storminpilot
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http://www.azcentral.com/business/articles/0425airlines25.html
High-cost airlines are a dying breed -- Execs predict restructurings
Dawn Gilbertson
The Arizona Republic
Apr. 25, 2004 12:00 AM
There was an empty seat on the CEO panel at the annual Phoenix International Aviation Symposium last week.
David Siegel, head of struggling US Airways, quit two days before the conference began and pulled out.
It was probably just as well: The meeting turned into an obituary-writing session for big, high-cost airlines like USAir.
The looming death of the old-line carriers, at least as we know them today, was proclaimed by industry executive after industry executive.
America West Chief Executive Officer Doug Parker, who has led a huge drive to cut costs at the Tempe airline, predicted that the Big Six - United, American, Delta, Northwest, USAirways and Continental - likely will shrink to the big two or three.
"The industry is in the midst of what is a major restructuring," he said.
Cited in the autopsy report for the big airlines: the Internet, a revolution in business travel and a slew of younger, more nimble competitors from AirTran to JetBlue. All are driving fare prices way down, making it difficult for anyone to make a profit, and impossible for those with high costs.
Industry consultant Dorothy Robyn, of the Brattle Group in Cambridge, Mass., said the forces squeezing big carriers like American and United are permanent, not part of some economic cycle. And their costs are not coming down nearly as fast as the $2,000 fares they used to be able to charge.
"We're now in a crisis," she said.
Henri Courpron, president and CEO of North American operations for European plane marker Airbus, said the high-cost airlines have but one choice.
"Discipline is what will get the majors out of the woods," he said. "Otherwise, they're cooked."
Gerard Arpey, CEO of American, doesn't disagree. He said it's incumbent upon the likes of American to keep driving down their costs, and not only through labor concessions, if they hope to compete against low-cost carriers like Southwest, AirTran, America West and JetBlue.
How wide is the gap? USAirways' cost per seat mile excluding fuel and special items, is about 10 cents, America West's about 6 cents.
"It's no secret which of these models is the more profitable at the moment," Arpey said at the conference.
As if to punctuate the point, the conference was bookended by positive earnings reports from America West and JetBlue. Together with Southwest and an expected profit from AirTran, they are the only carriers to post a profit for the first quarter.
No matter how hard they try, said Arpey, who has already downsized American's weak St. Louis hub among a host of other moves, carriers like American will never get down to the same cost level as their low-cost competitors. That's simply because they have costs newer carriers or those who've gone through bankruptcy don't.
American, for example, has $300 million in retiree medical expenses this year alone.
He also believes, and few in the industry dispute, that the large carriers' big-city hubs, international route networks, frequent flier programs and other perks will always enable them to command higher fares in certain markets.
"The network carriers still have a place in the world," said Kerry Skeen, chairman and CEO of Independence Air. "The heavy (frequent) fliers that are just used to the heavy perks . . . will be willing to pay a premium."
Although these are heady times for low-cost carriers, few are thrilled with their own performance. Part of the problem is the slow economic recovery, part a rush by many to add too many flights too soon.
"We're really not happy with (our) first-quarter revenue or costs," said Jim Parker, CEO of perennially profitable Southwest Airlines.
Even though that airline posted a profit of $26 million in the January-March period, that is just a fraction of the $121 million it reported in the first quarter of 2001.
"We're still a long way from where we need to be," he said.
Parker says bookings are improving, but he has no illusions that things will come roaring back.
"I don't think we'll ever get back to the bubble days of 1999 and 2000, where a lot of people just didn't care how much it cost to fly," he said.
Reach the reporter at (602) 444-8617.
High-cost airlines are a dying breed -- Execs predict restructurings
Dawn Gilbertson
The Arizona Republic
Apr. 25, 2004 12:00 AM
There was an empty seat on the CEO panel at the annual Phoenix International Aviation Symposium last week.
David Siegel, head of struggling US Airways, quit two days before the conference began and pulled out.
It was probably just as well: The meeting turned into an obituary-writing session for big, high-cost airlines like USAir.
The looming death of the old-line carriers, at least as we know them today, was proclaimed by industry executive after industry executive.
America West Chief Executive Officer Doug Parker, who has led a huge drive to cut costs at the Tempe airline, predicted that the Big Six - United, American, Delta, Northwest, USAirways and Continental - likely will shrink to the big two or three.
"The industry is in the midst of what is a major restructuring," he said.
Cited in the autopsy report for the big airlines: the Internet, a revolution in business travel and a slew of younger, more nimble competitors from AirTran to JetBlue. All are driving fare prices way down, making it difficult for anyone to make a profit, and impossible for those with high costs.
Industry consultant Dorothy Robyn, of the Brattle Group in Cambridge, Mass., said the forces squeezing big carriers like American and United are permanent, not part of some economic cycle. And their costs are not coming down nearly as fast as the $2,000 fares they used to be able to charge.
"We're now in a crisis," she said.
Henri Courpron, president and CEO of North American operations for European plane marker Airbus, said the high-cost airlines have but one choice.
"Discipline is what will get the majors out of the woods," he said. "Otherwise, they're cooked."
Gerard Arpey, CEO of American, doesn't disagree. He said it's incumbent upon the likes of American to keep driving down their costs, and not only through labor concessions, if they hope to compete against low-cost carriers like Southwest, AirTran, America West and JetBlue.
How wide is the gap? USAirways' cost per seat mile excluding fuel and special items, is about 10 cents, America West's about 6 cents.
"It's no secret which of these models is the more profitable at the moment," Arpey said at the conference.
As if to punctuate the point, the conference was bookended by positive earnings reports from America West and JetBlue. Together with Southwest and an expected profit from AirTran, they are the only carriers to post a profit for the first quarter.
No matter how hard they try, said Arpey, who has already downsized American's weak St. Louis hub among a host of other moves, carriers like American will never get down to the same cost level as their low-cost competitors. That's simply because they have costs newer carriers or those who've gone through bankruptcy don't.
American, for example, has $300 million in retiree medical expenses this year alone.
He also believes, and few in the industry dispute, that the large carriers' big-city hubs, international route networks, frequent flier programs and other perks will always enable them to command higher fares in certain markets.
"The network carriers still have a place in the world," said Kerry Skeen, chairman and CEO of Independence Air. "The heavy (frequent) fliers that are just used to the heavy perks . . . will be willing to pay a premium."
Although these are heady times for low-cost carriers, few are thrilled with their own performance. Part of the problem is the slow economic recovery, part a rush by many to add too many flights too soon.
"We're really not happy with (our) first-quarter revenue or costs," said Jim Parker, CEO of perennially profitable Southwest Airlines.
Even though that airline posted a profit of $26 million in the January-March period, that is just a fraction of the $121 million it reported in the first quarter of 2001.
"We're still a long way from where we need to be," he said.
Parker says bookings are improving, but he has no illusions that things will come roaring back.
"I don't think we'll ever get back to the bubble days of 1999 and 2000, where a lot of people just didn't care how much it cost to fly," he said.
Reach the reporter at (602) 444-8617.
