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Sector Three: Comprehensive Network Carriers

Next Crisis: Not Cost Control, Per Se..
It's Now "Dynamic Minute Control"

With the current fuel price outlook, it might seem that major carriers are tapped out in terms of ability to get costs down. Add in the reality that labor is also tapped out, and is not in any mood for further givebacks. Actually, it's unlikely that any labor union is fixin' to leave the bargaining table in the next three years without some healthy gains.

One might conclude that major airlines have already squeezed the cost turnip bone dry since 9/11. Aircraft and airport leases have been re-negotiated. Debt, at most carriers, has been reduced or re-structured. Labor costs - at least for now - have been slashed. Some union work rules eliminated.

So, what will carriers look at to control costs?

It will be dynamic minute management in the future. When substantial parts of airline operational costs are time-delineated, such as maintenance, time is money. When time is an issue in whether the passengers make connections or expensively mis-connect, time is money. Each minute represents money. And squandering them costs money.

It sounds like common sense. But anybody who's watched airport operations to any extent can see enormous numbers of minutes squandered to the gods of waste.

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A 757 arrives, and the jetway is still positioned for the A-320 that departed 30 minutes before. That means the greeting agent may spend five precious minutes or more, monkeying to get the jetway to the airplane. Five minutes may mean the difference between connecting those six passengers to London, or having to re-route them (and their revenue) on another airline.
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The amount of time getting the "carry-on" luggage out of that RJ's bin and onto the jetway can be the difference in whether several other passengers connect or mis-connect. Sometimes, it doesn't seem to be a big priority. They get there when they get there. And the airline system gets a cost hit.
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Keeping an arriving 767 waiting for to be guided into the gate for just two minutes can add up to hundreds of dollars in waste. Getting it parked and those engines shut down stops the clock on a whole passel of cost factors. Yet how often does this happen, and there's little thought given.
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Departure and push out procedures that eat up an extra minute here or there represent millions in costs to a major carrier.
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Dynamic departure management can save millions, too. Blind focus on departure schedules instead of arrival schedules lose hubbing airlines millions each year. Kicking a flight out on time sounds great. But knowledge of the flight plan for each specific departure can sometimes allow a "late departure" that still gets the customer to the arrival gate on-time. If that "late departure" means not leaving late connecting passengers behind, that's money in the bank. Remember - passengers are paying to get someplace at the time promised.
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Dynamic flight management is something that airlines will need to get into, if they have any hope of cutting ATC costs. As Captain Michael Baiada of the ATH Group pointed out at our Annual Forecast Conference, airlines need to recognize that the time between gate departure and gate arrival is their "production" line, yet they essentially turn it over to the FAA - one of the most mis-managed entities in Washington - to direct and run it. As the ATH Group's programs have shown, airlines do have some ability to manage their own production lines over and above the ATC system. The result can be thousands of saved minutes each week. And lots of dollars not lost.

Most carriers will say that they have "task teams" or "continuous improvement programs" that already monitor these types of things, so all is well. Sure.

Consolidation Won't Alleviate Fuel Prices. It Won't Cut Capacity.
But It Will Make Wall Street Wealthy.

What needs to be said about major airline consolidation has already been said. It's trendy. It's supposed to be inevitable, and it's supposed to solve the industry's problems.

None of that's accurate, regardless of how many times it's repeated, or how many talking heads in the media keep saying it. But, money's to be made, so watch for the potential in 2008. One thing to keep in mind: the definition of "consolidation" - it means taking two or more things, combining them, and ending up with less.

But when the dust settles, there's no guarantee the industry will have less capacity, particularly in main traffic flows. A lot of folks on Wall Street have been led to believe that there's a set amount of capacity out there, and one merger will restrict other carriers from expanding to fill any void.

What is certain, however, is that there would be fewer connecting hub operations, and that means less service where capacity reductions aren't really needed and won't do much for improving the industry: small and mid-size communities.

We pretty much covered this in a November Hot Flash. The reality is that this is business. And business realities are not always consumer-friendly. Click here to review it.