"For aching airlines, remote oil spots are bonanza"

Friday, July 15, 2005

For aching airlines, remote oil spots are bonanza
By Daniel Michaels and Melanie Trottman
The Wall Street Journal


POINTE NOIRE, Republic of Congo -- Air France was so eager to start flying
to this sleepy city last year that it broke several cardinal rules of the
airline business. 

It flies the eight-hour trip from Paris with a jetliner that seats only 82
passengers, rather than cutting costs by cramming crowds onto a big
widebody. It then parks the plane for 15 hours, instead of sending it right
back out on another flight. And when the aircraft finally heads home, Air
France passes up easy profits because it doesn't sell duty-free alcohol
onboard. Managers decided safety was more important after some soused
oil-rig workers got rowdy on the narrow jetliner last year.

Air France is willing to rack up extra costs and forgo income because this
route is flown almost exclusively by people from the oil industry. They are
a rare and coveted breed of traveler these days: They fly long distances in
large numbers to remote locations, and pay top dollar for good service.

Not long ago, airlines could charge high fares nearly everywhere. Now, the
combined impact of Internet ticket sales, budget carriers such as Southwest
Airlines and inexpensive long-haul airlines like Dubai's Emirates is
crushing revenue. Soaring fuel bills are driving up costs.

The result: Airlines world-wide have losses of about $15 million a day,
industry officials estimate. So carriers are scouring the skies to find
passengers willing to pay high fares for comfortable and convenient flights.
In a bitter twist for airlines, the oil companies benefiting from the big
run-up in prices that's hurting carriers' bottom line also offer one of the
last big, rich market niches.

"High oil prices get these guys traveling," says Angus Saunders, a spokesman
for British Mediterranean Airways, a carrier that flies to oil-rich
destinations such as Azerbaijan and Iran for British Airways. "We're one of
those who perversely benefit from high oil prices."

Air France, British Airways, Continental Airlines and Germany's Lufthansa
all make a special effort to woo traffic from energy companies by offering
exclusive services and flights to destinations where few tourists go such as
Georgia and Saudi Arabia. Air France rewards loyal oil-industry travelers
with perks as part of its Petroleum Club program. Continental last year
added service to Oslo, in oil-rich Norway. And Lufthansa in April launched
its Oil & Energy Club -- a loyalty program similar to Air France's -- and
added oil destinations in Nigeria and Algeria to its route network.

Energy is one of several niche markets that airlines chase. AMR Corp.'s
American Airlines offers the only nonstop service between technology hubs
Austin, Texas, and San Jose, Calif. The three daily geek-heavy flights are
known informally by customers as the "Nerd Bird." British Airways installed
the first fully flat bed-seats in business class on long-haul flights
largely to attract executives from the finance and media industries flying
to and from London.

New aircraft technology enabling smaller planes to fly farther also has
allowed carriers to sharpen their focus on these high-paying business
fliers. Lufthansa ferries some executives across the Atlantic on special
long-range jetliners equipped with only 48 business-class seats, even though
the planes normally carry 150 passengers. The airline began the service
after realizing it carried many executives from the chemical and
pharmaceutical sectors between the industrialized regions around Duesseldorf
and Newark, N.J. The route lacked enough tourist traffic to support a big
jetliner. Swiss International Air Lines offers similar flights for bankers
in Zurich.

When it comes to the energy industry, snagging business can be fraught with
obstacles. Oil companies are enormously demanding, while the countries they
operate in often have rudimentary airports and bureaucrats who can cause big
headaches.

Service to many remote oil destinations up until recently has been the
domain of little-known charter carriers. The only flights between Houston --
the U.S. oil industry's nexus -- and Angola, a huge oil exporter, are
handled by charter operator World Air Holdings Inc. of Peachtree City, Ga.,
on behalf of the state-owned Angolan National Oil Co. To reach Algerian oil
fields in the Sahara Desert, staff from BP PLC often fly British charter
carrier Jet Air.

Many oil-rich countries don't want big global carriers flying in because
they compete with state-run airlines. Angola, still recovering from years of
civil war, has granted British Airways and Air France rights to only one
weekly round-trip each. Kazakhstan, in central Asia, is pressing all foreign
airlines to serve its isolated capital, Astana. From there, visitors will
have to use state-owned Air Astana inside the country.

Late last year, Continental announced plans for nonstop flights to Nigeria
from the U.S. The carrier was attracted in particular by energy-related
traffic, including oil-industry business, and the lack of scheduled
passenger service to Africa by any U.S. airline using its own planes. But
after delays and political squabbles, it shelved its plans in April.

Air France, part of holding company Air France-KLM SA, recognized the
industry's appeal as far back as 1998 when it created its Petroleum Club
program. Perks include free meals and hotel rooms on long flight
connections, priority check-in, special lounges with showers in places like
Port Harcourt, Nigeria, and golf tournaments for members.

Around half of the club's 26,000 members have top status on Air France's
traditional frequent-flier plan because they travel so much. That makes them
"people we really want to listen to," says Bruno Matheu, an Air France
executive vice president.

