Major Change Foreseen In Air Travel

Doc

Veteran
Jul 15, 2003
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www.usaviation.com
ASHVILLE, Oct. 6 - "There are fewer people flying, and they're paying less per person," and that trend is here to stay, Michael J. Boyd, an aviation consultant, told an industry conference on Monday.

In case the significance of that simple statement did not quite register on the roomful of industry representatives gathered for the Aviation Forecast Conference, Mr. Boyd put it another way.

For a domestic air transportation system facing that reality, he said, the changes would be on the magnitude of the shifts from "analog to digital; from the buggy whip to the transistor." The conference was sponsored by Mr. Boyd's company, the Boyd Group of Colorado.

Among the changes coming as the airlines adapt to a new world environment, Mr. Boyd and other industry experts said, are these:

¶ A sharply accelerating decline in air service to rural, small and even some medium-sized airports, as major airlines abandon them to consolidate market strength in their best-performing hubs and scale back operations at some secondary hubs, like St. Louis.

¶ Far less passenger growth, even without a new terrorist incident, than forecast by the Federal Aviation Administration and other government agencies. Total domestic passenger traffic will not match 2000 levels of about 694 million annual passengers until 2008, says the Boyd forecast, which is to be released on Tuesday.

¶ A permanent change in the way business travelers plan most trips, to take advantage of low fares originally tailored to lure leisure travelers. "The business traveler has taken a powder" from dependence on the top-level walk-up fares that once supported the finances of major airlines, Mr. Boyd said, and airline executives who think the old fare structures will come back are deluding themselves.

¶ A continuing virtual consolidation of major airlines through the growth of code-share alliances, which permit one airline to book its passengers on a competing airline to expand the reach of its routes. Mr. Boyd said these alliances reflect a strategy of "competitive cooperation." Another speaker, Jamie Baker, an aviation analyst with J. P. Morgan who is bullish on major airline stocks, described the alliances as a "near merger strategy" that would help airlines financially while hastening the decline of weaker hubs.

¶ The likelihood of continuing fare wars on popular regional and transcontinental business-travel routes where big network airlines are desperately trying to fend off what Mr. Boyd called aggressive "cherry-picking" by rapidly growing low-fare airlines like Southwest, JetBlue, Air Tran and Frontier. The customer appeal of low-fare airlines has grown so strong that low-fare competition can be devastating to a major airline operating at an airport as much as 200 miles away, Mr. Boyd said. Some customers will drive "three hours or more to get a lower fare," he said.

¶ Sharp growth in once-sleepy airports near major cities. Passenger traffic at the airport in Long Beach, Calif., near Los Angeles, is expected to increase fivefold by 2008 over the 312,000 passengers handled in 2000, Mr. Boyd said. During that same period, the second-most-rapidly growing domestic airport will be the one in Flint, Mich., where passenger traffic is expected to rise 84 percent.

¶A flattening in the recent heavy demand for small regional jets of 51 seats or fewer, in favor of bigger airplanes, including more cost-efficient regional jets with 100 or more seats. Consumer demand for more comfort on regional jets, including the addition of jetways, is partly driving that trend.

¶ A looming shakeout among small regional airlines, as they abandon unprofitable point-to-point service and evolve into companies competing with one another to provide regional jet service as subcontractors for big airlines.

¶ In general, a growing demand for better customer service from low-cost airlines and major network companies alike, but with a persistent resistance to higher fares and, for the industry, a long-term disappearance of about 20 percent of the overall revenue seen before Sept. 11, 2001.

During a morning question and answer session, Mr. Baker, the J. P. Morgan analyst, said he was amazed that the managers of network airlines "by and large are not doing nearly enough to combat" the ever-growing competitive threat they face from rapidly expanding low-fare competitors, or to "take a leadership role" in making fundamental changes in fare structures.

By 2006, he said, at least 40 percent of commercial domestic aircraft taking off "are going to have Southwest, JetBlue, Air Tran or some other discount name painted on their side."

Meanwhile, the low-fare airlines will continue to muscle in wherever they see an opportunity, rejiggering fare structures and driving their old-line competitors into matching their much lower prices on a route-by-route basis.

"In three weeks, the walk-up fare between Newark and San Francisco is going to go from $1,230 to no more than $450 on Continental," Mr. Boyd said. Why? Because Air Tran, a low-fare airline, is entering that market, he said.
 
Light Years said:
What a genius. Most of this stuff is already happening.
I have to agree with you. Stating the obvious.

C'mon Mike, tell us something we don't yet know. Like:

* One or more majors will fold within the next 2 to 4 years.

* One or more regional airlines (i.e., Mesa) will successfully transform into a full service carrier.

* FAA will relax regional rules to re-allow 19 seaters to operate under the Part 135 standard.

* U.S. DOT ownership rules will be relaxed to permit greater foreign ownership of U.S. carriers.
 
Itrade,

Why would Mesa evolve into a full-service carrier if it's successful as is? It seems the trend is toward fewer amenities and lower fares. What would prompt them to change?

Dea
 
One thing should be obvious...there's one carrier out there that is uniquely vulnerable to the trends described in Boyd's report.
 

I was checking fares in SABRE today for travel in November and I saw some trends that I think are going to help US and the other full service carriers in the near term. Believe it or not, fares are starting to go up again. One month ago US Airways and many other carriers were offering fares of $158.00/RT PIT-LAS and PIT-LAX. The lowest fare for November has climbed to $129/OW. Another trend I noticed is that US Airways is finally starting to rationalize fares in some low yield, high traffic markets where low cost carriers are operating. In these markets, we now have 8 fares, all one-way, and with no Saturday night stay requirement. In some of these markets, our 7 day advance fare is LESS than WN and B6. This shows that WN and B6 are also increasing their fares. Hopefully, we will rationalize the fares in all of our markets, and start competing with LCC's on their own turf. We still haven't found a way to cap the top end of fares at $299/OW anywhere in the US, but in some markets we're holding the line at under $600/OW. Pricing is finally doing something positive.
 
SpinDoc,

That's great news! Our customers have been complaining about the insane fare structures for so long. I hope the powers that be are finally listening.

:up:

Dea