UPDATED AGAIN- Sept 16th-The Crash of Commercial Aviation and Telepresence

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UPDATED AGAIN- Sept 16th-The Crash of Commercial Aviation and Telepresence

September 8, 2008 | Howard Lichtman

UPDATE - September 16th, 2008 - Three more airlines have declared bankruptcy in the last week: Spanish carrier Futura, it's Irish subsidiary Futura Gael, and XL Leisure Group who stranded 89,000 customers abroad and left another 200,000 ticket holders in the lurch. Willie Walsh, the CEO of British Airways, openly predicted that an additional 30 airlines could disappear by the end of the year. The Irish bookmaker Paddy Power has opened a book on which airline will go bust next. British Airways confirmed that it has offered buyouts to 1,400 managers.

UPDATE - September 8th, 2008 - Three more airlines have declared bankruptcy in the last 45 days: Zoom Airlines, Vintage Props and Jets, and the Italian national carrier Alitalia bringing total bankruptcies over two dozen. The flight information company OAG has announced that the carriers will offer 60 million fewer flights between October and December of 2008. The airfare reasearch site FareCompare.com reports that domestic fares between large metro cities are already up roughly 16 percent since Jan. 2, while fares between small cities are up roughly 37 percent year-to-date.

Telepresence's impact on the airlines is starting to be felt... HSBC, which recently announced a deployment of 6 Cisco TelePresence systems, reports that they were able to save $604,000 on air travel in one month between their London HQ and their Hong Kong office. Publicly available telepresence deployments are starting to accelerate. Tata Communications has launched the first five publicly available Cisco TelePresence systems in what they have announced will be a 100 system global roll-out by the end of 2009. PangeAir has begun rolling out publicly available telepresence locations in Hyatt hotels and launched a publicly available location in the Dayton Convention Center. The Human Productivity Lab has relaunched our website for Powwow Virtual and is seeking partners and investors for our business model for a global network of publicly available telepresence conferencing centers featuring multiple telepresence systems connected to multiple telepresence Community of Interest Networks.

Original Article Follows:

In our 2006 paper Telepresence, Effective Visual Collaboration, and the Future of Global Business at the Speed of Light we predicted that the collapse of the dollar would send the cost of oil skyrocketing which would destroy the airlines' business model. Specifically we wrote:

"For decades, commercial and executive aviation have provided cost-effective transportation for business travel largely thanks to relatively inexpensive jet fuel from relatively inexpensive crude oil. From 1994-2004, the price for a barrel of NYMEX light sweet crude averaged between $10 and $30 a barrel. Since 2004, the price per barrel has more than doubled to $71.76 as of this writing (June 12th, 2006) and the price of jet fuel has risen from $0.82 a gallon to $3.45 a gallon today.xxiv And it won't stop there. A number of potential geopolitical risks, natural disasters and resource economics issues could very well send the price of oil even higher, making a significant impact on the affordability and convenience of air travel.

The Oil Picture in 2006 vs. the Oil Picture Today

The commercial aviation industry relies on cheap seats and full planes. Reducing either side of this equation creates a vicious cycle for the carriers. Rising fuel prices equals higher ticket prices, which reduces demand for seats. Less passengers leads to even higher ticket prices as carriers cover flying costs at reduced capacities. Higher ticket price leads to . . . reduced demand for seats. Dramatically more expensive oil could deal another significant blow to the international aviation industry, which saw five bankruptcies in 2005 and is still reeling from six straight years of net losses, with 2006 set to be number seven.xxv The International Air Transport Association recently raised its 2006 net loss forecast to $3 billion from $2.2 billion, and a major increase in the price of jet fuel would substantially increase these losses even further and most likely see marginally profitable routes and flights eliminated making air travel even less convenient.xxvi Additional airline bankruptcies will inevitably lead to reduced competition, which equals higher costs and less convenience.

The growth of telepresence and effective visual collaboration will worsen this dynamic by further reducing demand for commercial aviation among business travelers who are the airlines least price dependent customers. When Cigna deployed two TeleSuite Systems between its offices in Philadelphia and Bloomfield, Conn., it eliminated thousands of flights a year. Its ticket volume grew so low the company's US Air representative even called to inquire about the financial health of the company.xxvii HP reported a two percent reduction in its $800MM+ travel costs in Q4 2005, with less than half of its planned deployment of 24 Halo Collaboration Studios active (no wonder the company is considering doubling that number in the future)."

