United Recovery Is Huge
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Airlines cutting costs, adjusting to a new reality
Liz Fedor, Star Tribune
Published December 30, 2003 GEOR30
George Wozniak, president of Minneapolis-based Hobbit Travel, has seen airlines come and go during his 24 years in the travel business. In a recent interview, Wozniak assessed what has occurred in the volatile airline industry in 2003 and took a look ahead to 2004.
Wozniak describes Hobbit as the Target of travel agencies, because he emphasizes high quality and low prices. Leisure travelers generate about 85 percent of its business. Hobbit, which employs 280 people, buys tickets in bulk from several airlines, which allows it to pass savings along to consumers.
Wozniak also serves as president of Trilogy Tours, a 60-employee company that is a wholesaler that puts travel packages together for Hobbit and other travel agencies. Wozniak is an investor in Sun Country Airlines, a low-fare carrier based in Mendota Heights.
George WozniakTom SweeneyStar TribuneHere is an edited version of the conversation with Wozniak:
Q The U.S. airline industry has run up substantial losses for three years in a row. Do you think the major carriers will see much recovery in 2004?
A "Yes. United has absolutely been amazing in their recovery." Chicago-based United Airlines filed for bankruptcy protection in December 2002. Wozniak said he's been impressed by the heavy passenger loads on United flights in recent months.
"We have to wait and see on Ted, where they deploy that," Wozniak said, referring to the new low-fare airline that United is launching.
"I think US Air is probably not long for this world unless some absolutely incredible things happen." US Airways has emerged from bankruptcy, but it continues to face serious financial challenges. A few weeks ago, the pilots union called for the removal of the US Airways CEO David Siegel.
"American Airlines will be a company that's going to be around," Wozniak said. American made substantial cutbacks this year to avoid filing for bankruptcy.
"What I've learned in the last 25 years of the airline industry is that it's a very resilient industry. They do a lot of things that they have to to kind of ride the roller coaster," Wozniak said."Delta [Air Lines] is pretty strong," he said. "They still have a lot of work in that whole cost area with employees. But they are going to get that figured out, too." Delta is negotiating with its pilots about pay cuts. "They are coming out with [low-fare carrier] Song to show their teeth in that low-cost market."
Eagan-based Northwest Airlines and Continental Airlines have not chosen to start low-fare carriers. Wozniak said the two airlines have "done a terrific job of staying within the framework of what the carriers are." Wozniak argues that the pay cuts that American and United made with their workforces will have a ripple effect at other airlines, including Northwest.
Q Why has it taken so long for the major carriers to rebound from 9/11? What are the major obstacles standing in the way of regaining profitability?
A "For sure labor costs, they had to get those in line. But also remember what the airlines were doing in the late 1990s, probably from 1996 through 2000. The economy was pretty good. Businesses were willing to pay very high fares for [flight] frequency and for having a multitude of nonstop service in relatively big-sized airplanes. The airlines rode the wave."
Before the 2001 terrorist attacks, Wozniak said there was a race for market share that resulted in excess flight capacity being built into the industry. "It took a huge event like 9/11 to have everybody go: 'Wait a minute, let's take a long look at this. If the market calls for a 100-passenger plane, we've got to tell our pilots we can't fly 737-800s anymore.' What the airlines are really doing right now is they are fitting airplanes to the capacity of the destinations."
Q Low-fare carriers have been gaining market share and now serve about 25 percent of the U.S. domestic market. What is spurring so much growth in the low-fare industry?
A "The last couple of years has been tremendous for low-fare carriers because the majors have been on their heels just taking care of their own houses."
While the economy was weak, business travelers also became more sensitive to the price of travel on major carriers. "They are getting their fair share of suits-and-ties on a lot of these low-fare carriers."
Q This month, we saw Frontier Airlines announce that it will add two daily nonstop flights between Minneapolis and Los Angeles. Northwest responded immediately by adding two flights to L.A. from the Twin Cities as well as a new route between Frontier's Denver hub and Los Angeles. How do you think the competition for the L.A. consumer will play out?
A "It's a good deal for the consumer, because you've got the red tail [Northwest Airlines] in it. Frontier will drive the price down, because it's the only way they're going to fill their seats. They are totally reliant on the originating and departing traffic out of the Twin Cities. They can't feed it from anywhere because they don't have any planes flying from the East into this market."
"The only way Frontier can do it is to have better business fares, because they'll go after that market and that will be a good deal for the business traveler. They have to have better leisure fares to attract the people.
"The better news is that Northwest matches [the low fares], which they will every step of the way. Northwest added two flights out of here at the identical times that Frontier plans to fly. "Northwest is going to be here tomorrow, and they are going to have the nonstops tomorrow," Wozniak said. If intense competition from Northwest forces Frontier to terminate its nonstop flights, he said, "They will take everybody that they have and put them on their Minneapolis to Denver and Denver to L.A. flights."
