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Aug182008

« Begging ……. The Questions »

I don’t know about you, but the Air Transport Association’s prediction of a 6 percent slump in Labor Day travel caught me a little off guard. Sure I did expect a decline, but not on that order of magnitude. Demand is impacted by both price and service. Moreover, we will not begin to feel the reductions in service until after Labor Day. Is this a sign of things to come and why most of the US’s largest carriers are targeting capacity reductions in the 10-13 percent zip code?

If this is the case, can we as an industry not lose sight of some very fundamental and important issues during this slowdown as we have in the past?

1. Immediately after 9/11, somehow we all forgot that the nation’s air traffic system was a national embarrassment and remains so. What should be transparent in its role everyday was made a daily headline. When capacity was being reduced and demand slowed, there was an opportunity to continue work to address this fundamental issue. This is not about slot auctions and other band-aid approaches; it is high-time that we address what is fundamental to the efficiency of the nation’s commercial airline industry that impacts nearly every cost center. Embedded inefficiencies that burn more fuel can no longer be ignored - let alone tolerated.

2. Just because the price of oil has come down off of its July 11, 2008 high, does not mean that the network surgery planned for the fall and winter should become an elective surgery. Rather it is mandatory surgery that has been put off too long. I share Bill Greene’s [Morgan Stanley’s airline equity analyst] concern that the oil price drops will somehow cause some airlines to vacate the announced capacity reduction intentions.

3. The US airline industry has been forced to address multiple macroeconomic issues throughout its deregulated history. This time, can we put the customer at the top of the list and make air travel a value proposition again? It is not just about price and now is the time to demonstrate that fact and begin the process of affecting consumer attitudes and expectations – in the right direction. Simply, make them feel that they are getting more for more, not less for more.

4. In keeping with that theme, can we please recognize that the air travel experience begins and ends at an airport. We talk ad nauseum about airline alliances. Shouldn’t there be an unstated airline-airport alliance? If airlines are going to reduce service, then the service at the remaining airports should match the product that the airline(s) serving that airport market are trying to sell. It will increasingly be in the best interest of both the airline and the airport to make the customer experience the very best it can be otherwise accept the fact that the customer will access the air transportation system via the highway and fly another airline.

5. Whereas I understand the need to be judicious with cash and liquidity, non-existent non-aircraft capital expenditures by the US industry need to exist again. Honestly, if there was going to be foreign capital employed in any of the transactions being considered, it was my fervent hope that the capital would have been dedicated to upgrading the product. If the industry is to justify higher prices, then we really need to invest in the product. Sitting in a ratty airport holding area to board a flight with coke for sale and no movie to watch just does not seem to be the long-term solution.

As demand slows, it is a perfect time to assess the passenger experience from beginning to end. Different approaches and processes can be tried in a less-taxed environment. Airlines could even begin the process of differentiating their product from another. Maybe we could even begin to recognize the difference of services and amenities in a STAR alliance-dominated airport from a SkyTeam-dominated airport from a oneworld-dominated airport from a Southwest-dominated airport.

I do not pretend to have all of the answers because I do not. But I do believe in the adage that says where there are problems, there are opportunities. In the past, opportunities have been missed. This time, any opportunities missed may result in something significant being lost. No matter what we do, it all comes back to the fundamentals. The fundamental product this industry sells is the seat that carries an air travel consumer from A to B.

So, I guess I am begging that we address the fundamentals while facing the problems at hand - and there are many and my short list is not intended to be exhaustive. But, without customers there is no industry - or at least one that we can all be proud of.

Reader Comments (2)

This message is right on target. The TSA must be part of this question and resolution. Another question here begs an answer; what have airport authorities done with the PFC revenue? And the federal ticket tax revenue continues its steady stream into an account that quickly becomes an IOU, with those funds siphoned off to other federal budget priorities. The stalled FAA Reauthorization legislation does not provide a cure for these problems. Bill, I'd like your analysis on these issues.

Thank you.

08.19.2008 | Unregistered CommenterAnonymous

Given that I have been struggling for topics to write on, I am appreciative of your suggestion. I will make this a stand-alone piece.

08.19.2008 | Unregistered CommenterSwelbar

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