Unfortunately, we called the crash of the dollar and the airlines like Babe Ruth's storied home run at Wrigley Field. Since December 2007, ~~seven~~ ~~eight~~ ~~nine~~ ~~ten~~ ~~twenty-four~~ ~~twenty-seven~~ Twenty-Nine different carriers have declared bankruptcy or ceased operations, forcing mergers like the Northwest and Delta union. Count on continued turmoil in the industry to lead to additional fiascoes such as the faulty wiring issue that caused American Airlines to ground their entire MD-80 fleet, canceling about 3300 flights in the process. Travel woes now extend beyond American shores, demonstrated by the way British Airways mishandled its move to the new T5 terminal at Heathrow - causing over 400 cancellations and thousands of pieces of stranded luggage.

As the depreciating dollar continues to fuel price increases expect the cost of physical travel to soar and price competition between the airlines to decline. Bankruptcies and consolidation will reduce convenience as duplicate and unprofitable routes are eliminated. Expect smart organizations to hedge their risk against travel disruptions and price increases by deploying telepresence to reduce the expenses and inconvenience associated with physical travel. Publicly available telepresence will begin to take some of the travel market away from the airlines, compounding the carriers' problems as they lose their least price sensitive business travelers to the world of virtual travel.

The HPL Timeline of Airline Bankruptcies, Mergers, Acquisitions, and Fiascoes

Bookmark this page... It will, unfortunately, be an on-going project...

Airline Bankruptcies and Failures

MaxJet Airlines - Filed December 24th, 2007 - MaxJet, an "all-business class carrier" files for bankruptcy and quits flying stranding passengers on Christmas Eve.

Big Sky Airlines - March 8th, 2008 - Big Sky Airlines is grounded. The Billings-based company flew its final flights into the city on Saturday after its parent company announced in December that it would cease operations because of disappointing revenues.

Aloha Airlines - Filed March 20th 2008 - Ten days later, on March 30th, Aloha Airlines announced the suspension of all scheduled passenger flights the next day.

ATA Airlines - Filed April 2nd 2008 - ATA Airlines has discontinued all operations and cancelled all current and future flights.

Skybus Airlines - Filed April 4th 2008 - Ceased operations as of April 5th, citing the lagging economy and rising fuel costs as causes

Skyway Airlines - April 5th 2008 - On January 16th, 2008 Midwest Airlines announced that it would transition the operation of all Midwest Connect flights from Skyway Airlines to SkyWest Airlines. Skyway's last day of operations was April 5th, 2008.

Oasis Hong Kong Airlines - April 8th 2008 - Oasis stops accepting bookings on April 8th and ceases operations shortly thereafter.

Frontier Airlines - Filed April 11th 2008 - Frontier said it would continue normal business operations - operating its full schedule of flights and maintain employee wages, healthcare, vacation and other benefits.

Champion Airlines - May 31st 2008 - Champion Air announced on March 31st that it would cease operation on May 31st 2008. In the company's press release CEO Lee Steele announces that the company's business model "is no longer viable in a world of $110 oil" and "a struggling economy".

EOS Airlines - April 26th, 2008 - "Business-class niche carrier Eos Airlines Inc. ceased operations yesterday after filing for bankruptcy protection, the latest casualty of a credit crunch and a money-losing airline industry that has been hit hard by high fuel prices."

Air Midwest - May 14th, 2008 - Soaring fuel costs have forced Mesa Air Group to shut down subsidiary carrier Air Midwest. Service to 16 small cities in 10 states will be discontinued as a result. The cuts will begin next week and be completed by June 30. In Arizona, travelers will lose service in Kingman and Prescott.

Silverjet Airlines - May 30th, 2008 - Silverjet airlines, a "business-class only" carrier ceased operations on May 30th after failing to securing financing to continue operations.

Telepresence provider Teliris announced free telepresence meetings between New York City and London for Silverjet customers displaced by the airline's failure.

Gemini Air Cargo - June 19th, 2008 - Gemini Air Cargo filed for Chapter 11 bankruptcy protection Wednesday for the second time in two years. Gemini filed its recent Chapter 11 in the U.S. Bankruptcy Court of the Southern District of Florida and is represented by South Florida law firm Berger Singerman. Filing attorney Paul Singerman could not be immediately reached for comment.

