Monday,August 3, 2009
Kyiv, Ukraine
UKRAINE BUSINESS NEWS - FIVEARTICLES
1. DELTA WINS PERMISSION TO REDUCE FLIGHTS FROM NEW
YORK TO KIEV FROM YEAR-ROUND SERVICE TO SEASONAL
Flight to be cut totally, suspended, from early September 2009 until Summer 2010 Season
By Joshua Freed, Associated Press (AP), Monday, July 20, 2009
2. DELTA TO SUSPEND KIEV AND CAPE TOWN INTERNATIONAL FLIGHT SERVICES
Delta to downgrade its NY-Kiev services from year-round to seasonal
Cuts will temporarily leave Cape Town and Kiev without any Delta service.
By Brendan Sobie, FlightGlobal.com, Monday, June 15, 2009
3. UKRAINE INTERNATIONAL AIRLINES LAUNCHES ABU DHABI-KYIV SERVICE
Arabian Business, United Arab Emirates, Sunday, August 02, 2009
4. UKRAINE MAY GET $1.7 BILLION FROM INTERNATIONAL LENDERS FOR GAS
Loans to support its overhaul of the natural-gas industry and increase
the security of gas supplies from Russia to the European Union.
By Ewa Krukowska, Bloomberg, NY, NY, Saturday, Aug 1, 2009
5. UKRAINE TO RECEIVE $1.7 BILLION IN ENERGY FINANCE
Roman Olearchyk in Kiev, Financial Times, London, UK, Sun, August 2 2009
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1. DELTA WINS PERMISSION TO REDUCE FLIGHTS FROM NEW
YORK TO KIEV FROM YEAR-ROUND SERVICE TO SEASONAL
New York-Kyiv Flight to be suspended from early September 2009 until Summer 2010 Season
By Joshua Freed, Associated Press (AP), Monday, July 20, 2009
Like most businesses, airlines want to grow. But during these difficult economic times, their survival depends on their ability to shrink, as they try to match how much they fly with the number of travelers willing to pay for a ticket.
Just like Detroit shutting factories rather than building more cars than people want to buy, airlines are reducing the number of available flights to avoid flying empty seats around the sky. That saves them money on fuel and labor costs. Airlines also hope it will tip the supply-and-demand equation back in their favor and allow them to raise fares.
What the industry calls capacity cuts began last year as oil prices spiked. At one point fuel amounted to 40 percent of an airline's costs, said Morningstar equity analyst Basili Alukos, who covers airlines. Cutting flights was one way to reduce that expense.
Last year's fuel prices were the first blow of a one-two punch for airlines. The other has been the recession, which has cut business travel sharply. Airlines rely on business travelers for profits because they generally buy higher-priced last-minute tickets and front-of-the-plane seats.
UBS analyst Kevin Crissey estimates that American Airlines will cut flying by 10.4 percent in August, and that United will fly 6.3 percent fewer seats. The biggest carrier, Delta Air Lines, will reduce capacity by 3.9 percent in August. Even Southwest Airlines, which has never planned a capacity cut, plans to reduce flying by 6 percent this year.
"After summer I expect most of the major airlines to be more aggressive with capacity cuts, simply because the economics are not working for them right now," said Jim Corridore, an airline analyst at Standard & Poor's.
Here are some questions and answers about capacity cuts.
Q: What is airline capacity, anyway?
A: Capacity is the amount of space available on an airline's flights. Airlines measure it in "available seat miles." That's one seat flown one mile, whether or not someone paid to sit in it. A reduction in seat miles equals less capacity.
Q: How do airlines cut capacity?
A: Two big ways: smaller planes and fewer flights. Airlines can put smaller planes on a route that used to be served by a bigger jet. Often, this is done by assigning the route to a regional carrier, which can operate anything from propeller-driven planes with a couple of dozen seats to 76-seat regional jets. So maybe the airline keeps just as many flights between two cities, but on a regional jet instead of, say, a 120-seat jet.
Or, they can cut a flight altogether. This has a bigger impact on passengers because a town used to two flights a day might drop to one. "The airlines have been carefully pruning their own networks to see where they're just not able to make money," Corridore said.
