State of the Airline Industry

[wnbubbleboy]

Q: Can you name a specific airline that really has gotten its act together and is making money and serving passengers well?


A: Oh yeah. We have to distinguish between good airlines and good investments. Most of these airlines are very poor investments, including JetBlue and Southwest, the airlines that do provide high-value service, so that people are generally happy. JetBlue was recently ranked No. 1 in customer service by a couple rating services and Southwest has always been near or at the top in customer service. These are great quality airlines that provide reasonably priced transportation and they do it in a very good way.

Now if you look at JetBlue from an investment perspective, it's been a negative rate of return if you are a shareholder, when the broader market has been up 59 percent over the last five years. So it's a lousy investment but a great airline to fly. Eventually that catches up to even the best airlines. JetBlue has been forced to reduce their growth rate from 30 percent a year and half ago to 20, to 18 to 15 and now they are down to 12 percent. We recently did a pretty robust study on all the North American airlines. We took a close look at JetBlue and Southwest and JetBlue will more than likely have to pull in even more growth if they want to get their share price up.


Q: Is privatizing the Air Traffic Control system an important idea?

A: I think it's an important idea. If you look at the productivity increases in the U.S. airline industry, the average network airline has improved productivity from 20 to 35 percent. Even Southwest has improved productivity 20 percent. They went from 85 people per aircraft to a recent 67. United has gone from 160 people per aircraft down to 115 -- about a 28 percent improvement in productivity.

Now if you look at the Air Traffic Control system, 90 percent of the cost of the system is labor, and guess what? There's been zero improved productivity over the last decade. They have outdated systems that need to be replaced. It'll take tens of billions to modernize the ATC system and that's part of the problem.










http://www.pittsburghlive.com/x/pittsburgh...d/s_513952.html

 

[BoeingBoy]

the average network airline has improved productivity from 20 to 35 percent.

Not to disagree with the general theme of the article, but the productivity gains of the network carriers can be somewhat misleading because of the big increase in outsourcing that has occurred since 911. Outsourced reservation centers, maintenance, catering, etc, are responsible for a significant part of the productivity increase.

Jim