Vintage Props and Jets - July 21st, 2008 - Small airlines serving three cities in Florida and Bahamian destinations temporarily ceased operations on July 18, after talks with a "promising investor/buyer" stalled. The company's website said the company plans to file for Chapter 11 bankruptcy protection. The state reported the 40 layoffs on July 21.

Zoom Airlines - August 28, 2008 - Zoom Airlines, the trans-Atlantic carrier that ceases operations, leaving at least 4,500 travelers stuck abroad and another 60,000 holdingticketsthat can't be used... Slowing economies and a $50 million increase in fuel costs in the past 12 months led Zoom to join the two dozen carriers that have ceased flying or filed for bankruptcy so far this year.

Alitalia - August 29th, 2008 - After reporting a net debt of nearly 1.2 million euros ($1.7 million) at the end of July, Italy's flag carrier airline Alitalia filed for bankruptcy on

August 29. The beleaguered company had received an emergency loan of 300 million euros ($439 million) in April from the Italian government, which owns 49.9 percent of its national airline, but even these were not enough to keep the planes flying.

Futura Airlines - September 8th, 2008 - Spanish charter airline Futura International Airways suspended flights for a day on Monday as it filed for administration, Spain's transport and infrastructure ministry said... According to its website, Futura

was Europe's largest independent medium-haul charter airline, flying a fleet of 38 Boeing 737s

Futura Gael Airlines - September 8th, 2008 - The Irish subsidiary of Spanish charter operator Futura Airlines also declared bankruptcy. The company operated charter flights to the Mediterranean and Eastern Europe. The company announced that all flights were suspended, laid off 70 employees, and put 20 on notice.

XL Leisure Group - September 12th 2008 - XL Leisure Group, an air charter and tour package operator, collapsed on September 12th stranding 89,000 passengers abroad and leaving over 200,000 customers who had purchased tickets for future flights in the lurch. XL, which employs about 1,700 people, was based in Crawley, England, and served 50 destinations.

Airline Mergers and Acquisitions

Delta and Northwest Airlines - April 14th, 2008 - The two airlines agreed to a merger which "would create a global giant with more than 800 jets, 6,400 daily flights and nearly $32 billion in annual revenue. The carriers estimate the value of the new company at $17.7 billion."

BA announces purchase of French airline L'Avion - July 2nd, 2008 - British Airways said on Wednesday that it will buy French carrier L'Avion for 54 million pounds (68 million euros, 107 million dollars) to combine with its transatlantic OpenSkies operation.

American Airlines, British Airways and Iberia Airlines - August 14th 2008 - The three airlines announced that they had signed a joint business agreement for flights between the United States and Europe.

The airlines said they planned to apply for anti-trust approval from the United States Department of Transportation and would notify European Union authorities. The step comes a dozen years after American and British Airways' first effort to join their operations in a network stretching around the world. British Airways opened merger talks last month with Iberia, the Spanish carrier, although their deal is not yet final. In addition, the airlines said Finnair and Royal Jordanian, two partners under another marketing alliance, would be included in the anti-trust application

German Carrier Lufthansa to Take Over Brussels Airlines - September 15th, 2008 - Germany's largest carrier Lufthansa is to buy a 45 percent stake in the holding company that owns Brussels Airlines for 65 million euros ($91.4 million) as part of the company's ambitious expansion plans. The deal, announced Monday, Sept. 15, gives Lufthansa the option to take over all of Brussels Airlines in 2011 for a price not exceeding 250 million euros.

Airlines Scaling Back Service

Continental Airlines - April 17th 2008 - Continental reports a net loss of $80 Million, or 81 cents per share and announces that "it would reduce domestic mainline capacity -- the number of seats for sale -- 5 percent beginning this fall and take another 14 single-aisle Boeing 737-300 aircraft out of service as leases expire beginning in September."

Southwest Airlines - April 17th 2008 - Southwest announced that "its first-quarter net profit fell to $34 million, or 5 cents a share, from $93 million, or 12 cents a share, in the same period last year." The airline also announced that it was reducing the number of new aircraft acquisitions by 1/2

United Airlines - April 22nd 2008 - "the Chicago-based carrier said it will trim 2008 spending by $400 million, eliminate 1,100 jobs by the end of the year, cut domestic capacity 9 percent by the fourth quarter and ground 30 of its oldest and least-efficient aircraft." The company also posted a $537 million dollar first quarter loss and saw the value of its shares decline by 35%.