This is tricky in big markets because travelers — especially lucrative business travelers — often shop by flight time. So if one carrier drops its 5 p.m. flight from that city, that traveler may fly on a competitor instead.
Some cities without good prospects for profitable routes are being eliminated from the schedule altogether. Moves like that may or may not leave another carrier serving that city. "So some cities are seeing much fewer choices, and some cities are seeing very little service whatsoever," Corridore said.
Q: What about international flights?
A: International expansion that looked promising just a couple of years ago is now on hold.
Last week Delta won permission from federal regulators to reduce flights, including Atlanta to Moscow and New York to Kiev, from year-round service to seasonal. Delta needed the waiver so it doesn't lose the permission to fly to those cities, which it won under international agreements.
Delta said in a filing with the Transportation Department that it is reducing capacity "primarily through frequency reductions, changes to seasonal service patterns, and by serving certain international cities through fewer hubs."
Q: Is it working? By flying less, have airlines managed to raise fares or become profitable?
A: Profitable? No. And fares are down this year. But it could have been even worse for the airlines.
The International Air Transport Association expects North American airlines to lose $1 billion this year, but notes that those airlines lost $5.1 billion last year in part because of rising fuel prices. The trade group said capacity cuts are one factor preventing airlines from losing even more this year.
Q: Is there anything that limits how much the airlines can cut?
A: Well, parking planes has its costs, too. Even parked planes require some maintenance, and getting them ready to fly again is expensive.
Also, most airlines owe money on their planes, either for loans or leases. Corridore said that as long as they can generate enough money from the plane to cover at least some of those payments, they're often better off flying the plane — even at a loss — rather than parking it.
FOOTNOTE: Delta fought hard to win the New York-Kyiv from the U.S. Federal Aviation Administration (FAA) in competition with other U.S. airlines who wanted the flight and now Delta has decided to cut back the New York City-Kyiv/Kyiv-New York City service significantly, to suspend the fight totally from early September 2009 until the summer season of 2010.
Reports around Kyiv indicate there are some people in the business community in Kyiv who are not pleased at all with the decision by Delta and are working to get the decision changed. There are also reports that there are some people within Delta Europe who would like to get the decision by Delta in their Atlanta, Georgia headquarters changed. Delta ran a full-page ad in the "What's On" weekly magazine in Kyiv on July 31 with the headline, "The biggest airline in the world is pleased to announce it's biggest BUSINESS CLASS sale in Ukraine ever!" (www.delta.com)
Stories indicate the new Delta Air Lines promotion is addressed to try to attract business class customers to Delta quickly and thus generate additional volume of travelers who otherwise would not travel in business because of economical situation uncertainty. There is a 7 day advance purchase requirement and travel period is from August 1 to September 11, 2009 and the last ticketing date is August 14, 2009.
The idea is said to be to try and increase sales significantly so is would be not necessary from business point of view for Delta to suspend the NYC-Kyiv service for the so-called winter season and so an urgent appeal could be made to the higher Delta authorities to reverse their previous decision.
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2. DELTA TO SUSPEND KIEV AND CAPE TOWN INTERNATIONAL FLIGHT SERVICES
Delta to downgrade its NY-Kiev services from year-round to seasonal
Cuts will temporarily leave Cape Town and Kiev without any Delta service.
By Brendan Sobie, FlightGlobal.com, Monday, June 15, 2009
Delta Air Lines is planning to downgrade its New York-Kiev and Atlanta-Moscow services from year-round to seasonal as part of a major reduction in its international capacity.
The carrier also has decided to suspend its Atlanta-Dakar-Cape Town service for one year and to not resume its seasonal New York-Buenos Aires service until December 2010.
Delta late last week asked the DOT for dormancy waivers covering several existing routes as it adjusts its international network to match up with declining demand. This follows Delta's 11 June announcement that it will cut international capacity by 15% in September, compared to a previous plan unveiled in March to trim international capacity by only 10%.
In the 11 June announcement Delta said the capacity cut will be achieved in part by suspending two transpacific routes - Atlanta-Seoul and Atlanta-Shanghai - and three transatlantic routes - Cincinnati-Frankfurt, Cincinnati-London Gatwick and New York JFK-Edinburgh.
In its filing with the US DOT, Delta revealed it also plans to convert its New York-Kiev and Atlanta-Moscow service from year-round to seasonal.
