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Monday, April 07, 2008

Airline Carnage: The Immediate Future

2008 has started a carnage that only 1991 had seen. That year Eastern Airlines which ten years earlier had been the largest airline in the free world, Pan Am who had long been the largest US international airline (and for many years the most recognizable American corporation abroad) and several other less well known carries went belly up under the burden of high fuel costs. Eastern and Pan Am were the two largest private employers in south Florida, and their liquidation meant an economic depression for the region that was only furthered by Hurricane Andrew.

Now in 2008 other parts of the country are feeling what south Florida and to a lesser extent New York/New Jersey felt seventeen years ago. (Eastern and Pan Am also had huge operations in New York City and TWA which was struggling and would never recover from 1991 and eventually go under moved its HQ and maintenance operations from New York at this time) I feel very badly for all the cities and towns affected by the shutdown of Aloha, ATA, and Skybus. The latter shutdown, Skybus is particularly stinging because so many airports had overhauled their infrastructure and hired new employees just to attract Skybus which was seen by many as a concept airline that would be wildly successful. Airports here in Florida such as Punta Gorda (Charlotte County Airport) and St Augustine find themselves without commercial air service after spending taxpayer money to overhaul their operation and hire employees.

The big question today is what will be next shoe to drop? Will a large airline like Delta or Northwest go under if they don't merge or will smaller, more cost conscious airlines like Jet Blue and Air Tran end up being the new major, bailing out their larger rivals and perhaps taking the "brand names" of their larger rivals?

Here are some thoughts about what I see happening.

  • The few large US Airlines that bought the fuel efficient Airbus 319/320/321 series of aircraft instead of the MD 80/90 series or the Boeing 737-800 probably will have some overall cost savings. This benefits US Airways, and United.
  • A Delta/Northwest merger would be risky because both airlines despite a national route system are still lacking a major west coast presence. Delta's Salt Lake City hub isn't comparable to United's Denver operation, and Northwest despite being a massive carrier across the Pacific has very little feed to these routes. However, I am not sure either airline can survive on its own and since they already have an extensive partnership, a merger makes sense.
  • American Airlines has an extensive point to point network featuring such large airports as Boston, Los Angeles, and New York (LGA and JFK). American may want to be creative and leverage this advantage to overfly their primary domestic hubs in Dallas and Chicago as well as Miami, their largest international hub. Offering point to point service that avoids congested hubs may seem less efficient, but ultimately cuts fuel costs, transiting costs and will allow AA to charge more for premium seats and nonstop service to offset some of the increasing fuel costs.
  • American has already announced new international flights from Chicago to Moscow, New York to Milan, Miami to Cartagena, Fort Lauderdale to Kingston, and Dallas to Lima. I'd expect to see more of this soon as American seeks to take the pressure of their domestic operation which is losing money.
  • Delta has clearly mortgaged their future on flying internationally, and I expect this continue while Delta continues the rapid pulldown of domestic routes not touching hub cities that we have witnessed in the last two months. We discussed Delta's international route structure on the website last year.
  • Continental needs to relieve their delay prone Newark hub with more flights routed via Cleveland and perhaps more international flying from Cleveland as well.
  • Air Tran has an opportunity to establish the operation at Chicago Midway they sought when they attempted to buy ATA. Air Tran has focused on Milwaukee lately but the opportunity now exists with empty gates from ATA's shutdown and only Delta flying from Midway to New York, to drive a weak Delta from the market and lock down big city flying from Midway that Southwest is unwilling to take on.
  • Several smaller carries fly Airbus A 320 family aircraft almost exclusively. These airlines are Frontier, Spirit and Jet Blue. These airlines could conceivably merge with each other to form a mega carrier: Spirit has a large Latin American operation based in Fort Lauderdale. Jet Blue operates a large base in Fort Lauderdale, along with Boston and New York. The only challenge would be cost structure. Spirit's cost structure is much lower than Jet Blue's or Frontier's. I would not be shocked to see at the very least, Jet Blue and
    Spirit who compete vigorously on routes from Fort Lauderdale, Fort Myers and Orlando to New York as well as flights to the Carribean to call a truce, team up and take American Airlines for supremacy flying to the Carribean from Florida and New York.
The industry has enormous challenges in front of it. Here's hoping fuel costs stabilize soon and we are not talking six months from now about the loss of a major "legacy" carrier.

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I am the host of the Major League Soccer Talk and EPL Talk Podcasts and am frequent guest on other (world) football shows. I am also the publisher of various other websites including this one. I work in public/government relations in addition to my soccer work and have a keen interest in history, politics, aviation, travel,and the world around us.