Airline Failures In 2005:
> Not Necessarily, But...
>
> Here's a fact: The only reason that the airline industry as a whole
> is in financial chaos is because of fuel.
>
> Here's another fact: Had oil prices not spiked in 2004, most legacy
> carriers would be reporting strong profits, notwithstanding
> depressed yields. But spike they did, and the industry is again
> producing a sea of red ink.
>
> Naturally, the usual suspects in the write-before-you-research
> segments of the media will continue to offend journalistic standards
> by filing stories about the need for "consolidation" and how the
> legacy carrier model is "broken." These people are fully exercising
> their right to make fools of themselves.
>
> Here's a reality: There are no guarantees that any airlines will go
> 86 in the coming year. Strategies can change, more efficiencies can
> be found. And oil prices may well drop into the mid-$30 range.
> Things change. Management can change. Market tactics can change.
> It's clear that traffic demand is robust. Nevertheless, as of
> December 2004, we have three carriers that may be on the road to
> oblivion if they don't fundamentally change direction.
>
> US Airways. Regardless of the causes, this airline system is a goner
> if it cannot get its labor relations in order. It appears to have
> degenerated into the Hatfields and McCoys, except they're all armed
> with lawyers instead of guns. Somebody might want to advise the
> company's bankruptcy attorneys that employees are not some sort of
> cattle that can simply be replaced with another, cheaper herd. On
> the other hand, having unions threatening to strike does wonders to
> keep passengers away in droves. The anger, the hurt, and the pain
> employees experienced in being forced to take huge pay cuts, only to
> be told to give more, cannot be underestimated. But US Airways is
> headed for extinction if this near civil-war situation isn't
> reversed very soon.
>
> United Airlines. There are clear indications that this rudderless-at-
> the-top carrier is still floundering to find what it wants to be.
> The TED burlesque says it all about the strategic direction of
> United. Like, it has none. United's senior management still tries to
> pass TED off to the gullible media as a separate stand-alone
> airline, when in fact it's nothing more than a small part of
> United's fleet painted a different color. This type of smoke-in-
> place-of-substance management does not do justice to United's
> employees, who, truth be known, have made United the standard in
> customer service.
>
> Unfortunately, UA management has made  the decision that less of
> that quality mainline service will be just the thing to turn the
> airline around. It's called outsourcing. In an ominous sign that
> United's long-term planning is starting to enter the desperation
> phase, United just announced a 14% cut back in domestic flying,
> along with a major replacement of mainline flying by RJs operated by
> small jet providers. Sure, the sector costs on that ORD-ATL segment
> will drop wonderfully when that A-320 gets replaced by a 70-seat
> CRJ.
>
> But so will customer loyalty, which will cost United a bundle.
>
> In a prime market like this, (and this is just one example) a
> cramped CRJ is about as competitive as riding a buckboard instead of
> a Lexus. Not to mention the effects of sending more mainline United
> passengers to the Fall-of-Saigon reenactment performed daily on the
> UAX Concourse F at O'Hare. It's pretty obvious that United's CEO and
> senior management team haven't seen this place in years. Or, at
> least one hopes that's the case. Otherwise, United is in much worse
> trouble than anyone thought.
>
> Those formerly mainline United ORD-ATL customers are in for a real
> thrill when they get to Concourse F. Crowded, confused UAX gate
> areas, often with several flights being boarded in close sequence
> from the same check-in desk. Agent radios squawking out every facet
> of the operation so that passengers can be entertained with
> incidents of crews trying to be located, baggage being moved, gate
> changes contemplated, and other stuff that makes the whole operation
> feel like a rehearsal for an episode of The Simpsons. Then the
> healthy exercise at boarding time, with passengers forced to schlep
> their carry-on baggage down a stairway that might look like it
> hasn't had a cleaning or a coat of paint since the Nixon
> Administration.
>
> Once down the stairs, they find out that they have to leave
> their "carry-ons" at the bottom of the plane's stairs, because,
> oops, the RJ cannot accommodate normal carry-on baggage. In flight,
> they find that using their laptop is a near-impossible feat,
> especially if they're sitting next to somebody who's 6'5" and weighs
> 200 pounds. It's up close and personal with your seat mate all the
> way from Chicago to Atlanta.
>
> Yessir, tossing those United Premier Execs and 1K customers into
> that mess will really build brand loyalty. For American.
>
> United has claimed that its problems stem from the refusal of the
> Air Transportation Stabilization Board to give it loan guarantees.
> If United's second application was anything like the first one, the
> refusal was entirely valid, as the airline's management obviously
> didn't produce numbers that the ATSB found credible. And that seems
> to be the issue for United - credibility. If it's going to survive,
> United needs to get a senior management team in place that has some
> credible strategic direction beyond slapping paint on airplanes
> (TED) and outsourcing flying to lowest-bidder RJ operators. In
> short, the airline needs a senior management team that's as customer-
> focused as its first-line employees. Soon.
>
> Independence Air. It's past time that they admitted that their noble
> experiment is a raging failure. Breaking away from the United
> Express system was not a bad decision. Neither was the basic concept
> of being an independent carrier dominating IAD. But the high
> frequency RJ model has now been shown to be the fast track to
> Chapter 11. The necessary market  stimulation and I-Air brand
> loyalty just hasn't materialized. Cash is is burning, load factors
> are disastrous, and it appears that dirt-cheap fare sales are the
> norm to keep the system barely half-full.
>
> A big-time 180 is needed in the I-Air business model. Whatever
> advice they're following, it's getting real expensive.
>
> Maybe lethal.
>
> (c) 2004, The Boyd Group/ASRC, Inc. All Rights Reserved
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