Delta Airlines - April 23rd 2008 - Delta said its net loss widened to $6.39 billion, or $16.15 a share, from $130 million. Delta blamed the $6.1 billion charge on fuel costs. Delta's per-gallon costs rose 48% to $2.85 as the carrier hedged 27% of its fuel consumption and realized about $46 million in gains. Delta said it would offer buyouts to more than half its employees and make substantial reductions in domestic flights while adding to international routes. The airline has said it aims to cut domestic flight capacity by 5% by August, in addition to a previous plan for a 5% cut this year. Delta's plans to shrink its fleet include eliminating 15 to 20 mainline and 60 to 70 regional jets by year-end.

Northwest Airlines - April 23rd 2008 - the fifth-largest U.S. carrier, posted a net loss of $ 4.14 billion, or $15.78 a share, compared with a year-earlier net loss of $292 million, or $3.34 a share. Northwest earlier announced plans to trim domestic capacity by 5 percent after the summer travel season by removing as many as 20 planes from flying. The carrier today also said it will suspend cargo freighter service to Guangzhou, China, on July 1 and to Taipei on Aug. 1 to improve aircraft utilization and profits.

British Airways - June 2nd 2008 - British Airways expects to trim its capacity later this year, Chief Executive Willie Walsh said on Monday, due to the effects of soaring oil prices...Walsh said it was too early to say whether the airline would cut destinations as part of the move to reduce capacity, but said cutting the frequency of flights was more likely in the winter period which starts at the end of October...BA said last month its fuel costs were set to rise 1 billion pounds this year.

Malaysia Airlines - June 2nd 2008 - Malaysia Airlines will review unprofitable routes and freeze recruitment as part of wide-ranging measures to cut costs, the national news agency reported Monday.The airline also plans to reduce the budget of all its divisions by 10 percent and stop spending on office refurbishment until further notice. "Routes that bleed cash... will be cut off."

American Airlines - July 3rd, 2008 - American Airlines, the US airline which is close to seeking a merger with British Airways, has told staff that it will cut 7,000 jobs by the end of the year, as it grounds aircraft in a bid to mitigate the impact of soaring fuel prices.

Air Canada Jazz - July 3rd, 2008 - Canada's discount airline Jazz Air said Thursday it will cut 270 employees as the regional airline operator reduces capacity by five percent. The job cuts follow the mid-June move by Jazz Air's primary customer, Air Canada, to cut 2,000 jobs as it reduces its flying by seven percent.

Midwest Airlines - July 14th, 2008 - Midwest Airlines, a unit of Midwest Air Group, on Monday said it would cut its work force by 1,200 employees, or 40 percent, making it the latest airline to reduce staffing amid soaring fuel prices.

Ryan Air - July 18th, 2008 - Ryan Air announced a 14 per cent cut in its flights from 1,850 a week last year to just under 1,600 this year. The Dublin based airline will base 28 aircraft in Stansted airport this winter compared with 36 last year. The move will cost about 900 jobs including 150 Ryanair staff. The firm is also shutting down operations for six weeks in late autumn from seven other European airports, including Basel in Switzerland, Palma in Mallorca, Valencia in Spain and Salzburg in Austria.

QANTAS will slash about 2000 jobs next week as the national carrier seeks to offset cost pressures caused by the crippling fuel crisis. The belt tightening also will include cutting loss-making flight routes from both domestic and international schedules. The economic situation confronting the airline is so grim senior managers, flight crew, engineers and ground staff will be included on the hit list. The cuts are expected to affect 5 per cent of the carrier's 36,000-strong worldwide workforce. Qantas last month pruned about 100 staff, cut services and agreed to retire four aged 747 jumbos.

Flybe - September 10th 2008 - The British airline Flybe has announced that it will fly 400,000 fewer seats between October and March. Instead of increasing capacity by 16% as planned it will only add 6%.

EasyJet - September 12th 2008 - EasyJet announced that it will cut 60 jobs at it Luton HQ on the heels of recently announcing reducing flights to London's Stansted airport.

British Airways - September 12th 2008 - British Airways, which has more than 45,000 employees, said Friday that it would offer about 2,000 managers incentives to quit as the airline seeks to reduce its employee costs. The airline chief executive, Willie Walsh, told Bloomberg Television that he expected 300 managers to take the buyout.

LTE International - October 17, 2008 - LTE International, a Spanish-based airline, which flew to European hotspots from UK