Q If people can earn frequent-flier miles on Northwest and get cheap fares, what is the incentive to book on Frontier?
A "Northwest has a huge advantage with their frequent-flier program and they have a huge advantage with their [flight] frequency. Let's face it, Frontier is going to have two flights a day to L.A., Northwest is going to have eight [or nine] and you can mix and match them."
Safety, ticket prices and clean and comfortable aircraft are much higher priorities for consumers than flying on a particular brand of airline, Wozniak said. "You hate to put airline seats on a commodity basis, but they are as close to that as you can possibly get."
Q What do you think was the most significant development in the airline industry during 2003?
A "United is in business. That's huge." If United had been liquidated, "the [flight] capacity loss would have been huge. We'd still be catching up." Consumers would have been forced to pay higher fares for the seats on the market flown by the surviving carriers, he said. "The fact that United made it was more significant than any of us will ever know."
Liz Fedor is at lfedor@startribune.com.
Liz Fedor, Star Tribune
Published December 30, 2003 GEOR30
George Wozniak, president of Minneapolis-based Hobbit Travel, has seen airlines come and go during his 24 years in the travel business. In a recent interview, Wozniak assessed what has occurred in the volatile airline industry in 2003 and took a look ahead to 2004.
Wozniak describes Hobbit as the Target of travel agencies, because he emphasizes high quality and low prices. Leisure travelers generate about 85 percent of its business. Hobbit, which employs 280 people, buys tickets in bulk from several airlines, which allows it to pass savings along to consumers.
Wozniak also serves as president of Trilogy Tours, a 60-employee company that is a wholesaler that puts travel packages together for Hobbit and other travel agencies. Wozniak is an investor in Sun Country Airlines, a low-fare carrier based in Mendota Heights.
George WozniakTom SweeneyStar TribuneHere is an edited version of the conversation with Wozniak:
Q The U.S. airline industry has run up substantial losses for three years in a row. Do you think the major carriers will see much recovery in 2004?
A "Yes. United has absolutely been amazing in their recovery." Chicago-based United Airlines filed for bankruptcy protection in December 2002. Wozniak said he's been impressed by the heavy passenger loads on United flights in recent months.
"We have to wait and see on Ted, where they deploy that," Wozniak said, referring to the new low-fare airline that United is launching.
"I think US Air is probably not long for this world unless some absolutely incredible things happen." US Airways has emerged from bankruptcy, but it continues to face serious financial challenges. A few weeks ago, the pilots union called for the removal of the US Airways CEO David Siegel.
"American Airlines will be a company that's going to be around," Wozniak said. American made substantial cutbacks this year to avoid filing for bankruptcy.
"What I've learned in the last 25 years of the airline industry is that it's a very resilient industry. They do a lot of things that they have to to kind of ride the roller coaster," Wozniak said."Delta [Air Lines] is pretty strong," he said. "They still have a lot of work in that whole cost area with employees. But they are going to get that figured out, too." Delta is negotiating with its pilots about pay cuts. "They are coming out with [low-fare carrier] Song to show their teeth in that low-cost market."
Eagan-based Northwest Airlines and Continental Airlines have not chosen to start low-fare carriers. Wozniak said the two airlines have "done a terrific job of staying within the framework of what the carriers are." Wozniak argues that the pay cuts that American and United made with their workforces will have a ripple effect at other airlines, including Northwest.
Q Why has it taken so long for the major carriers to rebound from 9/11? What are the major obstacles standing in the way of regaining profitability?
A "For sure labor costs, they had to get those in line. But also remember what the airlines were doing in the late 1990s, probably from 1996 through 2000. The economy was pretty good. Businesses were willing to pay very high fares for [flight] frequency and for having a multitude of nonstop service in relatively big-sized airplanes. The airlines rode the wave."
Before the 2001 terrorist attacks, Wozniak said there was a race for market share that resulted in excess flight capacity being built into the industry. "It took a huge event like 9/11 to have everybody go: 'Wait a minute, let's take a long look at this. If the market calls for a 100-passenger plane, we've got to tell our pilots we can't fly 737-800s anymore.' What the airlines are really doing right now is they are fitting airplanes to the capacity of the destinations."
Q Low-fare carriers have been gaining market share and now serve about 25 percent of the U.S. domestic market. What is spurring so much growth in the low-fare industry?
A "The last couple of years has been tremendous for low-fare carriers because the majors have been on their heels just taking care of their own houses."
While the economy was weak, business travelers also became more sensitive to the price of travel on major carriers. "They are getting their fair share of suits-and-ties on a lot of these low-fare carriers."