The carrier says it now operates three weekly year-round flights from New York JFK to Kiev with an extra two additional frequencies in the summer. But from 1 September, the carrier is asking for permission to drop this route entirely until the 2010 summer season.
Delta now connects Atlanta with Moscow four times per week year-round with an additional three frequencies during the summer. The carrier also is asking for permission from the DOT to stop serving this route from 1 September until next summer.
In the same filing Delta also revealed it plans to suspend its four weekly flights to Cape Town in South Africa on 1 September. These flights, which operate from Atlanta with a fuel stop in Dakar, where transfers are available with Delta's New York-Dakar service, launched last June.
Delta does not indicate exactly when it plans to resume its JFK-Kiev and Atlanta-Moscow services. But for the Atlanta-Dakar-Cape Town route it has asked for a dormancy waiver until 1 September 2010, suggesting Delta for now intends to re-launch the service exactly one year after its suspension.
Delta also is asking the DOT for a dormancy waiver for its five weekly frequencies between JFK and Buenos Aires. The carrier served this route for the first time last winter and was planning to resume it this coming winter. But Delta is now requesting permission to not resume the route until 18 December 2010.
The carrier says the requests for dormancy waivers are being made "in light of adverse global market conditions that are continuing to suppress demand for international air travel. Delta is taking proactive measures now, making prudent adjustments to its international schedules in advance of the winter season, traditionally the weakest demand period.
"These temporary service reductions are part of a company-wide strategic effort designed to better align capacity with current demand, and position Delta for long-term success when the economy recovers," the Atlanta-based carrier says.
The cuts will temporarily leave Cape Town and Kiev without any Delta service. Delta is the only US carrier currently serving either of these cities.
Delta, however, will continue to serve Moscow from New York and Buenos Aires from Atlanta. It will also continue to serve Johannesburg in South Africa from both Atlanta and New York.
LINK: http://www.flightglobal.com/articles/2009/06/15/328106/delta-to-suspend-kiev-and-cape-town-services.html
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3. UKRAINE INTERNATIONAL AIRLINES LAUNCHES ABU DHABI-KYIV SERVICE
Arabian Business, United Arab Emirates, Sunday, August 02, 2009
UNITED ARAB EMIRATES - Abu Dhabi Airports Company has announced that Ukraine International Airlines will commence the first direct service from Abu Dhabi to the Ukrainian capital of Kiev. The initial flight is scheduled to depart from Abu Dhabi International Airport on Friday 25 September 2009, with twice weekly flights due to arrive in Abu Dhabi at 2030 hours on Mondays and Fridays, and depart the following morning at 0155 hours on Tuesdays and Saturdays.
In addition to generating traffic between Abu Dhabi and Kiev, the operation is timed to allow easy transfer for passengers onto the wide network of onward services offered from Abu Dhabi International Airport.
LINK: http://www.arabianbusiness.com/563506-abu-dhabi-set-to-launch-direct-flights-to-kiev
FOOTNOTE: Ukraine International Airlines (UIA) is a member of the U.S.-Ukraine Business Council (USUBC), Washington, D.C., www.usubc.org.
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4. UKRAINE MAY GET $1.7 BILLION FROM INTERNATIONAL LENDERS FOR GAS
Loans to support its overhaul of the natural-gas industry and increase the security of gas supplies from Russia to the European Union.
By Ewa Krukowska, Bloomberg, NY, NY, Saturday, Aug 1, 2009
BRUSSELS - International lenders will consider offering Ukraine as much as $1.7 billion in loans to support its overhaul of the natural-gas industry and increase the security of gas supplies from Russia to the European Union.
The European Bank for Reconstruction and Development, the World Bank and the European Investment Bank may give loans to the Ukrainian government and state-run energy company NAK Naftogaz Ukrainy, the lenders said in a joint statement with the European Commission and the International Monetary Fund late yesterday.
Ukraine, a gas-transit country battered by the global economic crisis and already supported by a $16.4 billion bailout from the IMF, is seeking funds to ensure it has sufficient Russian gas to pump into underground storage before the European winter. A price dispute between those two nations in January left more than 20 countries without gas for almost two weeks.
