⌐ AV8OR WANNABE

Industry must play high-stakes 'Survivor'

by Dawn Gilbertson - Jul. 13, 2008 12:00 AM
The Arizona Republic

When America West and US Airways merged three years ago, there was fretting aplenty over rising oil prices.
Crude oil had jumped from a then-pricey $50 a barrel to north of $60 in the few months it took the deal to close, and the Tempe airline's management was peppered with questions about how it would handle the spike. With oil prices now topping $140 a barrel, the fretting has turned to franticness - about US Airways and the entire industry.

U.S. airlines are forecast to spend an extra $20 billion on fuel alone this year over last at current levels, with US Airways' part of the tab about $2 billion. The industry is projected to lose between $7 billion and $13 billion this year.

In an unprecedented fight to survive or at least stay out of bankruptcy, carriers are slashing the number of flights and employees, raising fares and charging for a slew of previously free services.
Their moves have broad ramifications for travelers, the economy, airports, communities and others, ramifications that won't truly hit home until this fall when the flight cutbacks start in earnest and fares are expected to spike.
"The game has changed, and we have to respond accordingly," US Airways Chairman and CEO Doug Parker said in an interview last week. Parker said triple-digit prices for oil have fundamentally changed the dynamics of the business.

The crisis is worse than the financial fallout from the Sept. 11 terrorist attacks because the latter, while initially more damaging, was relatively short-lived. "This one's more severe because there's no indication it's going to get better," Parker said. Things are so bad reports from Wall Street routinely bring up the b-word: bankruptcy.

Last week, one major investment bank held an "airline bankruptcy" conference call for investors featuring a couple of turnaround experts.
Last month, another investment bank polled investors to rate the probability of bankruptcy filings by individual carriers. They were most pessimistic about US Airways and AirTran Airways, with 60 percent of the respondents in the non-scientific poll putting a greater than 50 percent chance that US Airways could file next year.

It is the smallest of the six big hub-and-spoke airlines and is seen as having fewer options to raise cash. (The airline believes it is relatively well-positioned to weather sky-high fuel prices.)
The industry's trade group, the Air Transport Association, has put other major issues on the back burner to focus on the fuel crisis. They are, for example, asking for an investigation into the role speculators are playing in the oil-price run-up and are lobbying Congress for changes in the country's energy policy. There is a "fuel watch" section on the ATA Web site.

"There's an industry issue now which is overwhelming all of us," Parker told US Airways shareholders at the airline's annual meeting last month.
To dig out of the hole caused by skyrocketing fuel prices, airlines are shrinking considerably. The industry overall is expected to reduce seat capacity by an unprecedented 10 percent in the fourth quarter and again in 2009.
They are eliminating service to some cities and cutting frequency on other routes. Small cities are likely to bear the brunt, with many losing their limited number of flights.

In Phoenix, US Airways plans to shrink its seat capacity by 11 percent beginning in early September. That is not as large as the cuts at its Las Vegas hub but smaller than its other hubs. Southwest, which together with US Airways carries more than 3 out of 4 passengers at Sky Harbor International Airport, is also trimming flights, though modestly.
Airlines' unapologetic goal: to sharply increase fares. US Airways says it needs to collect $700 per passenger on average to break even with fuel prices where they are. About $300 of that total is for fuel, it says. The current average fare per passenger is in the $400 range.
Parker said the airline doesn't need to raise every fare by $300 to close the gap but said consumers should expect ticket prices to be at least 10 percent higher when the flight cutbacks kick in.

That will be this fall, as airlines are keeping their regular schedules during the busy summer vacation season.
"The real impact to the consumer has yet to be felt," Parker concedes.
It is conceivable airline travel will become a luxury as airfares surge. The weak economy won't help the situation.
Parker hinted at the changing picture in a memo to employees last week with details about looming layoffs at US Airways.

He urged them to work harder than ever to run a good airline to "ensure the people who continue to fly during this economically challenging time choose US Airways and come back to us whenever possible."
The trickle-down from sharply higher airfares could have significant implications for the economy.
In Arizona and other tourism-dependent economies like Las Vegas and Hawaii, the number of vacationers and conventioneers will likely fall.
"I don't think people realize how traumatic it's going to be for the economy," said Scott Kirby, president of US Airways.


Dawn Gilbertson covers US Airways and the airline industry for The Republic.

DYNASTY HVY

"I don't think people realize how traumatic it's going to be for the economy," said Scott Kirby, president of US Airways.
I,m sure we will find out soon enough
So from what I gather ppl have been so used to low airfares that they balk at higher fares?
God what a mess .Ok so how are these carriers deciding what fares to charge or are they throwing uot numbers and seeing what sticks?





Thank goodness for boxes.

FORTL

Amen brother.
The product was cheapened and bottom lined rather than maintained and sold as better than XYZ LLCs' product. The marketing worked. Too bad long term operations weren't a bigger part of the equation.