ALBUQUERQUE, NM — For attendees at this year’s Boyd Group International Aviation Forecast Summit held here in August, the talk given by US Airways CEO Doug Parker may have summed up much of what is going on in the airline industry — at least, in the U.S. market.
For years now, Parker has been telling conference delegates that what the U.S. airline needs is consolidation, the reduction of capacity. This time, he had a different message.
“This is fixed,” Parker says of consolidation and capacity reduction. “Consolidation has changed our industry. It’s done. I’m done talking about it.”
The strategy for U.S. carriers now, he says, is all about tactics, with the greatest challenge facing the industry being the volatility of the price of jet fuel. The industry had been turning the profitability corner in 2010, only to have spiking oil prices drag it back down.
Among the drivers resulting in “underperformance” by the sector, according to Parker:
• Fragmentation — too many carriers, which is being addressed in the marketplace.
• Labor relations — “It’s not labor’s fault; it’s management’s fault,” he says, adding that the airlines haven’t understood how to best utilize workers.
• Government policy — “A huge problem,” he says. “We’re still over-taxed.”
• Management focus — “We made decisions to give up margins for market share and beating the competition,” he comments.
Regarding the latter point, Parker says “The industry is much more rational.” Management focus has “tremendously improved” and has turned its focus away from market share and more on profitability.
Parker’s thoughts on other industry issues ...
• Foreign ownership rules regarding airlines — “Our view is it’s an archaic law,” he says.
• The slot swap with Delta at Newark and Reagan National airports — “It’s a continuation of a strategy” to focus resources on where the primary assets are, he explains.
• Essential Air Service program — “We don’t do a lot of that,” he says, “We’re neutral. We don’t have a dog in this fight.”
Analyst Mike Boyd, president of Boyd Group International, voiced the sentiment of many speakers here by maintaining that airline industry growth in North America, particularly the U.S., will remain static for at least the next five years. The real growth is on the international stage.
Comments Boyd, “The industry is changing dramatically; how airlines fly is changing dramatically; how airports operate is changing dramatically.”
Globally, the industry will see a growth rate of some 3 percent — less than some others predict, he says. Global airline alliances will continue to play an increasing role in travel — a sort of end run around the foreign ownership rules.
One question: “At what point do alliance needs trump national needs?”
Boyd also asks the question, “How many airports can the world really support?” This directly relates to the U.S. system, he points out, in which consumers have been “spoiled” by air service access. In time, Boyd says “highest and best use” of airports will come into play, and “local service will be replaced by regional service.”
It is a sentiment frequently echoed by William Swelbar, research engineer at the Massachusetts Institute of Technology, who was also a speaker in Albuquerque. Swelbar sees some U.S. airports being “weaned” out of the system. “In the long term, I think it will be good,” he says.
And on the topic of foreign ownership of airlines, Swelbar comments, “We protect; we protect; we protect,” with questionable outcomes.
Some additional points of note from Boyd’s crystal ball:
• Europe — “They’re going to raise the costs to the point that the internal EU traffic will be hard to sustain,” he says, adding, “The EU hates air travel.” The pending carbon tax “is going to be a big hit on everybody.”
Michael Boyd says common wisdom on airlines is wrong