Q This month, we saw Frontier Airlines announce that it will add two daily nonstop flights between Minneapolis and Los Angeles. Northwest responded immediately by adding two flights to L.A. from the Twin Cities as well as a new route between Frontier's Denver hub and Los Angeles. How do you think the competition for the L.A. consumer will play out?
A "It's a good deal for the consumer, because you've got the red tail [Northwest Airlines] in it. Frontier will drive the price down, because it's the only way they're going to fill their seats. They are totally reliant on the originating and departing traffic out of the Twin Cities. They can't feed it from anywhere because they don't have any planes flying from the East into this market."
"The only way Frontier can do it is to have better business fares, because they'll go after that market and that will be a good deal for the business traveler. They have to have better leisure fares to attract the people.
"The better news is that Northwest matches [the low fares], which they will every step of the way. Northwest added two flights out of here at the identical times that Frontier plans to fly. "Northwest is going to be here tomorrow, and they are going to have the nonstops tomorrow," Wozniak said. If intense competition from Northwest forces Frontier to terminate its nonstop flights, he said, "They will take everybody that they have and put them on their Minneapolis to Denver and Denver to L.A. flights."
Q If people can earn frequent-flier miles on Northwest and get cheap fares, what is the incentive to book on Frontier?
A "Northwest has a huge advantage with their frequent-flier program and they have a huge advantage with their [flight] frequency. Let's face it, Frontier is going to have two flights a day to L.A., Northwest is going to have eight [or nine] and you can mix and match them."
Safety, ticket prices and clean and comfortable aircraft are much higher priorities for consumers than flying on a particular brand of airline, Wozniak said. "You hate to put airline seats on a commodity basis, but they are as close to that as you can possibly get."
Q What do you think was the most significant development in the airline industry during 2003?
A "United is in business. That's huge." If United had been liquidated, "the [flight] capacity loss would have been huge. We'd still be catching up." Consumers would have been forced to pay higher fares for the seats on the market flown by the surviving carriers, he said. "The fact that United made it was more significant than any of us will ever know."
Liz Fedor is at lfedor@startribune.com.
This guy obviously doesn't pay to much attention to the news. UAL, the last time I checked was still in BK. A lot of work still needs to be done before they can emerge, and even then it's not a sure thing.Fly said:
Notice he say "than the rest of us will know" this must allude to his huge contract to sell tickets.
I think that he was alluding to the huge role UAL plays in this industry. Imagine the battles in Chicago, San Francisco, Los Angeles, the Pacific and London should UA have gone under. It is widely believed that UA will survive bankruptcy and come out a strong, healthy carier.
They still have many problems like the ACA situation for instance. But my money is on a UAL recovery and they seem to be on the right track
They still have many problems like the ACA situation for instance. But my money is on a UAL recovery and they seem to be on the right track
savyinvestor
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Its nice to see the UAL folks post positive information while at the same time not mentioning the negative comments about USAIRWAYS. Munn could take a lesson from you folks. Good luck and Happy New Years! Savy
Unlike Mr. Munn I don't think us UAL folks would ever want to see anybody go out of business. We share a certain kinship with our USAirways bretheren because we have all been dragged through the CH11 process, and it ain't fun. I'm rooting for them 100%.
Farley, you are missing a big fact: The only reason employees at the majors are now being forced to "lower the bar" through concessionary contracts is because management is now carrying the big stick of "We have to lower costs to compete with [the golden-boy media-darling LCC du jour]." The LCCs and their employees are providing the stick that management won't hesitate to use to clobber us over the heads with (in UA's case, through liquidation or even more sever court-imposed contracts) if we do not agree.Farley said:
What United needed to do was tackle productivity before the pay. You don't fix the problem by simply cutting salaries. A much more effective way to save money is to sit down with the unions and start changing scope and work rules to allow for much greater effiency without the paycuts. Fix the effiency problems first and you may not need to cut pay.
BTW- United has lowered the bar quite a bit and when they leave bankrupcty UA's costs should be below Continentals. That means that the mainline costs should be about 8.5-8.8 factoring in fuel.
BTW- United has lowered the bar quite a bit and when they leave bankrupcty UA's costs should be below Continentals. That means that the mainline costs should be about 8.5-8.8 factoring in fuel.
Trust me ual777fan, they did a pretty good job of tackling both pay and productivity. I still feel a sharp pain every time I sit down and it has been several months now.......
We've been told our post-bankruptcy average CASM's will be in the mid to high 8's. TED should hopefully be lower than that.
We've been told our post-bankruptcy average CASM's will be in the mid to high 8's. TED should hopefully be lower than that.
BOBO BENKINS
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And now United has lowered the bar for the rest of us. Thanks.Fly said:
