As the majors shrink and hack at winter schedules, they are also making basic structural changes that reflect longer term planning at a time when, as George Washington University Aviation Institute Director Darryl Jenkins puts it, long-term planning is thinking about next Monday morning.
A major change is the end of "off-brands" - lower fare airlines within airlines - since 11 September. It was led by the US Airways decision to end its long threatened and money-losing MetroJet, a decision that set off a chain reaction. Within days of that announcement UAL said it would end its Shuttle by United brand. Delta then said it was slashing its Delta Express unit more deeply than any other part of its operation, making 50% in cutbacks it did not expect to restore.
At US Airways, the decision may merely mark the execution of a death sentence that was passed long ago, while the United action reflects the fact that Shuttle lost much of its competitive advantage after the 2000 Air Line Pilots Association contract removed its lower labour costs advantage.
The termination, much like the Delta Express cuts, mark the unassailability of Southwest and the ascendance of JetBlue and to a lesser extent of Air Tran. They have their niches now franchised to them by the majors. And the end of the off-brands marks perhaps a more important realisation: as Morgan Stanley's Kevin Murphy said of the end of Shuttle by United, airlines cannot be all things to all fliers.
The Shuttle pull down is part of an enormous trim-back by United that will hit its Los Angeles and San Francisco airport operations heavily. These suffer by 33% and 40% respectively in terms of total United departures. That comes as UAL chief executive Jim Goodwin warned that United must see financial improvement soon or it "will perish sometime next year". Costs are "exceeding revenues at four times the pre-11 September rate," Goodwin told employees in a letter that Machinists union president Mark Connolly suggested was a move to gain bargaining leverage.
If the unions did not take Goodwin's remarks seriously, the markets did, with UAL shares dropping to their 1988 level. The fall led Salomon Smith Barney analyst Brian Harris to declare a "buying opportunity" in airline stocks.
Source: Airline Business
