Prognosis Of Aviation Industry

[speedbird86]

Daughter is in business school and preparing a report on the state of the commercial aviation. In addition to my two cents worth, I suggested we get some knowledgable and experienced opinions. What do you think will happen within this industry. Will one or two companies have to go under for the rest to survive? If they do, what economic impact might it have short and long term. If LCC's are going to be the price setters, will those cost trickle over seas to international carriers.
Also, politically speaking, what does government need to do if anything?

Please fill free to elaborate on your opinions with as much detail as possible. Hope to quote some useful opinions.

Thank You.

 

[mweiss]

Don't know if I qualify as knowledgeable or experienced...depends on your perspective. Nonetheless, I'm happy to help.

I think we'll see at least one legacy airline failure soon. In part, I say this because every past down economic cycle since deregulation has resulted in at least one legacy carrier ceasing operations. When it happened in the past, there was enough of a lag in capacity replacement to hold the industry until the next economic boom.

This time is a bit different, however. LCCs have a credibility with the public that they haven't had before, aside from a brief period of time in the mid-80s. This group seems to have more staying power than their mid-80s counterparts. The net result could be a permanent change in the industry. This has been suggested in past cycles as well, but I sense more credibility this time.

Regardless, we're seeing the legacy carriers attempt for the first time some wholesale rearchitecture of their business models. Efficiency, reducing unit costs, is becoming more important than maximizing revenue. Clearly, the LCCs are having an impact here.

Long term, the industry can go one of two ways. One path is true commoditization, where all airlines are truly identical in their offerings, and margins are driven to razor-thin levels. This would be, in my opinion, a real tragedy.

The other path is differentiation, where different airlines cater to different demographics, and price accordingly. People would have several choices, all of which would have different margins reflecting their different service levels. In no case, however, would we see the sorts of margins of the 70-cent-per-mile fares we saw in 1999. This would be, in my opinion, the success that we've been awaiting since 1978.

As for politics, I'd be happy if the government got out of the way in most areas. The RLA hasn't helped at all. I do believe in use taxes to pay for the infrastructure (all of that government money going into ATC, security, better maintenance inspections, and subsidizing airport expansions), but that should be the end of it.

Hope you find that to be useful.

 

[gdpflyer]

Don't know if I qualify as knowledgeable or experienced...depends on your perspective. Nonetheless, I'm happy to help.

I think we'll see at least one legacy airline failure soon. In part, I say this because every past down economic cycle since deregulation has resulted in at least one legacy carrier ceasing operations. When it happened in the past, there was enough of a lag in capacity replacement to hold the industry until the next economic boom.

This time is a bit different, however. LCCs have a credibility with the public that they haven't had before, aside from a brief period of time in the mid-80s. This group seems to have more staying power than their mid-80s counterparts. The net result could be a permanent change in the industry. This has been suggested in past cycles as well, but I sense more credibility this time.

Regardless, we're seeing the legacy carriers attempt for the first time some wholesale rearchitecture of their business models. Efficiency, reducing unit costs, is becoming more important than maximizing revenue. Clearly, the LCCs are having an impact here.

Long term, the industry can go one of two ways. One path is true commoditization, where all airlines are truly identical in their offerings, and margins are driven to razor-thin levels. This would be, in my opinion, a real tragedy.

The other path is differentiation, where different airlines cater to different demographics, and price accordingly. People would have several choices, all of which would have different margins reflecting their different service levels. In no case, however, would we see the sorts of margins of the 70-cent-per-mile fares we saw in 1999. This would be, in my opinion, the success that we've been awaiting since 1978.

As for politics, I'd be happy if the government got out of the way in most areas. The RLA hasn't helped at all. I do believe in use taxes to pay for the infrastructure (all of that government money going into ATC, security, better maintenance inspections, and subsidizing airport expansions), but that should be the end of it.

Hope you find that to be useful.

[post="245762"][/post]​

[/quote

the writer above has valid points. so i will try to a add to his.
i am not a so called expert. however i am an ex-employee of an recently "departed" airline, so i have been there, done that.
prior to our final demise our company was running better than ever. best in DOT
"on-time" sesults month after month, (do they still keep track of that?), customer serviceawards and so on. too little, too late......the balance sheet was destroyed, the route network was limited and one day at 6AM i found out from a TV report that we were gone.
at the moment USAir is following the exact path we did. personally i do not see
how they will last all of 2005.
United, on the other hand, reminds me of eastern. their mechanics seem
determined to stand their ground against the management and the judge.
if they actually call a strike then it will just take weeks, if not days, for united
to disappear. otherwise they will just wait for their cash to run out. either way
they will be gone by year's end also.
the others will scramble to pick up the pieces: mainly hard to come by gates
(LGA, JFK, LAX) and routes (london, tokyo).
longer term the upheaval will go on. jet blue and southwest will keep expanding
at a relentless pace, taking more and more market share from the
legasy carriers. in turn the legasy carriers will rely more and more on their
international routes, but their problems will not stop, by any means.
it is possible that at some point jetblue and southwest will decide to
"go international".
if/when that happens it will be a new chapter in the history of aviation.
the previous writer states that the LCC's are now stronger than in past
upheavals. i like to mention another factor: the price of oil. in the past the price of oil would go up and then come down, or even crash. it seems that we have
entered a new era of expensive oil that will stay expensive . so the two factors,
strong competition and expensive oil, will move events at a much faster pace than in the past.
as a final thought and speaking from experience......do not get a job in
the airline industry, if you can help it. (well, southwest maybe, jetblue certanly not).

