Industry Problem



Pressure''s On
ARLINGTON ( - The cost pressures facing the nation’s two largest carriers -- American and United -- were portrayed starkly through separate media reports.
The Wall Street Journal on Sept. 9 dissected a single route on which United and low-fare rival JetBlue compete -- Washington Dulles to Oakland, Calif. While each flies an Airbus A320, with the same number of crewmembers, their operating costs are vastly different. It costs United $23,690 to operate one way, while the figure is $14,546 for JetBlue.
Michael Roach, an associate at Unisys Corp.’s R2A Transportation Consultants unit, calculated that United lost about $6,500 per flight for the second quarter, when it had a 75 percent load factor. By comparison, he said JetBlue’s lower costs allow it to be profitable. The Journal said United’s labor costs in the second quarter were 47 percent of revenue, compared with 25 percent for JetBlue.
Meanwhile, the CEO of American Airlines, the world''s biggest airline, said his carrier must cut as much as $3 billion in annual operating expenses to return to profitability and compete with low-cost rivals.
At a business conference Friday, Don Carty said travel demand through to the end of the year remains soft, although he declined to say whether that would lead to more layoffs. He said American will make more announcements on structural changes later this year.
Last month, American said it will eliminate 7,000 jobs, or 5.6 percent of its workforce, and retire its 74 Fokker 100 aircraft. The airline already has cut about 15,000 jobs since the terrorist attacks last September.
Carty said American increased its share of the U.S. domestic-travel market from 12 percent before deregulation to nearly 20 percent by beating other large network carriers. But, he said, the airline didn''t pay enough attention to competing with low-cost carriers such as Southwest Airlines.
“Our challenge now is to redefine our business model to not only deal with our old rivals, but to prepare our company for long term success in an environment where newer, lower-cost competition represents a much bigger slice of the marketplace, he said.