Archive for December, 2008
2008 is drawing to an end, and it is time for me to start booking mileage runs for 2009. Ideally, I need to fly at least 50,000 miles next year to maintain my Platinum Status with American Airlines. Unfortunately, I will face the same challenges that most other flyers face: fewer flights to fewer destinations at a higher cost.
As I’ve mentioned before, the two cities that offer me the largest miles on a domestic mileage run are Seattle, Washington and Portland, Oregon. I did two mileage runs to each of them in 2008. Unfortunately, as I look for flights to those cities, I see that my opportunities for a good mileage run have diminished.
I did a trip last year to Seattle, flying Austin to DFW to Oakland to Seattle. With my bonus miles for having Platinum status, I earned over 5,200 miles for that one way trip. However, I cannot do that routing any more because American Airlines no longer flies into Oakland.
I did a trip to Seattle last year flying Austin to Chicago (ORD) to Seattle, earning almost 5,400 miles for the one-way segment, and then doing it again on the return flight, allowing me to earn almost 11,000 miles on a one-day turnaround. But American has cut back on service between ORD and SEA, making it impossible to do that trip. The best I can do now is fly through Chicago, then return on a direct flight through Dallas arriving Austin at 9 o’clock the next morning. With that routing, I’d earn 1,200 fewer miles than I did on my original flights through ORD. That is a big loss!
I can come close to that total by flying AUS-DFW-SFO-SEA-LAX-DFW-AUS, but that would still be an overnight mileage run, arriving AUS at 9 a.m. on Sunday.
So, I not only have fewer options on MRs to Seattle, I also have to pay more. Most r/t tickets to Seattle will cost me $267. Two years ago I could do that trip for $180-200.
I face a similar dilemma on a mileage run to Portland. I did this one twice last year, flying there and back through ORD. However, American has reduced service between Chicago and Portland, leaving me with only one option: Austin to Dallas to Portland and back. I used to earn almost 11,000 total miles for a mileage run through Chicago. With the more direct routing through Dallas, I’ll earn less than 8,500. The price for the ticket has not gone up since last year, it is still $218, but with the loss of the Chicago flights, I am getting much less value for my dollar.
This may prove to be a challenging year. With the slowdown in the economy, many major airlines are expected to do even more cutbacks on the number of flights. Hopefully, with much lower fuel costs, they will be able to drop their ticket prices enough to make these mileage runs more appealing.
As fuel prices skyrocketed last summer, the airlines saw their bottom lines battered. Airlines lost staggering amounts of money as the price for a barrel of oil approached $150. Gerard Arpey, CEO of AMR, American Airlines’ parent corporation said during the summer “The U.S. airline industry as it is constituted today was not built for $125- or $130-per-barrel oil.”
Obviously, the airlines needed fuel prices to drop. Well, they got what they asked for, but in an Alice in Wonderland version of reality, declining fuel prices have caused some airlines to lose money!
The airlines have used fuel hedges to buy fuel at a certain price in the future, then come out ahead as long as fuel prices rose past that level. Southwest Airlines has been doing that very successfully since the early 1990s and other airlines have started to do it too. They were getting ready for an environment in which experts said we would be paying $5 for a gallon of gas by the end of 2008.
Fortunately for us but unfortunately for the airlines, fuel prices plummeted, something they were not prepared for.
I checked my local service station today: the price for a gallon of gas has dropped 60% since its summertime high. The price for a barrel of oil on December 5 was $40.81, a drop of 70% since August. In a normal world, this would be a blessing for the airlines, allowing them to drop fuel surcharges and return to profitability. But this is not a normal world.
According to Purchasing.com, United Airlines lost “$519 million in non-cash, net mark-to-market losses on its fuel hedge contracts, as a result of the drop in oil prices at the end of the quarter.” In other words, they are buying fuel at a much higher cost than they would without the hedges.
Southwest Airlines lost almost a quarter of a billion dollars in the third quarter FY 2008, its first non-profitable quarter since 1991. Things may not get better for Southwest in 2009 when it is committed to buy almost 75% of its fuel at $73 a barrel, almost 80% more than the current price.
American Airlines did not hedge as heavily as Southwest: it will purchase 37% of its fuel next year at $91 a barrel. That would be a great price if oil had gone up from its summertime high, but is not a good deal given current prices.
The airlines have responded by grounding (and sometime selling) aircraft. They have reduced the number of available seats in the hope that it would increase per-flight capacity. Unfortunately the global economic meltdown of the last few months has only made things worse. According to Tulsa World, , American flew 14.5% fewer miles in November 2008 than in November 2007 on a capacity reduction of 9.3%. In other words, they are fewer seats in the air, but the percentage of empty seats has still increased. “American’s load factor — the percentage of seats filled — was 76.6 percent systemwide in November, a drop of 4.6 percentage points from a year ago.”
So, the load factor is dropping while the airlines are losing money on lower fuel prices. It is not a pretty picture.
So far, the airlines have kept their fuel surcharges as they continue to charge coach passengers for everything from checked baggage to pillows to potato chips while offering fewer flights at a time when the economy is sagging and we have no idea how low it will go before it starts to improve.
I hope 2009 will be a good year for all travelers, but so far, there is no indication that this will occur.