 

[Fly]

United, on the other hand, reminds me of eastern. their mechanics seem
determined to stand their ground against the management and the judge.
if they actually call a strike then it will just take weeks, if not days, for united
to disappear. otherwise they will just wait for their cash to run out. either way
they will be gone by year's end also.

[post="245807"][/post]​

I don't agree because the judge has given United a temporary reprieve. I believe that United is probably stocking up on replacements as we speak. (there are many fine furloughees out there) I'm in the opinion that the mechanics won't be given a chance to walk, United will lock them out. I don't see it being played out any other way.

 

[Bob Owens]

I don't agree because the judge has given United a temporary reprieve. I believe that United is probably stocking up on replacements as we speak. (there are many fine furloughees out there) I'm in the opinion that the mechanics won't be given a chance to walk, United will lock them out. I don't see it being played out any other way.

[post="245822"][/post]​

EAL locked the mechanics out also.

They took in as many replacements as they could get.

At the time the package they were offering scabs was better than what UAL is offering their mechanics.

People will not be flocking to UAL for mechanics jobs.

You say there are a lot of laid off mechanics, but how many of them are actually out of work?

I've been laid off before but I was always able to sell my skills somewhere else.

If UAL locks out their mechanics or they go on strike UAL will die. Perhaps not right away but within a year or two. No matter how much the pilots cooperate in order to keep flying these things the fact is they do break, as Peoples Express (Peoples Distress) found out, and once they have the reputation that they are not dependable people will, whenever possible, go elsewhere with their business.

I've seen those on here who claim that people only fly by price, however I've seen where that is not the case.

Sevveral years ago my parents saw an ad in an Irish paper for cheap airfare to Ireland. The down side was they hgad to fly to Belfast instead of Dublin. A small inconvience. However on the way back the plane had a mechanical. They had to wait for the aircraft to get fixed then wait for another crew to be flown in to fly the plane back. The plane was a cramped 757.

They have flown Aer Lingus ever since, no matter what the price.

The moral, you get what you pay for. UAL wants cheap mechanics, they will get what they are paying for.

 

[Fly]

So how do you explain all the outsourcing over at JetBlue?

 

[mrfish3726]

Fly says "I don't agree because the judge has given United a temporary reprieve. I believe that United is probably stocking up on replacements as we speak. (there are many fine furloughees out there) I'm in the opinion that the mechanics won't be given a chance to walk, United will lock them out. I don't see it being played out any other way."

So FLY condons the use of SCABS to keep UniTED running? Wonder fi she would have the same opinion if it was the AFA that was not negotiating with UniTED management?

I agree with BO! If the mechanics walk, any disruption right now in UniTED's operation resulting in the cancellation and the loss of passenger revenue will be a DEATH SENTENCE for UniTED. And Fly as BO pointed out I don't think that many of the furloughed mechanics would be real willing to cross that picket line. And again as BO pointed out, most furloughed mechanics have already found employment else were.

 

[RDU Jetblast]

To answer the young lady's questions: The prognosis for commercial aviation is: Severe bleeding (cash) due to massive debt load, fuel price, and increasing costs of doing business requiring several transfusions.

Airlines are trying to stabilize by generating revenue from ticket sales (which is hard because of competition), by reducing costs, restructuring debt, reducing payroll. Anything to get the bottom line in the black.

Will carriers fail? Probably. No business can operate at a loss forever. Their failure would be a relief to surviving airlines because they can have a bigger slice of the pie. The short term effect will be a few weeks of turmoil until other carriers can take over the failed carriers' routes and the long term effect will be that some of the remaining carriers will become stronger but only if they stem the bleeding. You can receive transfusions all day long but if you don't plug the holes, you will eventually bleed to death.

Checking out fares online, most last minute fares(business fares) are the same across the board. LCC's have better structured debt load and business practices which is why they seem to make a profit when legacy airlines don't. Some even have alower payroll but not all.

The next big challenge for the airline will be the internet. You can now videoconference, conduct meetings around the globe and be home in time for dinner. Face time used to be valuable for old timers but businesses are being run by younger folks who are much more savvy.