Technology: The Sun Rises in the Southwest

The air travel landscape is changing forever from what we've come to expect: cheap flights, frequent flights, and all-inclusive fares.

The slow economy, the weak dollar, and high-priced fuel are all contributing to the big move by the big carriers in the U.S. market to slash their schedules. The network airlines' goal is fuller flights — boosting "passenger load capacity" from 82 percent to more than 90 percent. Meaning every flight will seem like Christmas or Thanksgiving.

In fact, the airlines are not finishing cutting schedules.

Some have only just started.

Already we've seen an average 15 percent cutback in capacity.

We're perhaps 12 to 18 months from hitting the bottom of the capacity cut curve, so tighten your seatbelts.

Especially hard hit will be the mid-tier cities — the Scrantons of the world. Big cities also will see cuts, but the airlines are mostly looking for efficieinces in the borderline markets. And these are the markets where low-cost carriers will look to expand, because what is one airline's efficiency is another airline's opportunity.

Capacity reductions are having an impact on both business and leisure travelers, but the return of the Saturday night layover in some markets is hitting road warriors harder.

Where the Saturday layover isn't happening is in markets where there's a low-cost carrier option, such as the dominant low-cost carrier, Southwest Airlines.

If the sun seems to rise and set by Southwest in some markets, plan to see more of that. Southwest has enjoyed year-over-year profitability thanks to excellent management, including a focus on cash flow that has enabled the airline to become the leader in hedging its bets on pricey fuel. While most low-cost carriers will spend more than 40 percent of its revenue on fuel, Southwest spends considerably less.

With oil coming down in price, all airlines are benefitting. But none are close to catching Southwest. Still, oil at $140 per barrel is an anomaly. Where its pricing ought to be is in the $60-$80 range.

The big network carriers will continue to wring out efficiencies, but that can only go so far, so expect prices to continue to climb.

Bottom line: Fliers will face fewer flight options, more difficult connections, and longer layovers. Airlines will continue to seek revenue opportunities for ancillary services or for options that consumers value most, like an aisle seat or a seat next to a power plug.

Don't plan on seeing expansion of schedules till the economy rebounds.

In the meantime, expect the low-cost carriers like Southwest to expand into certain markets, like Philadelphia, where the network carriers leave a vacuum.

Southwest's position is strong and getting stronger as the year progresses.

 



Airline Futurist • Miami • www.us.amadeus.com

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