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aviationplanning.com
The Airline Industry 2008
Market Planning: Stray Bullets Flying
Warning - "drive-bys" can and will take place in airline planning offices.
That's where schedule cuts are ordered on the basis of "do-it-now and analyze-it-later." Jet-A at $4 a gallon means that there isn't a lot of time for committee meetings and esoteric discussions. Cash is going out the door. Airlines don't have the luxury of spending a lot of time diddling with analyses of which markets tickle the S-curve better than others. Capacity and frequency shifts may be made on an ad-hoc basis to conserve cash. What is filed today for a schedule in September may not hold in the weeks ahead.
It's not that airlines are collapsing, per se. It's just that at $130 oil, the entire economics of the current air system are different. They can't operate like they've done in the past.
Don't Assume Anything. Most of the capacity reductions already announced, contrary to some media reports, involve thinning out frequencies, not wholesale elimination of air service.
But as oil goes up, nothing's in stone. For our airport subscribers to Airports:USA® DataMiner, we would suggest reviewing schedule and capacity data each week (they're updated every Wednesday) to note any changes that may trigger a need for some quick, pro-active air service development activities. Cuts in schedules and capacity are going to be widespread, and possibly without a lot of hard review by the carriers.
Subscribers who do not have the Flight Schedules and Capacity option can upgrade quickly and easily by e-mailing bill @ AviationPlanning.com or by calling (303) 674-2000.
__________
The Airline Industry 2008
New Metrics. New Standards. Or It's Over.
It's trendy now to report that bankruptcies are just around the corner for major airlines. In this case, those stories could be right, even if many of them don't represent a shred of investigation into the issue beyond parroting what "everybody knows."
It's a matter of bringing the air transportation system to a point where it adjusts to fundamentally different - and higher - operational costs. Theoretically, it's not a big deal. Just thin out capacity and the costs that go with it, spilling off some sectors of high demand, simply because these consumers cannot afford air travel at the fares that must be charged. And, as has been pointed out at our Annual Aviation Forecast Conferences, most comprehensive network carriers have the ability to park low- or no-ownership cost airliners.
That's the theory. What it doesn't address is the issue of time. Right now, most airlines have strong cash positions. What they don't have is any slack in terms of time to get themselves re-oriented to a new economic environment before the cash gets sucked down the fuel tank.
It's not an indication of "airlines in trouble" as much as it's airlines trying to quickly downsize to meet this reality. They don't need as many airplanes or seats, for the simple reason that much of the traditional traffic base - which made money three years ago - can't be carried profitably.
Oops. Those Seats Are Already Sold. And They're Money-Losers. One of the fun things airlines are facing is that many of the seats on already booked-full flights for July and August were sold at fare levels that now won't compensate for the spike in fuel costs. There's really not much option in the way of canceling these flights - many of which will produce rivers of red ink.
So that means that the cavalry, in the form of capacity-reduction and fare relief, won'trjflood2.JPG (40175 bytes) come over the horizon until roughly October. That gives the industry, depending on a whole lot of complex variables at each carrier, maybe three or four quarters to restructure to avoid finding "NSF" on employee's pay checks.
As the attendees at our Annual Forecast Conferences have known for years, carriers like American, Northwest, United, and others have the ability to valve-off capacity relatively cheaply by parking airliners that are mostly paid-for or that are soon coming off lease. The problem they face, however, is the rapidity with which fuel costs have gone up, and the immediacy of the challenge.
Airline Economics Have Changed. Industry Policy Must, Too. Playing politics is another frill that the airline industry can no longer afford. The industry’s tacit support of incompetence, poor planning, and, in some cases, outright dishonesty at the top of the FAA, only encourages a system that's helping to torpedo the air transportation system.
The new fuel-cost environment means business-as-usual in national aviation planning and policy is a straight shot to airline failure. Not only does $4 jet-A gut the traditional ways of doing business, it also means that the industry needs a different stance when dealing with the Feds. Stupid stunts like the MD-80 fiasco must not be tolerated. ATC is costing the airline industry billions, and all that's come from FAA administrators is hot air and jive promises.
Airlines are wasting billions due to the lack of progress - and totally wrong direction - in rebuilding a new air traffic control system. When employees are losing their jobs, communities are suffering economic hits due to declining air service, and the financial future of airlines is being questioned, this charade of supporting NextGen is just short of negligent.
The #1 Success Metric. Slashing fleets, reducing low-yield flying, and spiking fares are only partial solutions. The entire production line needs to be rebuilt, too. Billions more in savings must come, not from squeezing the system or passengers, but by rebuilding the system. Process Reengineering, not fuel management, is the order of the day. (Covered earlier. Go There.)
