic fares by five per cent, and Air NZ is reviewing fares for international routes. According to Air NZ chief executive Christopher Luxon, every dollar increase for a barrel of fuel “adds $10 million of costs to Air New Zealand’s bottom line.”

Mr Christopher Luxon, Photo courtesy Air New Zealand

International Air Transport Association (IATA) chief executive officer Alexandre de Juniac warned that against this background, “next year will be less positive.”

Mr Luxon of Air NZ painted this picture of the likely scenario: ”The normal cycle in aviation is that fuel goes up, prices rise, demand may fall and capacity gets reduced.”

So what are airlines doing about it, apart from raising fares because that alone has its limitations in view of the competition and the impact it may have on the consumer’s propensity to travel?

Delta has already made known its intention to withdraw flights serving the less popular destinations. So too will other carriers after the summer peak.

Beyond that, many airlines are ramping up hedging. Major European airlines including budget carriers Ryanair and EasyJet, for example, are increasing the ratio of hedged fuel to as high as 90 per cent of needs. Low cost carriers especially, because of their limited ability to hedge, were badly hit the last times when fuel prices careened upwards. But hedging is not a completely safe bet. Equally so, many airlines also reported significant losses when fuel prices came down.

The good news is that with more fuel-efficient aircraft in operation, the impact of the increased fuel costs may not be as hard on the airlines. Higher fares are as good as being ready to be rolled out, but the question is how far can the airlines go without losing customers, particularly at a time when the price of the fare is likely to matter more than allegiance?

Again, to quote Mr Luxon, ”All airlines, whether you’re in Australia or around the world are working hard to see how they can take prices up and ultimately how much of that cost increase can you recover through pricing.”

Much Ado About China’s Geography

Since the United States (USA) have recognized the one-China policy (following a resolution of the United Nations in the early 1970s that legitimized the sole representation of the People’s Republic of China), it would appear groundless, even against logic, that it should protest the Chinese demand for US carriers to reflect Taiwan as a Chinese territory (this applies also to the autonomous regions of Hong Kong and Macau) on their websites.

While many airlines including British Airways, Air France, Lufthansa and Singapore Airlines have reflected the change in their booking itnerfaces to comply with the ruling, US carriers – United Airlines, American Airlines and Delta Air Lines – have yet to agree, apparently at the urging of the Trump administration. But China is not budging while extending the deadline from May 25 to July 25, at the same time rejecting the US request to discuss the issue.

It may be said that there’s a fine line between politics and business, that it is difficult to separate the two. Yet it seems only expected that any company that wishes to engage in business with a country should respect its sovereignty. A way out – even if it means turning a blind eye – is to recognize the independence of business operations, that the decision of the airlines concerned is purely commercial.

So it is with Qantas, which has decided to comply with Beijing’s request after the initial resistance. As with the USA, the Australian government, while embracing the one-China policy, was critical of the Chinese ruling, but conceded that how Qantas structured its website was a matter for the company. Australian Foreign Minister Julie Bishop said: “Private companies should be free to conduct their usual business operations free from political pressure of governments.”

So, will US carriers comply or be prepared to stop flying to China?

Airlines dangle the premium economy carrot

IT looks like the traditional economy class may be heading toward a split between premium economy and basic economy, with the in-between normal economy not quite as exciting in terms of perks or costs.

While basic economy as already introduced by American carriers (American Airlines, Delta Air Lines and United Airlines) and Asian rivals such as Cathay Pacific and Singapore Airlines (SIA) in an attempt to stamp a potential loss of the business to low-cost carriers, the premium economy in a way will make up for reduced profit at the very bottom of the scale.

Courtesy Singapore Airlines

United Airlines may be Johnny-come-lately, but it promises to be as good as the slew of airlines that are already in the game. Its version of the class to be known as United Premium Plus will have more spacious seats, and customers according to its spokesperson will “enjoy upgraded dining on china dinnerware, free alcoholic beverages, a Saks Fifth Avenue blanket and pillow, an amenity kit, and more.”

EVA Air may be said to be a pioneer of such seats, but it is Cathay that has created an exclusive class with its own cabin that has propelled the popularity of a product that is better than economy but not quite business class, particularly for long-haul flights.

But airlines, which have been cautious about hopping on the premium economy bandwagon are not going to abandon the old workhorse but will instead make it work harder. A number of them are already making plans to increase more seats at the back of the aircraft,with British Airways announcing recently that economy seats in its new planes will no longer be able to recline.

More space in the forward sections of the plane can mean less legroom at the rear as airlines dangle the premium economy carrot to entice customers to upgrade.

Legacy airlines go the budget way

It’s yet another sign of how legacy airlines are feeling the heat of the competition posed by budget carriers.

Courtesy Getty Images

British Airways (BA) will operate planes for the short haul with seats in economy that cannot recline. The airline said the seats will be “pre-reclined at a comfortable angle”. Affected flights up to four hours include runs from Heathrow to Rome, Madrid and Paris.

