storminpilot
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http://miva.jacksonsun.com/miva/cgi-bin/miva?NEWS/news_storyV2005.mv+link=200502126941545
Airfare wars causing turbulence for airlines
By JOEL J. SMITH
Gannett News Service
Feb 12 2005
Rock-bottom airfares may be thrilling for travelers, but 2005 is promising anything but smooth skies for the U.S. airline industry.
Analysts and airline executives are warning that cutthroat pricing competition, high oil prices and overcapacity have the industry hurtling toward a crisis that will push major players out of business.
U.S. carriers have lost more than $30 billion in the past four years, including about $7.5 billion in 2004. And the industry is expected to spill at least $2 billion in red ink this year.
Something has to give, said Jacob M. Schorr, CEO of Spirit Airlines, a discount carrier. ''Some of those airlines that are on the brink will have to go out of business before the industry turns around,'' he said. ''There is overcapacity right now, and I don't see the demand growing enough to handle it.''
Northwest Airlines posted $848 million in losses for 2004 but still has strong cash reserves. United Airlines and US Airways are already in bankruptcy. Delta Air Lines narrowly avoided bankruptcy last fall. Most of the major carriers are attempting to negotiate huge wage and benefit concessions just to stay in business.
Hoping to outlast the competition, airlines are adding planes and slashing prices. Over the first 11 months of 2004, domestic air carriers added 7 percent more seats than a year earlier, according to the Air Transport Association. In the same period, passenger traffic rose less than 6 percent.
About 27 percent of all domestic airline tickets today are sold by low-fare carriers, up from 12 percent just 15 years ago.
''We're at a point where the airlines have created a monster, and it's like a runaway train. Nobody is willing to step forward to stop it,'' said Terry Trippler, a Minneapolis airfare analyst.
Ticket prices have dropped 9.1 percent since 2001. While fares could rise if one or two airlines go out of business, the days of selling hugely profitable tickets to business travelers are over.
''If you kill off US Airways, that capacity won't come back as high-cost capacity, but it could come from another low-cost carrier,'' said Kevin P. Mitchell, chairman of the Business Travel Coalition in Lafayette Hills, Pa.
Pittsburgh is one city where a discount airline is replacing routes left open by another carrier. Southwest has announced that it'll begin operating there by May as financially strapped US Airways reduces its presence at that major hub.
At least $6 billion of the industry's projected $7.5 billion in losses during 2004 are attributed to increased fuel costs. Oil soared to $55 a barrel in October, and while it's uncertain where fuel prices will go this year, the price has been hovering around $45 a barrel. In 2003, oil was selling as low as $25 a barrel.
Some say today's shakeout was the inevitable result of Congress' decision to deregulate the airline industry in 1978. Others say the blame rests with major airlines for failing to adapt.
In the 1980s and 1990s, major airlines gained a reputation for gouging passengers, particularly business travelers, with high ticket prices, opening a door for discount carriers such as Spirit, Southwest, America West and others to enter the market.
Troy Feldpausch, a software training consultant from New Boston, Mich., said he has paid substantially more for a ticket in the past simply because he was traveling within the same week.
''About seven years ago, I went on business to San Francisco and the Northwest ticket was $800,'' Feldpausch said. ''Later, my wife and I went to San Francisco on vacation and we both went for a total of $450. I think it's time for the airlines to rethink their business.''
The future is unstable for passengers and airlines alike.
''The pressure is enormous on the legacy carriers,'' said David Stempler, president of the Air Travelers Association in Washington. ''There is no easy solution to this. It's an industry in transition. In the short run, passengers will benefit from the low fares.
''But at the end of the day, there might be less service to fewer destinations and still the price might move upward. The only thing worse than high fares is no fares. We could end up with no service to some areas.''
Airfare wars causing turbulence for airlines
By JOEL J. SMITH
Gannett News Service
Feb 12 2005
Rock-bottom airfares may be thrilling for travelers, but 2005 is promising anything but smooth skies for the U.S. airline industry.
Analysts and airline executives are warning that cutthroat pricing competition, high oil prices and overcapacity have the industry hurtling toward a crisis that will push major players out of business.
U.S. carriers have lost more than $30 billion in the past four years, including about $7.5 billion in 2004. And the industry is expected to spill at least $2 billion in red ink this year.
Something has to give, said Jacob M. Schorr, CEO of Spirit Airlines, a discount carrier. ''Some of those airlines that are on the brink will have to go out of business before the industry turns around,'' he said. ''There is overcapacity right now, and I don't see the demand growing enough to handle it.''
Northwest Airlines posted $848 million in losses for 2004 but still has strong cash reserves. United Airlines and US Airways are already in bankruptcy. Delta Air Lines narrowly avoided bankruptcy last fall. Most of the major carriers are attempting to negotiate huge wage and benefit concessions just to stay in business.
Hoping to outlast the competition, airlines are adding planes and slashing prices. Over the first 11 months of 2004, domestic air carriers added 7 percent more seats than a year earlier, according to the Air Transport Association. In the same period, passenger traffic rose less than 6 percent.
About 27 percent of all domestic airline tickets today are sold by low-fare carriers, up from 12 percent just 15 years ago.
''We're at a point where the airlines have created a monster, and it's like a runaway train. Nobody is willing to step forward to stop it,'' said Terry Trippler, a Minneapolis airfare analyst.
Ticket prices have dropped 9.1 percent since 2001. While fares could rise if one or two airlines go out of business, the days of selling hugely profitable tickets to business travelers are over.
''If you kill off US Airways, that capacity won't come back as high-cost capacity, but it could come from another low-cost carrier,'' said Kevin P. Mitchell, chairman of the Business Travel Coalition in Lafayette Hills, Pa.
Pittsburgh is one city where a discount airline is replacing routes left open by another carrier. Southwest has announced that it'll begin operating there by May as financially strapped US Airways reduces its presence at that major hub.
At least $6 billion of the industry's projected $7.5 billion in losses during 2004 are attributed to increased fuel costs. Oil soared to $55 a barrel in October, and while it's uncertain where fuel prices will go this year, the price has been hovering around $45 a barrel. In 2003, oil was selling as low as $25 a barrel.
Some say today's shakeout was the inevitable result of Congress' decision to deregulate the airline industry in 1978. Others say the blame rests with major airlines for failing to adapt.
In the 1980s and 1990s, major airlines gained a reputation for gouging passengers, particularly business travelers, with high ticket prices, opening a door for discount carriers such as Spirit, Southwest, America West and others to enter the market.
Troy Feldpausch, a software training consultant from New Boston, Mich., said he has paid substantially more for a ticket in the past simply because he was traveling within the same week.
''About seven years ago, I went on business to San Francisco and the Northwest ticket was $800,'' Feldpausch said. ''Later, my wife and I went to San Francisco on vacation and we both went for a total of $450. I think it's time for the airlines to rethink their business.''
The future is unstable for passengers and airlines alike.
''The pressure is enormous on the legacy carriers,'' said David Stempler, president of the Air Travelers Association in Washington. ''There is no easy solution to this. It's an industry in transition. In the short run, passengers will benefit from the low fares.
''But at the end of the day, there might be less service to fewer destinations and still the price might move upward. The only thing worse than high fares is no fares. We could end up with no service to some areas.''