But Process Reengineering depends on using common sense, not bazillion-dollar advisors who can't speak a straight sentence or express an idea without some B-school buzzwords accessorized with complex mathematical formulas.
Common sense. The winners and losers in the next 12 months will be determined by this metric. Make book on it.
__________________
And, Speaking of Common Sense...
More Good News For Sherwin-Williams
One of more interesting lines of reporting last week was on United's decision regarding one of the silliest non-entities in aviation. Yes, TED.
An Industry Milestone. The Death of A Non-Existent Airline. The panting reports about the end of this (sic) "lower cost airline-within-an-airline" once again proves a lot of reporters operate on veneer hearsay, not hard industry knowledge. It was a media funeral without any evidence of a corpus delicti. Tedno2.JPG (11072 bytes)
The fact is often missed that, other than a different color scheme, there was no "TED." It had no independent schedules. No separate route system. No independent work force. No independent accounting. No different fares. No lower costs, either.
It was just part of United's fleet that, expensively, was painted differently and offered no first class cabin, both of which served mainly to confuse consumers. Not to mention being a drain on the airline, losing premium-cabin revenue, and having the need for an additional flight attendant due to the aircraft being over 150 seats. Now, presumably, the airline will spend the $100,000 (or more) to re-paint back to United colors the 50 or so airplanes involved in this non-entity.
When it comes to common sense, TED was was undoubtedly the poster child of what can be inflicted on gullible airline management. It was one of aviation's most dimbulb and non-executed marketing ideas. It was originally postured as some sort of campy joke. Nobody got the punchline.
But the employees got the bill. United management spent millions on this amateur act. Millions that might come in handy now.
_______________
Finally, In Passing...
In the next six weeks, watch for LCC cut-backs, too. The only difference is that most LCC's don't have the fleet-cost flexibility to survive double-digit capacity reductions.
So do enjoy, but be sure to ignore, the parrot dogma that the capacity cuts by American, United, Continental, et al, will open huge opportunities for LCCs to jump in and pick up the slack.
There is no slack. CNCs are not abandoning major markets, AA thinning frequencies from 9 flights to 7 doesn't open any opportunity for an LCC. More critically, LCCs need to cut back, too. These carriers don't have gigantic cost advantages over legacies anymore.
Oil at $130 means the air transportation system will shrink.
That includes LCCs, too.
The Airline Industry 2008
Market Planning: Stray Bullets Flying
Warning - "drive-bys" can and will take place in airline planning offices.
That's where schedule cuts are ordered on the basis of "do-it-now and analyze-it-later." Jet-A at $4 a gallon means that there isn't a lot of time for committee meetings and esoteric discussions. Cash is going out the door. Airlines don't have the luxury of spending a lot of time diddling with analyses of which markets tickle the S-curve better than others. Capacity and frequency shifts may be made on an ad-hoc basis to conserve cash. What is filed today for a schedule in September may not hold in the weeks ahead.
It's not that airlines are collapsing, per se. It's just that at $130 oil, the entire economics of the current air system are different. They can't operate like they've done in the past.
Don't Assume Anything. Most of the capacity reductions already announced, contrary to some media reports, involve thinning out frequencies, not wholesale elimination of air service.
But as oil goes up, nothing's in stone. For our airport subscribers to Airports:USA® DataMiner, we would suggest reviewing schedule and capacity data each week (they're updated every Wednesday) to note any changes that may trigger a need for some quick, pro-active air service development activities. Cuts in schedules and capacity are going to be widespread, and possibly without a lot of hard review by the carriers.
Subscribers who do not have the Flight Schedules and Capacity option can upgrade quickly and easily by e-mailing bill @ AviationPlanning.com or by calling (303) 674-2000.
__________
The Airline Industry 2008
New Metrics. New Standards. Or It's Over.
It's trendy now to report that bankruptcies are just around the corner for major airlines. In this case, those stories could be right, even if many of them don't represent a shred of investigation into the issue beyond parroting what "everybody knows."
It's a matter of bringing the air transportation system to a point where it adjusts to fundamentally different - and higher - operational costs. Theoretically, it's not a big deal. Just thin out capacity and the costs that go with it, spilling off some sectors of high demand, simply because these consumers cannot afford air travel at the fares that must be charged. And, as has been pointed out at our Annual Aviation Forecast Conferences, most comprehensive network carriers have the ability to park low- or no-ownership cost airliners.
That's the theory. What it doesn't address is the issue of time. Right now, most airlines have strong cash positions. What they don't have is any slack in terms of time to get themselves re-oriented to a new economic environment before the cash gets sucked down the fuel tank.
