As the US airline industry wonders how large a recovery to expect, many pin their hopes on the low-fare sector for a guide to the path forward, but even here optimism is muted.
"The best of the economic recovery may have already passed and we're not going to see a big bump up," said Joe Leonard, who led AirTran Airways through its recuperation from its ValuJet days to its perch among the top low-fares carriers. Leonard was a keynote speaker at the Airline Business Network 2002 event in Fort Lauderdale, where 100 airlines, airports and analysts met to discuss network development opportunities.
Possibly reflecting the changed nature of the US industry, this year's Network seemed dominated by the country's low-cost segment, with AirTran joined by Frontier, JetBlue, Spirit, Southwest and Vanguard at the event.
Owing to the increasing visibility of the low-fare concept, it was perhaps natural that, like others at Network, Leonard and JetBlue founder and chief executive David Neeleman should note "a fundamental shift" taking place in the industry, with business fliers beginning to resist high fares as far back as last summer. Leonard said that this resistance resulted in the failure of the last two fare increases, further adding that the "hassle factor" of airport processing and of security screening "are affecting business travellers more than others and so they are looking for an alternative".
Others at Network agreed that the basic revenue and fare model needs adjusting. Global Aviation Associates managing director Jon Ash stated during the event's conference component that the way the industry manages inventory and pricing must be rethought. "Like everyone else we assumed that with capacity contracting or slowing, the industry would be able to manage yields upward." That has not happened even though travellers are back. "Traffic is not the problem. A diversity of objectives among carriers has precluded quality yields," he stated.
Leonard, joking that the phrase "Airline Business" was an oxymoron because a $500 million industry loss in a quarter would be good news, stated that the outlook is for "a very slow recovery and few profits". Although AirTran posted a loss in the first quarter, Leonard believes the company's outlook is one of a profit this quarter and for the year with "2003 even better".
Perhaps bolstered by this prospect, he boasted that while the majors were contemplating changes to their business plans, "our model works good in bad times as well as good".
Much of the conversation at Fort Lauderdale - both during the conference and at breaks - centred on how the low-fare model itself is evolving. While sector paragon Southwest doggedly - and successfully - sticks to its well-known, low-frills formula, others are modifying it to suit their markets.
The JetBlue cabin experience, with leather seats and in-flight television, is one the majors might regard with envy, while AirTran has achieved success with such services as its business class product. More controversial was the issue of the revenue guarantee.
While some carriers avoid them, AirTran has been enticed to enter new markets, such as Gulfport-Biloxi, Mississippi, on the strength of a guaranteed level of revenue from the airport or local businesses. Leonard insisted: "We won't do it unless the route will eventually be profitable [without the guarantee]." Others, however, continued to argue against their appropriateness. The discussion afforded Network attendees an opportunity to see participants in the industry's most vibrant sector debate the shape their segment should take.
Source: Airline Business
