Welcome to Flightinfo.com

  • Register now and join the discussion
  • Friendliest aviation Ccmmunity on the web
  • Modern site for PC's, Phones, Tablets - no 3rd party apps required
  • Ask questions, help others, promote aviation
  • Share the passion for aviation
  • Invite everyone to Flightinfo.com and let's have fun

Clouds on the Horizon for Lcc's

  • Thread starter Thread starter blzr
  • Start date Start date
  • Watchers Watchers 7

Welcome to Flightinfo.com

  • Register now and join the discussion
  • Modern secure site, no 3rd party apps required
  • Invite your friends
  • Share the passion of aviation
  • Friendliest aviation community on the web

blzr

Well-known member
Joined
Sep 6, 2002
Posts
1,502
FEATURE-Clouds on the horizon for low-cost airlines
Sun Sep 26, 2004 02:11 PM ET
By Jui Chakravorty



NEW YORK, Sept 26 (Reuters) - As larger U.S. airlines suffer growing losses, low-cost carriers, previously thought to be invincible, are not far behind, industry experts say, due to soaring jet fuel prices, low air fares and more competition.

The parent of United Airlines, UAL Corp. (UALAQ.OB: Quote, Profile, Research) , which filed for bankruptcy in August 2002, is still in Chapter 11. Earlier this month No. 7 U.S. Airways (UAIRQ.OQ: Quote, Profile, Research) filed for its second bankruptcy in two years, and Delta Air Lines (DAL.N: Quote, Profile, Research) , the third-largest U.S. carrier, is fighting to avoid bankruptcy.

The U.S. airline industry has lost more than $30 billion since the Sept. 11, 2001, attacks on New York and Washington, as fear of flying and a weak economy have slowed demand for travel. The industry is expected to lose another $3 billion this year, according to the Airline Pilots Association.

But even though low-cost carriers are believed to be immune to the losses, not all of them are cruising along. AirTran Airways (AAI.N: Quote, Profile, Research) , ATA Airlines (ATAH.O: Quote, Profile, Research) , Frontier Airways (FRNT.O: Quote, Profile, Research) and FLYi (FLYI.OQ: Quote, Profile, Research) (previously Atlantic Coast Airlines), are all expected to post losses in the next quarter as the airline industry's turmoil starts affecting the high-flying upstarts.

JetBlue Airways (JBLU.O: Quote, Profile, Research) this month cut its third-quarter earnings forecast, citing low fares and high fuel costs. JP Morgan analyst Jamie Baker a week ago said he expected further cuts in forecasts by JetBlue and AirTran.

But as the small carriers grow, the line that separates them from the big "legacy" airlines is starting to blur, analysts say.

Michael Boyd, an aviation consultant at The Boyd Group, said the "hub-and-spoke model," which refers to a route network that has specific hubs used for connecting passengers, is not unique to legacy airlines, contrary to popular opinion.

"That's a myth. Many, if not all, of the low-cost carriers also have hubs these days," he said.

What really differentiates the two models is age and efficiency, according to several experts. An older work force translates into higher labor costs, because airline pay is based on seniority. Many of the low-cost carriers employ relatively young staff.

In addition, the low-cost carriers use planes and staff more efficiently. The average turnaround time for planes at low-cost carriers is 30 minutes, versus more than an hour at the major carriers. And the discount carriers only fly to the busiest airports.

But as the low-cost carriers grow older, their labor costs will also grow. They are also facing ballooning costs from skyrocketing fuel prices.

Peter Klebanow, an industry expert and president of Ultramar Travel Management, says the major carriers, at this point, have more options than the low-costs.

"Major carriers have the opportunity to cut costs, but low-cost carriers now have the pressure of rising costs," Klebanow said. "And with fuel prices where they are, this could be a long, cold winter for all of them."

Still, air travelers need to have both kinds of carriers, Boyd said.

"If we just had JetBlue, 40 percent of airports in America would not have air service," he said. "And if JetBlue began flying to those airports with low volume of passengers, it would not have its cost advantage anymore."

In the past few decades, discount carriers such as People Express and Pan American World Airways failed, even after starting with a bang. But the new generation of low-costs have an advantage, according to Klebanow.

"Now, the low-cost carriers also offer amenities such as leather seats or live TV that discount carriers in the past never did," he said. "At that time, it was just a matter of price versus airline loyalty. Now, it's a superior product for a lower price."

With the advent and popularity of the Internet, transparent pricing has also given way to customer loyalty, analysts said.

Tom Hansson, vice president at Booz, Allen Hamilton, expects the low-cost carriers, which currently operate in 30 percent of the U.S. market (in terms of passenger trips), to grow about 45 percent over the next five years.

"And that growth is bad news for the industry," Hansson said. "The impact of the growth would be very large, and would reduce air fares drastically."

As excessive demand keeps customers from balking at any increase in prices, low-cost carriers will continue to see deteriorating balance sheets.

"There will be a shake-up in the industry. There will be selling, and there will be mergers. Not all the majors will survive, but not all the low-cost carriers will, either," Hansson said.
var year = new Date() document.write('© Reuters ' + year.getFullYear() + ". All Rights Reserved." ); © Reuters 2004. All Rights Reserved.
 
What I find interesting is that people have been predicting the death of one/two major airlines US/UA for 3 years now and they are still kicking. Who woulda guessed that 3 years from now, they are both still on life support. Are we gonna have a major go down in the next 3 years? Or has it become a cliche that to sound like a airline expert you have to add, "we'll have a major airline go under."
 
What I find interesting is that for the sake of market share, all of these MBA degree toten morons can't price their product accordinglly so as to make a profit. TR-TC= TP(loss)
 
The bankuptcy laws combined with governement financial intervention has totaly usurped the concept of survival of the fittest and has totally distorted the true free market. Darwinism has to be allowed to take place in order to have a more healthy industry in the long run, but due to the generous bankruptcy laws and various forms of government intervention, it can't evolve as it should.
 
Sounds to me like in about ten years, all the airlines will have failed. There will be millions of airplanes parked on ramps and taxiways all over the U.S. No more "Chem-trails". If the LCC's are destined to fail and the legacy airlines are doomed to fail, and the frac pilots are so unhappy with their jobs that they will shut down their respective companies, there will be no airplanes flying. OMG, the world IS coming to an end!!!
 
Mach 80 said:
The bankuptcy laws combined with governement financial intervention has totaly usurped the concept of survival of the fittest and has totally distorted the true free market. Darwinism has to be allowed to take place in order to have a more healthy industry in the long run, but due to the generous bankruptcy laws and various forms of government intervention, it can't evolve as it should.
Right on the money. "The Economist" said the same thing last week.
 
What I like are these 'experts' these journalists interview. I don't know Michael Boyd from the 'Boyd Group' but it sounds like it's probably a group of one.

Yes, there is a cloud on the horizon for LCCs, looks like it's the dust cloud of a legacy carrier mismanaged into liquidation.
 
To quote the article:

"AirTran Airways (AAI.N: Quote, Profile, Research) , ATA Airlines (ATAH.O: Quote, Profile, Research) , Frontier Airways (FRNT.O: Quote, Profile, Research) and FLYi (FLYI.OQ: Quote, Profile, Research) (previously Atlantic Coast Airlines), are all expected to post losses in the next quarter as the airline industry's turmoil starts affecting the high-flying upstarts."


Airtran has been around since "93-"95 (?), ATA since the eightees, Frontier since the early ninetees and Independence (ACA) since 1989. How does the writer conclude that any of these are "upstarts?

Mike
 
Actually

We have been around since 1973 in one form or another. The following was taken from www.ata.com:

Milestones

1973 Year founded1981 Air carrier status approved1986 Scheduled passenger service begins1992 Scheduled service hub opens at Chicago-Midway1999 Surpassed $1 billion in annual revenue2000 "Major Carrier" status achieved2001Begins re-fleeting process and scheduled service from Chicago-Midway to international destinations.2002ATA becomes the number one carrier from both Indianapolis International Airport and Chicago-Midway, and the third largest carrier overall in Chicago, based on the number of passengers flown. 2003ATA announces a company name change from American Trans Air, Inc. to ATA Airlines, Inc.
 
With the exception of categorizing Pan Am as a discount carrier that started "with a bang", the previous article might have some truth to it..............

Airline stocks open sharply lower
By CBS MarketWatch
Last Update: 10:06 AM ET Sept. 27, 2004
SAN FRANCISCO (CBS.MW) - Airline stocks fell sharply at the open
Monday, led by JetBlue Airways, which was downgraded by J.P. Morgan

The Amex Airline Index slid 2.07 percent to 42.01, extending last week's 8.4 percent slide. Rising crude prices, which are nearing the $50-a-barrel level, also pressured the index in early trades. Shares of the nation's biggest carriers all fell.
American Airlines parent AMR Corp. neared a 52-week low, falling 37 cents to $7.10. Northwest Airlines 35 cents to $7.75 and Continental Airlines, dropped 33 cents to $8.44,

Shares of JetBlue dropped 83 cents, or 3.80 percent, to $21.04. J.P. Morgan, which downgraded the stock to "underperform" from "neutral," thinks the stock will lag its peers over the next six to12 months.

In addition, J.P. Morgan downgraded AirTran Holdings and Frontier Airlines to "underweight" from "neutral."

AirTran lost 51 cents to $9.77. Frontier dropped 49 cents to $7.08.

J.P. Morgan upgraded regional carriers Pinnacle Airlines, Skywest Inc. and
ExpressJet Holdings to "neutral" from "underweight
 
Gordon Bethune said a few months ago that he could easily compete in this business if he could fire everyone every 5 years and start over. Recyclable airlines with payscales that max out at 5 years just might be the wave of the future. Afterall, the brand is now meaningless.
 
Interesting point, Mugs.


In fact, the JetBlue pilots are on 5 year rolling contracts. In this way the company could, in theory, just not "renew" your contract at JetBlue and replace you with a new-hire.

I have heard some grumblings from the JB pilots and I think this is a very important issue for them to resolve with the management before it affects us all.

You could start a whole thread on this one issue.

Mike
 
Cappy said:
Airtran has been around since "93-"95 (?), ATA since the eightees, Frontier since the early ninetees and Independence (ACA) since 1989. How does the writer conclude that any of these are "upstarts?

Mike
It's all relative. When compared to the companies that have been around since the 1920s and 30s, they are relative upstarts. No big deal.
 

Latest resources

Back
Top