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5/29/2002 May 29--Don Carty expects passengers to crowd aboard his American Airlines Inc. flights this summer. He doesn't think American will show a profit. The problem for U.S. airlines isn't filling airplanes, American's chairman and chief executive officer said -- it's selling the seats at prices that make money. AIRLINE SEARCH TICKETS "My own expectation is that one way or the other, the planes will be full in the summer as they always are," Mr. Carty said recently. "The question remains is how aggressive our airlines have to be in the marketplace to make sure they stay full." It's a quandary faced by nearly every travel company -- whether it's an airline, hotel chain or rental-car company -- that is trying to recover from the Sept. 11 terrorist attacks and the economic downturn. AIRLINE SEARCH TICKETS If they charge too high a price, people stay home. Too low a price, they lose money. But the current financial plight is less dire for car-rental agencies and hotels than for airlines. For sure, the decline in business traffic has meant lower profits for those companies. But for airlines, the post-Sept. 11 environment has been filled with devastating, historically deep losses. The Air Transport Association, a trade group of the nation's carriers, estimates that operating losses drained more than $10 billion from airlines last year, with the majority flowing out after Sept. 11. AIRLINE SEARCH TICKETS One after another, executives of major airlines have said they think the situation is improving. But industry executives are nonetheless grappling with how to get budget-conscious corporations and fidgety travelers to open their pocketbooks. Can't find what you need? Try a Google Web Search in the box below!
Business travelers, the mainstay of most carriers' revenues, suddenly disappeared last year. The biggest falloff in business traffic came in the areas of the country that most depended on high-tech fliers -- such cities as San Francisco and San Jose, Calif., Boston and Austin, San Diego and Seattle. AIRLINE SEARCH TICKETS The Business Travel Coalition and the Association of Corporate Travel Executives warn that businesses have permanently changed the way they look at travel. In an April survey of their members, the two said that companies increasingly are finding cheaper or easier ways to travel or to avoid traveling altogether by such means as videoconferencing. "Because on average just three passengers make the difference between profit and loss on a given flight, small shifts to video conferencing, personal cars, fractional jets or the Acela train can erode major network airline economics quickly," their study warned. The Business Travel Coalition, whose members include major corporations with annual travel budgets of nearly $3 billion, has been a vocal proponent of airfare reform. AIRLINE SEARCH TICKETS A business traveler who needs to fly at the last minute pays for the privilege. A cheap fare carries a lot of restrictions that a businessperson finds cumbersome, such as the need to buy 14 days in advance or stay over Saturday night. A Dallas resident often can travel round trip to New York for less than $200, less than a tenth of the unrestricted fare of more than $2,100, for example. On one hand, it appears "inevitable" that airlines will have to revamp their pricing structures, the coalition said in its survey results. On the other hand, the airlines' labor contracts restrict their ability to cut costs. Lowering fares alone, without reducing costs, likely would just increase losses. AIRLINE SEARCH TICKETS In any case, nearly three-fourths of the coalition's members said they plan to permanently cut their travel spending, perhaps the most sobering statistics for airlines. Bob Harrell, an aviation consultant, said the last real attempt to reform airfares came in 1992. Fort Worth-based American Airlines introduced "Value Pricing," a sharp reduction in unrestricted fares to a level only twice that of leisure fares. Most carriers matched, but the pricing structure soon collapsed when Northwest Airlines Corp. launched a limited buy-one, get-one-free promotion and American responded with a systemwide half-price sale. Airplanes were packed in summer 1992, but nearly all the airlines lost money. More recently, there has been a proliferation of fare discounts aimed at business travelers. Many still require advance purchases of up to 10 days, but they don't require a Saturday night stay -- and they're a lot cheaper than the full-fare business fares, Mr. Harrell said. "The industry is moving toward a general reduction in business fares, but not so much outright as through the introduction of these alternate business fares," he said. AIRLINE SEARCH TICKETS His own study of 30 high-traffic routes in March showed that airlines offered 75 of the cheaper alternative fares, compared with 27 on the same routes a year ago. A number of airline executives have declared that the pricing system is broken. Mr. Harrell didn't disagree, but shifted the blame back to the airlines. "They can fix it," he said. Jim Parker, chief executive officer of Dallas-based Southwest Airlines Co., said he thinks the airline industry "got a little bit spoiled" by the ease at which it made money in the late 1990s and in 2000. "We had a lot of people flying who simply didn't care how much it cost," Mr. Parker said. "A lot of airlines -- some airlines at least -- fell into the trap of believing that was a permanent situation. Clearly it wasn't." AIRLINE SEARCH TICKETS Mr. Carty acknowledged that American is looking hard at ways to improve the way it prices airline tickets and somehow address the huge gap between leisure and unrestricted tickets. So how will American change its pricing strategy? "If I knew that," Mr. Carty said, "I would have already announced it." The problems aren't so basic for other sectors of the travel industry. They just need travelers. AIRLINE SEARCH TICKETS Preliminary reports on hotel profits show a decline of more than 25 percent to $16.7 billion between 2000 and 2001 -- the biggest drop since the early 1990s, said Bobby Bowers, an analyst for Smith Travel Research in Henderson, Tenn. Can't find what you need? Try a Google Web Search in the box below!
The research firm has projected occupancy levels to be flat or slightly up for 2002. Revenues are expected to grow 2 percent to 2.5 percent. "Things will get better, but I don't know that profits will go up significantly this year," Mr. Bowers said. Unlike the airlines, the lodging industry expects it will return to pre-Sept. 11 profit margins as the economy recovers. "It's just a question of when it will get back, not if," Mr. Bowers said. "The airline industry has a lot of problems the hotel industry doesn't." AIRLINE SEARCH TICKETS "We just went through the 1,000-year flood," said Rick O'Brien, chief financial officer of Irving-based FelCor Lodging Trust Inc. After decade-long economic growth, some hotel operations had become bloated with extra costs. "We're operating our hotels leaner than we have in the past," Mr. O'Brien said. "2001 was an extremely difficult year, but the industry is extremely profitable, and it's much stronger than it was during the last hotel recession in the early 1990s." Neil Abrams, owner of Abrams Consulting Group in New Jersey, has watched the car-rental industry suffer from problems that were festering before Sept. 11. In addition to a slowing economy, several major companies were in financial trouble. Alamo National Corp. is in the process or reorganizing under Chapter 11 of the U.S. Bankruptcy code, and Budget Group AIRLINE SEARCH TICKETS Inc. has suffered from financial problems for several years. Even before the terrorist attacks in New York and Washington, rental companies were reducing their fleets, which represent 40 percent to 50 percent of the cost of being in business, Mr. Abrams said. "What 9-11 did was exacerbate an already weakening situation," Mr. Abrams said. Like airlines, major rental companies have also cut commissions paid to agents to reduce operating costs. During the last eight months, transactions have been off between 15 percent and 20 percent, depending on the market, Mr. Abrams said. "Revenues are off somewhat less because rates are higher," he said. "As inventories deplete, the prices get higher.".... Perform airline search tickets here /cheap airfares home |