Air France marketing managers knew for several years that oil companies
wanted long-haul flights to Pointe Noire, thanks to feedback from Petroleum
Club members. At the time, the only foreign airline flying to Pointe Noire
was Air Gabon. "You never knew if the plane was going to arrive or not,"
recalls Randy Tofsrud, the Canadian administrator of Norwegian oil-service
firm Smedvig asa's operations in Pointe Noire. "A lot of people were
uncomfortable flying with them." Air Gabon couldn't be reached for comment.

Air France saw there wasn't enough demand in Pointe Noire to justify sending
a big international jet seating more than 200 people down there. Then, in
2003, plane maker Airbus introduced a long-range version of one of its
smallest jetliners, the single-aisle A319, a model seating around 120 people
and until then mainly used on short routes. The plane allowed Mr. Matheu to
offer flights without worrying about tourist traffic.

In June 2003, Air France announced "Dedicate," a service aimed mainly at the
energy industry using the small planes and offering the long layovers that
oil companies require. Promised destinations included Pointe Noire and
Malabo, an oil town in nearby Equatorial Guinea.

Air France operations to Pointe Noire started in January 2004 and today its
three overnight flights a week average 85 percent full, well above the
industry norm. Oil money is starting to show up in this port city as new
buildings are being constructed, roads are freshly paved and the airport is
being rebuilt. A flight on a recent Tuesday, full of snoozing oilmen in
jeans, looked much like any other night flight.

One big difference: the high fares. Anyone can buy a ticket, but few do
aside from oil companies. In the 54-seat coach section, the cheapest
round-trip ticket goes for about $1,300. In contrast, a similar-distance
flight between Paris and New York is available for under $400. The business
class carries only 28 passengers in big, comfortable seats like those on a
two-aisle jetliner; they pay fares ranging between $5,000 and $7,500.

"You pay the maximum" because few cheap seats are available, says Henri
Gaztelumendi, who handles local travel arrangements at Norwegian
oil-services firm Stolt Offshore SA.

Corinne Bouvarel, Air France's local manager, says those fares cover the
high cost of operating in tough conditions. Since local drinking water may
be unclean, Air France replenishes its planes with pricey mineral water --
even for use in lavatory sinks. To ensure the quality of in-flight meals
produced locally, each week Ms. Bouvarel ships samples of foods such as
steak, fish and salads to a Paris laboratory for testing. And Air France
pays for extra security guards to mind its aircraft while they sit idle.

Stolt Offshore has about 650 staff from around the world working nearby off
the coast of Angola for Chevron Corp. They mainly fly in economy class, as
do staff at most oil-service companies. But a growing number of oil
companies now fly most of their staff in business class, to arrive
well-rested and ready for work.

French petroleum giant Total SA made the switch from economy to business
class a few years ago. Its human-resources manager in Pointe Noire, Thierry
Malateste, says that direct Paris-Pointe Noire service is another "big
advantage" for weary travelers. From a shaded corner in one of Pointe
Noire's few office buildings, Mr. Malateste handles travel logistics for
Total's 800 staff in the region, including several hundred rig workers known
as rotators. The men work and rest alternating 28-day periods, rotating on
and off rigs by the dozens each week.

Total, like most oil companies, doesn't want to rack up big hotel or
restaurant bills while its workers are in transit. So once the men clear
customs at Pointe Noire's makeshift airport, a helicopter whisks them
offshore. On their rig, departing rotators debrief them and take the same
helicopter back ashore. No rotator may leave until his replacement has
arrived.

At busy airports, departing rotators can simply catch the next flight out.
But at many oil destinations in Africa, Central Asia and the Mideast, days
can pass between flights. So to carry both incoming and outgoing rotators
where multiple daily flights aren't possible, Air France leaves planes
parked for hours. In Gabon, Nigeria and Angola, Air France even keeps big
widebody Boeing 777s and Airbus A330s grounded.

"An A330 on the ground for over 10 hours costs an enormous amount of money,"
says Mr. Matheu. "But it's what our customer wants."

In Pointe Noire, bookings are so tight that Air France's Ms. Bouvarel
coordinated with oil companies from France, Italy and the U.S. to handle
their rotations on different days. The 39-year-old career travel manager,
who was born in Africa to French parents, also is a bouncer of sorts,
tossing off oilmen who have gotten drunk waiting for their plane. In the
first few months of "Dedicate" flights, her staff refused boarding to at
least one passenger "almost every flight" because they might pose a safety
risk, she recalls. "Now they seem to understand," she said.

Some workers that Stolt Offshore's Mr. Gaztelumendi makes arrangements for
prefer taking a small plane to Brazzaville, Congo's capital, and catching a
spacious Air France widebody jet from there.

"There are always seats available" from Brazzaville, he says. And that
traditional long-haul flight also offers another big advantage for thirsty
oil workers over the special flight to Pointe Noire, Mr. Gaztelumendi notes:
"You can buy duty free."


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