The EU and the international lenders will “work together in the development of a support package to the Ukrainian authorities designed to assist in developing a sustainable solution to Ukraine’s medium-term gas transit and gas payment obligations,” they said in the statement.
The declaration comes after Ukraine committed to overhaul its gas industry, saying yesterday that it will bring regional distribution networks under the management of Naftogaz.
Subject to the implementation of the reforms, the EBRD is ready to consider extending a sovereign-guaranteed loan to Kiev- based Naftogaz, which will provide the company “with working capital for immediate gas-storage requirements and longer-term finance to support an investment program,” it said.
Working Capital
The EBRD could propose funding of up to $300 million for immediate working capital, and next year up to $450 million for investment. No more than $450 million could be committed at any one time, it said.
Naftogaz, which earlier this week saw its long-term foreign and local currency ratings cut four levels to “CC” by Fitch Ratings, is struggling with debt. Utility companies paid for 47.2 percent of gas consumed in the first half of 2009, according to the Fuel and Energy Ministry.
Naftogaz plans to purchase about 3 billion cubic meters of the fuel a month from Russia’s gas-export monopoly OAO Gazprom in the third quarter. It is paying the Russian company $198.34 per 1,000 cubic meters of the fuel, Valentyn Zemlyanskyi, a spokesman for Naftogaz, said on July 28.
Moscow-based Gazprom supplies about a quarter of Europe’s gas, most of which is sent via Ukraine.
The World Bank will consider providing budget support to the government through a loan of up to $500 million and the EIB may offer up to $450 million for long-term investment, the banks said.
To contact the reporter on this story: Ewa Krukowska in Brussels at ekrukowska@bloomberg.net.
LINK: http://www.bloomberg.com/apps/news?pid=20601085&sid=aaakquyYMJxk
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5. UKRAINE TO RECEIVE $1.7 BILLION IN ENERGY FINANCE
Roman Olearchyk in Kiev, Financial Times, London, UK, Sun, August 2 2009
KIEV - In international agreement to provide recession-ravaged Ukraine with financing to support energy reforms and secure stable supplies of Russian natural gas to Europe would amount to some $1.7bn, it emerged on Saturday.
Officials said the aid would help Ukraine reform its vast Soviet-built natural gas supply and transit systems, and provide financing to buy build Kiev’s gas reserves in order to avoid a repeat of January’s energy spat with Russia, during which supplies to Europe were cut off.
The European Bank for Reconstruction and Development said it could provide $300m for immediate working capital and up to $450m in 2010 for investment. Another $500m and $450m could come from the World Bank and European Investment Bank, respectively.
The financing hangs on reforms at Kiev’s debt-ridden state gas company, Naftogaz, including modernisation of its gas transportation system by reducing costly wastage, and removal of subsidies for households. Last month, Ukraine’s government unveiled plans to gradually hike tariffs on households to market levels.
The loan follows alarmist warnings from Moscow, which urged Brussels to broker a loan for Ukraine of up to $5bn, warning that supplies would once again be cut off if Kiev fails to pay its bills. Europe has in recent years received nearly a quarter of its gas needs from Russia, with the lion’s share pumped via Ukraine.
With its finances stretched to the limit amid a deep recession, many question Kiev’s ability to pay its gas bills, warning that another energy standoff could breakout.
Ukraine has thus far made monthly payments on time, and has built up 21 billion cubic meters of underground gas reserves, which are traditionally used to fill peak demand in Ukraine and Europe during winter. But Kiev needs financing to buy an additional 5-7 bn cubic meters needed to fill the reserves to appropriate levels.
“I’m extremely pleased that political agreement has been reached with Ukraine on reform of its gas sector which opens the way for a financial assistance package to be provided by the international financial institutions to Ukraine,” said José Manuel Barroso, European Commission president.
Mr Barroso said commitments made by Yulia Tymoshenko, Kiev’s prime minister, “should ensure increased transparency and long-term viability of Ukraine’s gas sector.”
Thomas Mirow, EBRD president, said: “Our aim is to improve the sustainability, accountability and above all the transparency of the Ukrainian gas market, to the benefit of both Ukraine and of energy security in all of Europe.”
LINK: http://www.ft.com/cms/s/0/1088ee6c-7e17-11de-8f8d-00144feabdc0.html
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