Growth problems are hitting the short-haul, low-cost sector of the US airline industry. Earnings are down at Southwest Airlines, and Continental Airlines is restructuring its Lite operation, as well as streamlining its widebody fleet, inclu ding the retirement of its A300s.
Southwest shocked the markets in early December with warnings that fourth quarter yields could drop by as much as 9 per cent from 1993 and profits would be down. Though it would be the first drop in quarterly earnings since 1991, concerned investors sent airline industry stocks falling more than 38 points. Industry analysts, not used to reducing their earnings projections for Southwest, mimicked Southwest chief financial officer Gary Kelly's explanation: 'It was a single blip, that's all.'
The problem is twofold. In October, Southwest suffered as it comple ted the integration of Morris Air. The yield drop was due to a three week fare sale which plugged the gap before 21-day non-refundable tickets were re-introduced, after a new fare structure was set up in October.
Some industry observers say that California corridor traffic - especially from the Shuttle by United - is impacting yields, and portends things to come for Southwest. Though Kelly agrees competition has grown, he believes it alone could not cause such a yield fall.
Continental, meanwhile, is examining Continental Lite and restructuring its fleet as it attempts to curb a capacity crisis. November operating figures show that, compared to 1993, capacity increases outstripped upturns in traffic by more than 4.5 percentage points. Its domestic system, in which Continental Lite accounts for half the capacity, has been particularly hard hit: 12 per cent available seat-mile growth over 6.5 per cent revenue passenger mile growth resulted in November load factors down 3 points to 61 per cent.
Continental Lite itself has yet to turn a profit, after more than a year of trying to copy Southwest's formula for success. The short-haul, low-fare service is going through 'a grooming process' that will see the 20 per cent of Continental Lite's flights that are 'underperforming' either closed or reduced.
The airline stresses that it has not given up on the short-haul, low-fare concept. But the all-important low costs have been elusive so far.
The fleet analysis focuses on reducing widebody aircraft capacity. Continental says smaller aircraft will be 'swapped in' for the larger aircraft. In January this will produce a 7 per cent capacity reduction, with three B747s and eight A300s being parked. But this is just the beginning. In February, four B727s will be taken out of service and the rest of the airline's 21 A300s will probably be phased out during the year, says John Luth, Continental's executive vice president of operations.
The fleet analysis focuses on reducing widebody aircraft capacity. Continental says smaller aircraft will be 'swapped in' for the larger aircraft. In January this will produce a 7 per cent capacity reduction, with three B747s and eight A300s being parked. But this is just the beginning. In February, four B727s will be taken out of service and the rest of the airline's 21 A300s will probably be phased out during the year, says John Luth, Continental's executive vice president of operations.
Source: Airline Business
