DAVID FIELD WASHINGTON
Without the large hubs and huge networks of the major carriers, the middle ranking US airlines have recovered faster, made fewer cuts and been able to act more quickly than their larger counterparts. For some, traffic is already back on track
A rising tide may lift all boats, but the smaller vessels seem to have more buoyancy. That is demonstrated by the performance of US carriers in the middle tier, the grouping that was traditionally called the nationals. Unburdened by huge hubs and the vast overheads of network carriers, they have proven quick to respond, moving into the gaps left by the majors. Their surprisingly resilient recovery also suggests that the trend represents a long-term change in the structures of the industry.
Carriers such as Frontier Airlines, Air Tran Airways, Alaska Airlines, Spirit Air, and of course Southwest Airlines have all weathered the crisis with fewer cuts, early restoration of route cancellations and in some cases bold and outright expansion.
At Frontier, for instance, on-board food service was resumed, routes have been added and it is investing in airport facilities. Alaska, meanwhile, is not just restoring service but adding routes that take it out of its traditional home territory of the Pacific Northwest and into the East Coast. Air Tran has quickly moved into gaps created by a shrinking US Airways and carriers such as Vanguard Airlines, on the critical list for years, have survived. Survival in itself is a significant achievement in the months since the terrorist attacks pushed the world's airlines deeper into a downturn.
Alaska planned to be back at its full schedule by 10 February, making it the first major to return to full capacity. By December its revenue passenger traffic decline was close to 5% compared with an average of 15% for the network majors overall. Southwest, the model for low-fares carriers in the USA and abroad, has not wavered. It did not slash capacity but eliminated some stops on some routes and actually showed a modest 0.6% traffic rise in December over the same month a year earlier.
In fact, in the months of November and December, Southwest carried just about the same number of passengers as United Airlines. Both were just above the 5 million passenger per month mark as United sank and Southwest held firm.
Within weeks of putting off 19 Boeing 737 deliveries scheduled for this year, Southwest reversed the decision and said it would take the aircraft and resume growing.
Not even Southwest can, or even wants to, expand to all points, although other of the new breed of independents that it has inspired, such as JetBlue Airways, appear to be enjoying a boom. Just coming up on its second anniversary, JetBlue made $10 million in the third quarter and will accelerate its Airbus A320 deliveries for the year to 13 instead of 10.
Some of these carriers are admittedly bargain-priced, while others are "value priced" so that they are still cheaper than the majors. So if fare structure is not the major determinant of their strength, what is?
Stuart Klaskin of consultancy Klaskin Kushner argues that their survival goes "far beyond" having low costs. "It is a fundamental simplicity of management and route structures and the fundamental business strategy," he says. "They are not hub-and-spoke carriers even when they have what looks like a hub, because the primary purposes of their hubs is to cater for local travellers. And they all have a clear vision: do a few things well but never, ever try to be all things to all fliers."
Tad Hutcheson, Air Tran's vice-president for marketing, adds that they "just don't have a lot of complexity" in route or management structure or in mission. Air Tran is set to be at 105% of its pre-attack capacity this month, and it is taking all its Boeing 717 deliveries. It was at full capacity by 5 November.
Opportunism
In part, the cutbacks at the large carriers have made room for the next tier down to expand. But airline executives and others say this is a demonstration of leaner management structures and consequent quicker decision-making. These carriers are "opportunists" says Thom Nulty, president and chief operating officer of Denver-based Navigant International, one of the largest US travel firms with about $6 billion in volume a year. "They always have been. That's the only way they can win,"he says. "They can make snap decisions and do so faster than anyone else because they have always made snap decisions. They have also learned to avoid making some of the bad ones."
The deeper question, though, may be this: Does the behaviour of this sector represent merely rational opportunism or is it a sign of the major structural change that is expected in the US industry, a stage in which the major airlines begin seriously to ask themselves if they really want to fly all places and be all things to all fliers?
Tulinda Larsen, managing director of BACK Aviation Solutions, says: "The mainline carriers will have to restructure and that could entail a permanent dehubbing." The strategy of airline retrenchment has largely been to protect the hub, which means that if routes have to be cut, they will most likely be on services between non-hub cities. For the new airlines, which have avoided a hub network and instead followed the Southwest point-to-point model, this is ideal, says consultant Mike Boyd.
An example includes Delta Air Lines ending nonstops between Fort Lauderdale and both Chicago and Orlando, the base of its strong Florida presence. It would offer transfer at Atlanta for passengers between O'Hare and the two Florida points; United dropped flights between Miami and both Atlanta and New York La Guardia, routes where it faced strong low-fare competition.
The hub retreat by US Airways opened a long sought door at Baltimore/Washington International (BWI) for Air Tran, which was already taking on the carrier at Philadelphia. For Air Tran, which has recently focused on point-to-point additions that do not expose it to more competition at Atlanta, BWI was a strong enough new market that it was adding routes within weeks of starting up. Frontier added at Denver as United pulled down there. It will continue to take new aircraft this year. With its sixth Airbus A319 it was to add service in February between Denver and both New Orleans and Sacramento, as well as in the booming Fort Lauderdale market.
Fort Lauderdale's growth is in itself a phenomenon, spurred by the airport's aggressive marketing. That combined with a shift away from warm-weather vacations overseas helped keep Florida's capacity drop to 9.2% to December, compared to 20% in the Northeast.
Of course, not all airlines fared as well at the lower end of the national sector. Sun Country, a charter carrier that expanded into scheduled service in a bid to compete with Northwest at Minneapolis, stumbled. The family-owned carrier could simply not withstand the combined effect of traffic slump and the competition from Northwest. It tried returning to charter service, but shut down before Christmas. Midway Airlines, in bankruptcy since August, shut down and resumed limited service only with federal aid. National Airlines remains in the reorganisation it began in December 2000.
Government aid
Federal support was also a key factor for some of the stronger carriers. Alaska received $80 million in federal cash grants and had liquidity of $700 million in hand by December - $40 million more than it had at the end of October. Its flights were heading back to their pre-attack levels by February, helped in part by United's abandonment of its west coast Shuttle low-fares subsidiary. At Spirit Airlines, $10.8 million in government aid could not stem a third-quarter loss, although it trimmed it to a mere $190,000, breaking the small Florida-based carrier's two straight quarters of profits. Still, the carrier ended the year with a 15.7% increase in passengers posting a 60% load factor in December.
The majors are also floating higher on their very long way back up. That raises the question of what is next. Nulty of Navigant, a former airline executive, says of the majors: "The big guys, as soon as they have the time, they'll crush them if they want to." But Boyd suggests that what has been a distraction of attention for the giants may become a permanent way of thinking. Instead of assuming that they must have a instant response to every other carrier, they may focus so much on rebuilding that they may not have the time to crush the next tier down.
BACK's Larsen thinks that the gains made by the independent national carriers could well be permanent "if the traditional mainline carriers decide to hard park the planes that they have so far soft parked and make their capacity cuts a structural change". Klaskin sees this as organic:" The national carriers are by nature the carriers of default."
Source: Airline Business
