The segment of the industry that has lost the most ground since
Sept. 11 is the airline sector. Despite an infusion of cash and
secured loans from the government, the major carriers seem closer
to the brink than ever. Why are they in trouble? Can they be
saved?
Adam Aron: Ten years from now, it could be that
the structural changes in the U.S. airline industry are the biggest
changes that occurred because of 9/11.
US Airways has declared bankruptcy. United has threatened to
match. It is certainly getting more difficult and more
hassle-filled, and I don't see anything on the horizon that makes
me think it's going to get more pleasant and easier to fly. And
we're just in the early phases of the Transportation Security
Administration trying to figure out how we're going to travel.
Half my career was in the airline industry, and even 10 years
ago, there were two aggressive camps that fought with each
other.
One was the service camp and one was the cost-containment camp.
And the cost-containment camp would point to guys like Southwest
and say: strip service and cut price. And the pro-service camp
would focus on airlines like British Airways, Japan Airlines,
Singapore Airlines and say the way to profitability is to serve the
customer well. In hard economic times those two competing forces
are more at war with each other than at any other time.
You can't be oblivious to cost, but you also can't be oblivious
to customer needs. Making sure the customer is excited about having
purchased your product is a very important part of the mission.
We have to make it a joy for people to travel. We have to make
them want to travel over and over and over again.
Richard Copland: The reason we've had such
difficulties in the travel industry is because two external forces
have been allowed to operate out of the marketplace: the airlines
and the U.S. government. They are so screwed up and so uncertain of
what they're going to do tomorrow.
Rolf Hoehn: Sept. 11 certainly was a
cataclysmic event. But as far as the airline industry is concerned,
the evidence was already there that the industry was in trouble
because of the downturn in the economy.
In our case, we had started in early 2001 to downsize, to reduce
capacity, and we were actually just in the process of deciding how
much more to decrease. Sept. 11 was certainly a catalyst for
accelerating a lot of those structural changes.
A lot of people say, yeah, the airlines can only blame
themselves because they didn't put enough planes on the ground.
There's more to the story.
It may seem that some airlines didn't pull down their capacity
fast enough, but remember the structural issues that the airlines
were dealing with.
There were legal and union issues, and the more you thin out
your hub, the more you're endangering your overall operation.
[Reducing capacity] has an impact on something as basic as our
yield management and revenue management systems.
I think there is something to be said also for looking at
whether the government is dealing with the antitrust issues
correctly, vis-a-vis the airline industry.
It's questionable because of the problems that the regulatory
authorities put in the way of the airlines trying to survive.
The biggest challenge is the issue of customer service and the
TSA. The hassle factor is so huge right now, and it affects the
airlines in the most important segments, namely the high-value
segment. The frequent traveler who is understandably upset about
the fact that the government can't get its act together and provide
a predictable environment, that's really the biggest problem.
The TSA has not, to this point, been very responsive to sitting
down with the airlines to talk about these issues. They are so
focused on trying to hire people and trying to get an extension on
the deadline of the implementation of programs.
Hal Rosenbluth: What the public doesn't want is
confusion. They don't want uncertainty, and today there's an awful
lot of that. So the carriers that need to go bankrupt -- go!
Because that will remove uncertainty.
There is going to be a rerationalization of the industry. We are
heading toward a de facto oligopoly in the airline industry, which
is not necessarily bad.
Common wisdom would say that, if we go to a de facto
three-carrier system within the U.S. -- for argument's sake, US
Airways, United and America West as one grouping, then Delta,
Northwest and Continental in another grouping, then American and
I'm not sure who -- this will be in the best interests of what I
think we all want, which is a profitable, realistic system that is
enjoyable to fly.
I think airlines recognize that there needs to be an improvement
in passenger service, but they are so focused right now on the
fundamentals and getting them right.
You cannot make investments in the passenger experience in a
bankrupt industry. There needs to be a return to profitability.
I think that the government, in a weird way, will allow for this
de facto oligopoly -- the same number of carriers, but maybe some
cross-equity, or at least revenue-sharing as a result of code
sharing.
Through bankruptcies, fleet rationalization, some necessary
revenue remodeling will be the beginning of cost rationalization.
We're going to move to a better day.
For additional coverage, see:
• Travel execs see industry at a crossroads
• Post-Sept.11, a new norm is taking shape
• Travel industry shows signs of resilience
• Yields pay price for heavy discounting
• Turbulent times force Europe to shift focus
• TW agent poll: Better times are coming