BA which already ceased providing complimentary booze and meals for the short haul last year admitted to the pressure. It said the move will allow the airline to “be more competitive” as it will then be able to “offer more low fares”.

Many legacy airlines are already adopting the “pay for what you want” model of budget carriers, charging for extras such as checked luggage and seat selection at booking.

The big three US carriers of American, United and Delta have introduced “basic economy” fares which will board such ticket holders last with seat assignment only at boarding. There may be other restrictions.

Asian rivals Cathay Pacific and Singapore Airlines (SIA) are also moving in the same direction. Cathay’s economy supersaver and SIA’s economy lite do not permit seat selection at booking and do not accrue full mileage perks. SIA is also charging additionally a credit card service fee for tickets purchased out of certain ports. (See Same class, different fare conditions, Jan 5, 2018)

While legacy airlines are finding ways to cut costs to offer lower fares, this can be a double-edged sword that only serves to narrow the gap between them and budget carriers. What price, therefore, the differentiation? But, good news for travellers not too fussy about brands.

Same class, different fare conditions

Legacy airlines, faced with increased competition from no-frills operators, are going the budget way by restructuring their economy fares.

In the United States, the big three carriers of American, Delta and United have introduced basic economy fares, which are quite akin to the budget fare. Conditions include no pre-seat selection at the time of booking, seat assignment only at the gate, last to board and other restrictions that may concern baggage allowance and flight changes.

Courtesy Singapore Airlines

In Asia, rivals Cathay Pacific and Singapore Airlines (SIA) too have revised their fare structures. At the lowest level, Cathay’s economy supersaver and SIA’s economy lite may seem attractive, but travellers should check out the restrictions so as not to be disappointed or surprised by hidden costs. Such fares do not permit pre-seat selection at the time of booking, unless you are prepared to pay a fee for the privilege. Mile accruage has also been reduced – 50% in the case of SIA and 25% in the case of Cathay.

There may be other charges. Earlier in the week, SIA announced that it would levy a 1.3% credit card service fee maxing at S$50 for outgoing flights from Singapore from January 20 only to retract the policy before its implementation, following a public outcry. However, this fee has already been introduced for flights departing Australia since November 2016 and others departing New Zealand, Belgium, the Netherlands and the United Kingdom since April last year. SIA referred the fees to as “costs relating to the acceptance of credit cards” when really it is not a fee imposed directly on the consumer but rather the vendor. It brings to mind how airlines faced with rising fuel costs so adroitly levy additionally a fuel surcharge as if it was something between the fuel companies and the consumers.

True, whatever the costs incurred by the airlines, they are likely to be passed on to the consumer. How much is reasonable will be decided by the competition, given that there is indeed fair and open competition.

Many travellers may not be aware of the different tiers of fare and their conditions, and are consequently unhappy if they had to top up what they had initially thought was an attractive offer. Same class, but different fare conditions. So, as always, caveat emptor.

Benefits come with a price, so British Airways is boarding cheap fares last

Gate boarding procedures vary across the industry, from an open system of “anyone can board at any time” to specific policies that assign the order of who get on first. This only becomes an issue with economy passengers as premium classes as has been their privilege may board on their own time.

Because of limited overhead bin space, economy passengers may compete to board early. Traditionally most airlines board passengers from the rear so as to avoid bottlenecks in the aisle. The idea is to hasten the process that may cause a delay in take-off if it becomes problematic. From the perspective of efficiency, that seems to make a lot of sense.

Courtesy British Airways

That, until some airlines hit on the opportunity to make boarding a benefit to be purchased in a bucket of ancilliary charges. Now British Airways (BA) has announced that it will board passengers who have paid cheaper economy fares last. BA said the new procedures aim to “speed up the process and make it simpler for customers to understand.” Really? That’s a hard pill to swallow.

BA’s defence is that this is already a procedure practised by some other carriers. Yes, US carriers such as the Big Three of American, United and Delta have introduced basic economy fares – their version of budget fare to counter the no-frills competition – which do just that besides other non-entitlements such as no seat assignment until boarding at the gate.

But there is one difference – passengers are made aware of that sub-class before they amke the choice. However, most airlines sell different fares for the same economy seats, designed to help them sell the seats. One wonders if you purchase a ticket during a promotion period and become committed to flying maybe a year later, will you now be penalised for not paying a higher fare that is usually the case closer to the date of the flight? It is only fair that customers know and understand what they are paying for.

Of course, BA’s new procedures have already raised a lot of ire among its customers. Some of them feel that while they may have purchased cheap fares, they do not deserve to be made to feel cheap or to be treated as such. Oh well, as some people may say, you have the choice. Or, take it with a pinch of salt as Banjobob@scottishcringe says: “Nothing quite like a British class system to let you know your place!” Or, punch back with a new challenge, as Martin Lovatt wrote on Twitter: “I wonder if disembarkation will be in the reverse order then?” Now, that will be quite a task managing the process in economy based on fare.