Download - Global $11 billion$7.5 billion US $9 billion$6.0 billion Losses 2001 2002 Global Scenario
State of the Airline Industry
Industry-wide revenue down 16.6%
In May, domestic passenger traffic at the five largest airlines fell 10% from a year earlier. Meanwhile, traffic at their five biggest discount rivals increased 11%.
Midway Airlines, Vanguard Airlines and US Air -- have recently filed bankruptcy petitions
Grounded more than 1,000 jetliners, or between 17% and 21% of their fleets
The recession
Internet
Intense competition from low-fare carriers
Inflexible operating procedures
Stubbornly high labor costs
Drivers of the Airline Industry
Sterling Group, a marketing consulting firm based in New York
80-employee firm spends about $1 million a year on travel.
staffers are required to buy an advance-fare ticket or switch to a low-fare carrier $515 round trip on JetBlue VS. $2463
How Businesses are Flying?
Internettremendous power to hunt down low fares
consumers' freer access to fare-price information
online booking tools tend to herd customers to the lowest-cost flights rather than the fastest ones
planning in advance for a trip and booking a lower fare is becoming the norm for business travelers
bypassing corporate travel offices whose negotiated fares are often no bargain anymore
Intense Competition from Low Fare Carriers
Inflexible Operating Procedures
Hub and Spoke systems
concentrate passenger loadsinefficient and costly
Response: Big carriers will keep hubs Accelerate development of "neural systems" use small regional jets to bypass hubs and connect smaller markets
Stubbornly High Costs
Labor Costs account for more than 40.8% of revenues in 2001 (up sharply from 34.9% in 2000)
LABOR COSTS Issue: New labor contracts, based on late '90s profits, are inflating cost structure at a time of deep losses.
Outlook: Some carriers will seek concessions or try to hold the line in new talks. To have any hope of succeeding, managements must convince unions their recovery plans spread the pain
reduce its current capacity by 9% by November
eliminate 7,000 jobs and save the company about $1.1 billion a year
phase out its entire fleet of 74 Fokker 100-seat airplanes.
speed up retirement of nine wide-body Boeing 767-300 jets
eliminate first-class service to add more business-class and coach seats
eliminate hot meals and offer bag lunches on most domestic flights
reduce fuel consumption by carrying less water and reserve jet fuel
eliminate paper tickets within the next 18 months
speed up its deployment of self-service check-in kiosks
plans to increase capacity by 20 percent from last year
managed a profit of $5.1 million last quarter
since Sept 11
added service to 7 cities and 24 routes grabbed five gates from US Airways at
BWI taken delivery of 9 Boeing 717's this year 11 more to come by December
newer ways to provide full service to passengers and still wring costs out of the operation and match fares with discounters
Challenge
maximizing efficiency instead of revenue
Focus
Is American Doing the Right Thing???
What have you done to get your passengers to want to get on your airline more?"
Discount Carriers Full-Service CarriersPractical Perk-oriented
Point-to Point Hub and Spoke
One Airplane Model 6-14 different types
Planes fly 9 hours Planes fly 6 hours
Labor 25-30 of Revs Labor exceeds 40% of Revs
40% online tickets 5-10% of tickets online
Younger fleets Older fleets
Quicker Turnaround TimeIdle Planes
Strategies
Is Niche Marketing Possible??
Marriott and Courtyard by Marriott
Cable channels with MTV, VH1 and BET
Running shoes to basketball shoes to mountain biking shoes to tennis shoes
Midwest Express, based in Milwaukee, has always offered first-class service throughout the plane
Lufthansa’s daily flight between Newark, N.J., and Dusseldorf that consists entirely of business class luxuries, with only 48 seats in a Boeing 737-700
Southwest Airlines and other flights geared for business travelers and other passengers used to being pampered
time-share industry
NetJets sells shares in each of its planes to as many as 16 parties for upward of $375,000 a pop, before various fees
If a NetJets owner's plane is busy
the company will send an identical plane or something better to pick him up.
it will turn to the 85 jets it manages for corporate customers.
it will charter a plane from a roster of approved providers
a jet to the customer with just 4-6 hours of notice
operate 250,000 flights this yearup from 200,000 in 2001employs 2,300 pilots in the U.S., Europe and the Middle Eastcorporations, entertainers, athletes, other wealthy individualsWhy????
ConvenienceHassle-free servicePrivacyFlexibilityCustomized service
cannot follow the quixotic flight path of being all things to all passengers and still turn a profit
cannot fly everywherecannot give passengers the fastest travel time possible cannot provide amenities that will satisfy
everyone offer niche products, with flights targeted to specific demographics
a possible two-tiered future for short- and medium-haul air travel, in which airlines sharply split their
products
ticket pricing simplified so that passengers know exactly what they are getting for what they pay
Bottom Line