At the 84th Annual AAAE (American Association for Airport Executives) Conference & Exposition, US Airways president Scott Kirby points to a number of trends that have shaped the airline industry during the last decade.
He says bankruptcies have forced airlines to restructure, and the industry is on the threshold of completing the vision that it would consolidate into three large network carriers, and that they would be part of three global alliances.
Consolidation has helped rationalize the industry, and ancillary revenues have been an important part of the changing business model, says Kirby.
He explains that US Airways generated some $500 million last year, and made a profit a little more than $100 million. “In 2011, fuel prices went up by $1.3 billion … in 2008, our fuel price was up $1.3 billion and we lost $850 million; we couldn’t pass those fares on to the consumer.”
Going forward, these trends will continue, says Kirby, indicating that the domestic market is mature and the industry will continue to grow in line with GDP.
“Another trend we will continue to see is the upgauging of aircraft; we are taking more and more big airplanes,” he comments. “You see across the industry - in the regional space - upgauging 50-seat aircraft to 70 and 90-seat aircraft.
“The labor arbitrage between regional jets and mainline flying isn’t as large, and as the legacy carriers’ pay scales have come down through bankruptcy closer to what regional carriers pay, it has become less competitive to fly a 50-seat regional jet against a mainline aircraft. And, as fuel price goes up, the price per seat goes up at a faster rate for smaller aircraft.
Kirby says the most critical airport issue is NextGen, and the airspace. He comments, “We are still running a system designed in the 1920s to fly bonfire to bonfire, and we are still following those same routes in the sky today; it’s incredibly inefficient.”
With regard to industry consolidation and the potential merger of US Airways and American Airlines, he says the deal is unique in a number of ways.
“It’s a merger that is built and supported and led by the labor leadership and all of the 55,000 employees that those labor unions at American represent … this merger saves them jobs and gives them better contracts,” explains Kirby.
“The merger creates the foundation for a new paradigm of management and labor relations.”
He says the Delta and United mergers have created two behemoths that can outcompete due to their global comprehensive networks and ability to support large corporate accounts.
“The merger is good for the consumer because it brings a third player onto the playing field, particularly for those corporate accounts that have global travel needs, or for those elite business customers,” says Kirby.
He adds, “The deal is also very good for small city service; two complimentary networks put together create growth opportunities.
“There are some 31 cities on the east coast that US Airways serves and American does not; some of those would get service to places like Dallas and Chicago ... whereas today it doesn’t make sense for American to fly one or two flights a day from those cities.
“Similarly, there are some 56 cities in the Midwest that American serves and US Airways doesn’t.”
On PFCs (passenger facility charges), Kirby says airlines will grow without making big increases in departures by putting more seats on planes, and it will be some time before infrastructure needs get as critical as FAA forecasts may suggest.
“We are reluctant to commit to large long-term capital projects until we have a high degree of confidence that they are needed," comments Kirby.
As expected, the airline president would not comment on whether or not a merged carrier would continue to fly under the "CACTUS" callsign.
Thanks for your interest,
BM
