Airline Executives Mixed on 2010 Prospects

One thing is certain for the airline industry next year: There will be fewer flights.


Dec. 13--Airlines came into 2009 hopeful that with fuel prices dropping, it would be a profitable year.

It wasn't.

And 2010, depending on which airline executive is talking, might only be slightly better.

Some domestic carriers like Delta Air Lines and Fort Worth-based American Airlines see demand for business and premium travel starting to rebound.

Southwest Airlines Chief Executive Gary Kelly, however, is not so sure that business travel has come back.

But one thing is certain for the airline industry next year: There will be fewer flights.

Capacity cuts will continue in 2010 as airlines try to figure out which flights are the most lucrative.

All carriers aim to return to profitability next year.

"There have been modest improvements," airline expert Darryl Jenkins said. "But the airlines haven't pulled out enough capacity."

American Airlines, owned by AMR Corp., hopes that it can turn a profit.

In the first nine months of 2009, the company reported $1.1 billion in losses.

"We're focused on returning our airline to profitability," said Beverly Goulet, AMR's vice president of corporate development and treasurer. "We are managing capacity prudently while at the same time strengthening our network."

American plans to alter its network next summer by reducing flights at St. Louis and at Raleigh/Durham, N.C., while increasing the number of flights to its hubs in Chicago and Dallas/Fort Worth.

And it also plans to add international service to Beijing and reinstate flights to El Salvador as the carrier sees an increase in travel demand.

"We are seeing improvement in both leisure and premium traffic at this point," said Goulet, adding that advance bookings through February for international travel are up 3 percentage points. "While the domestic markets have appeared to recover at a slightly faster pace than the international markets, we're starting to see some improvement in those markets as well."

Crucial to American's international strategy are two important decisions that the airline had hoped would be made by year's end.

Instead, it looks as if American will have to wait until 2010 before the U.S. Transportation Department rules on its antitrust immunity application with British Airways and Iberia and before the Japanese government decides whether American or Delta will be allowed to invest in Japan Airlines.

JAL is now part of American's Oneworld alliance, but Delta has tried to woo JAL to become part of its SkyTeam group.

If American doesn't keep JAL, "their alliance is severely marginalized," Jenkins said.

"It is very much in their long-term interest to maintain the JAL relationship."

The one thing that may not be resolved for American in 2010 is its labor contracts.

The company has been in mediated talks with unions representing its pilots, flight attendants and ground workers.

Michael Derchin, an analyst with FTN Equity Capital Markets, said he doesn't see any resolution in those labor talks until 2011 at the earliest.

While several airline executives at an industry conference last week expressed confidence that business travel was returning and will pick up in 2010, Southwest's chief executive was not one of them.

"I'm not expecting strong economic growth in 2010, and likewise I'm not expecting a rebound in business travel in 2010. And we want to plan for 2010 accordingly," Kelly said.

The Dallas-based carrier has several initiatives scheduled for next year.

Kelly said he is hopeful that they will bring additional revenue to Southwest.

Although Kelly said capacity will be flat next year, the company does plan to boost flights to St. Louis and add Panama City, Fla., to its network.

The carrier's international code-sharing plans with Canada's WestJet and Mexico's Volaris will also begin in 2010.

It also plans to integrate new technology into its Web site, Southwest.com.

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