Airlines hope to raise fares and hold the line on capacity, expanding only in key markets mostly in the international arena, airline executives told analysts and investors last week at the Hudson Securities Airline Conference.
Hudson Securities airline analyst Dan McKenzie set the tone regarding airfares, questioning the executives about their inability to raise prices, especially given the continued rise in fuel prices in recent months.
"Fares are not what they should be," McKenzie said, adding that airline attempts to boost fares have not been effective. In recent months, only one was successful, "despite repeated attempts," he said.
US Airways President Scott Kirby agreed and noted that airfare increases had lagged behind hotel price increases in recent months.
"Airlines have underperformed on revenue to date," he said. "We haven’t seen the fare increases we should have. We’ll see more fare increases in 2011."
Kirby acknowledged airlines have attempted to increase fares with little success. "It’s not as though airlines haven’t tried to raise fares," he said, adding that "it’s an execution issue. Airlines do a bad job of managing pricing."
But not every airline is as concerned about boosting fares.
"Customers want low fares," Alaska Airlines CEO Bill Ayer said, "and carriers that control costs and offer low fares are going to be successful."
JetBlue CFO Ed Barnes acknowledged the airline had sacrificed pricing to fill planes.
"We had to chase load factor at the expense of yield," Barnes said.
Other airlines, though, say load factors have been of little concern lately as demand has been high and they’ve been able to keep a lid on capacity.
Wall Street analysts predict capacity to increase by a mere 2% to 3% for the coming year. Airlines plan to concentrate their capacity growth in key domestic hub markets and international routes, especially in Asia.
American, for example, is focusing on boosting domestic service at Dallas-Fort Worth, Chicago, New York, Miami and Los Angeles.
Miami’s main importance, American CFO Bella Goren added, is the access it provides for Latin America.
"We expect to see the biggest changes in LAX," Goren said. "That’s the most important gateway for Asia."
American expects to grow its international capacity by about 7%.
United, which is integrating the Continental network, also wants to grow in the Pacific, Africa and Latin America, CFO Zane Rowe said.
The carrier said its domestic capacity would essentially be flat in the coming year, while international capacity should grow 3% to 4%.
United CEO Jeff Smisek told analysts and investors, "Latin America is an area we’re keenly interested in. We want a joint venture in Latin America."
Delta CFO Hank Halter told analysts the airline has restructured its network to increase stage lengths, to develop a better domestic feeder system for its transatlantic and transpacific service.
Halter said the biggest recent growth areas have been in the Pacific and Latin America.
The Latin American markets and the Caribbean have also boosted business for JetBlue, CFO Barnes said.
Many of the passengers for Latin America have been visiting friends and relatives, Barnes said. "We have been backfilling markets left by other carriers," he said.
Executives for all of the airlines agreed they must stay disciplined when it comes to capacity — adding aircraft, seats or frequencies only in markets where there is a demand — instead of simply trying to take market share.
"We’re growing not just to grow," American’s Goren said. "We’re seizing opportunities."
Alaska applied that kind of "opportunistic flying" as it ramped up its Hawaii service, Ayer said, by avoiding Honolulu, which is already flush with competitors’ aircraft.
"We fly nonstop to other islands, bypassing Honolulu," he said.
The best opportunity is not only the right market, airline executives said, but the right kind of passenger.
"We are focused on business traffic," United’s Smisek said. "Business travelers sign our paychecks."