It's not an indication of "airlines in trouble" as much as it's airlines trying to quickly downsize to meet this reality. They don't need as many airplanes or seats, for the simple reason that much of the traditional traffic base - which made money three years ago - can't be carried profitably.
Oops. Those Seats Are Already Sold. And They're Money-Losers. One of the fun things airlines are facing is that many of the seats on already booked-full flights for July and August were sold at fare levels that now won't compensate for the spike in fuel costs. There's really not much option in the way of canceling these flights - many of which will produce rivers of red ink.
So that means that the cavalry, in the form of capacity-reduction and fare relief, won'trjflood2.JPG (40175 bytes) come over the horizon until roughly October. That gives the industry, depending on a whole lot of complex variables at each carrier, maybe three or four quarters to restructure to avoid finding "NSF" on employee's pay checks.
As the attendees at our Annual Forecast Conferences have known for years, carriers like American, Northwest, United, and others have the ability to valve-off capacity relatively cheaply by parking airliners that are mostly paid-for or that are soon coming off lease. The problem they face, however, is the rapidity with which fuel costs have gone up, and the immediacy of the challenge.
Airline Economics Have Changed. Industry Policy Must, Too. Playing politics is another frill that the airline industry can no longer afford. The industry’s tacit support of incompetence, poor planning, and, in some cases, outright dishonesty at the top of the FAA, only encourages a system that's helping to torpedo the air transportation system.
The new fuel-cost environment means business-as-usual in national aviation planning and policy is a straight shot to airline failure. Not only does $4 jet-A gut the traditional ways of doing business, it also means that the industry needs a different stance when dealing with the Feds. Stupid stunts like the MD-80 fiasco must not be tolerated. ATC is costing the airline industry billions, and all that's come from FAA administrators is hot air and jive promises.
Airlines are wasting billions due to the lack of progress - and totally wrong direction - in rebuilding a new air traffic control system. When employees are losing their jobs, communities are suffering economic hits due to declining air service, and the financial future of airlines is being questioned, this charade of supporting NextGen is just short of negligent.
The #1 Success Metric. Slashing fleets, reducing low-yield flying, and spiking fares are only partial solutions. The entire production line needs to be rebuilt, too. Billions more in savings must come, not from squeezing the system or passengers, but by rebuilding the system. Process Reengineering, not fuel management, is the order of the day. (Covered earlier. Go There.)
But Process Reengineering depends on using common sense, not bazillion-dollar advisors who can't speak a straight sentence or express an idea without some B-school buzzwords accessorized with complex mathematical formulas.
Common sense. The winners and losers in the next 12 months will be determined by this metric. Make book on it.
__________________
And, Speaking of Common Sense...
More Good News For Sherwin-Williams
One of more interesting lines of reporting last week was on United's decision regarding one of the silliest non-entities in aviation. Yes, TED.
An Industry Milestone. The Death of A Non-Existent Airline. The panting reports about the end of this (sic) "lower cost airline-within-an-airline" once again proves a lot of reporters operate on veneer hearsay, not hard industry knowledge. It was a media funeral without any evidence of a corpus delicti. Tedno2.JPG (11072 bytes)
The fact is often missed that, other than a different color scheme, there was no "TED." It had no independent schedules. No separate route system. No independent work force. No independent accounting. No different fares. No lower costs, either.
It was just part of United's fleet that, expensively, was painted differently and offered no first class cabin, both of which served mainly to confuse consumers. Not to mention being a drain on the airline, losing premium-cabin revenue, and having the need for an additional flight attendant due to the aircraft being over 150 seats. Now, presumably, the airline will spend the $100,000 (or more) to re-paint back to United colors the 50 or so airplanes involved in this non-entity.
When it comes to common sense, TED was was undoubtedly the poster child of what can be inflicted on gullible airline management. It was one of aviation's most dimbulb and non-executed marketing ideas. It was originally postured as some sort of campy joke. Nobody got the punchline.
But the employees got the bill. United management spent millions on this amateur act. Millions that might come in handy now.
_______________
Finally, In Passing...
In the next six weeks, watch for LCC cut-backs, too. The only difference is that most LCC's don't have the fleet-cost flexibility to survive double-digit capacity reductions.
So do enjoy, but be sure to ignore, the parrot dogma that the capacity cuts by American, United, Continental, et al, will open huge opportunities for LCCs to jump in and pick up the slack.
There is no slack. CNCs are not abandoning major markets, AA thinning frequencies from 9 flights to 7 doesn't open any opportunity for an LCC. More critically, LCCs need to cut back, too. These carriers don't have gigantic cost advantages over legacies anymore.
Oil at $130 means the air transportation system will shrink.
That includes LCCs, too.
