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Press Release: Aviation Week
November 19, 2002
NEW YORK, NY -- A collapse in pricing power and a fundamental shift in the buying behavior of business travelers,
coupled with fierce competition from low-cost airlines, is forcing U.S. major hub-and-spoke carriers to restructure
their operations or face the prospect of eventually going out of business, according to this week's issue of Aviation
Week & Space Technology magazine.
In the magazine's cover story, "Restructure...or Die," airline executives and industry analysts note
that the September 11 attacks, while devastating, are not the root cause of the financial crisis gripping major
network carriers. Rather, the crux of the problem is a combination of excessive costs in relation to carriers'
current and projected revenues, an imbalance between the supply and demand for available airline seats, and an
inability to boost air fares.
In their struggle to survive and restore their operations to financial health, major U.S. airlines have axed more
than 70,000 jobs. In addition, some unions representing many of the industry's employees have made a commitment
to work with management to help the carriers compete more effectively with low-cost rivals, such as Southwest Airlines,
noted AW&ST. However, the magazine also points out that it will take much more than concessions by labor for
major U.S. airlines to solve their financial problems.
Based on current trends, the domestic market share held by the six major US airlines (American, Continental, Delta,
Northwest, United and US Airways) plus Alaska Airlines will drop from 75% this year to 62% in 2010 -- and 45% by
2020, according to the cover story. Edmund S. Greenslet, who developed the forecast and head of the highly respected
ESG Aviation Services, told AW&ST he foresees Southwest passing American to become the largest U.S. airline
by 2013, and JetBlue passing Delta to become the third largest by 2020.
Greenslet believes the route networks of low-cost airlines have grown large enough to make alternative service
available in almost all of the large business markets. Greenslet's forecasts are used by the US Department of Transportation
and the Transportation Research Council among others, the magazine reports.
According to the AW&ST, the fact that low-cost carriers have been able to mature this far says as much about
what's wrong with the majors as it does about what's right with their low-cost counterparts, and begs the question:
does the underlying strategy or business model employed by the large hub-and-spoke airlines still work? Analysts
and other industry observers believe it does, but to function properly carriers must reduce their costs and restore
the balance between supply and demand.
"When people say the model is broken, they are moving their jaw without putting their brain in gear,"
responds former American Airlines Chairman and CEO Robert L. Crandall. He told AW&ST he's skeptical that the
industry will ever be competitive as long as there are so many carriers selling what has evolved into a commodity
product.
In Aviation Week's analysis of the U.S. airline industry's crisis, it points out that severe financial problems
carriers are suffering could actually worsen in coming months. The biggest wildcard is whether the U.S. goes to
war with Iraq, according to analysts quoted in the cover story. "The U.S. airline industry cannot take another
hit," one of them declared. "A brief war doesn't qualify; a messy, extended war or another significant
domestic terrorist attack does."
With nearly 50 products and services and an audience of millions of professionals and enthusiasts, the AVIATION
WEEK division of The McGraw-Hill Companies is the largest multimedia information and services provider to the global
aviation and aerospace industry. The cornerstone of the AVIATION WEEK portfolio is Aviation Week & Space Technology,
the world's leading aviation and aerospace industry magazine, covering technology, business and operations in the
commercial, military and space markets for more than 106,000 paid subscribers in 180 countries. The group's web
portal, www.AviationNow.com, offers the industry's most reliable news, information and features.
Founded in 1888, The McGraw-Hill Companies (NYSE: MHP) is a global information services provider meeting worldwide
needs in the financial services, education and business information markets through leading brands such as Standard
& Poor's, BusinessWeek and McGraw-Hill Education. The Corporation has more than 350 offices in 33 countries.
Sales in 2001 were $4.6 billion. Additional information is available at http://www.mcgraw-hill.com.
--------------------------------------------
Contact:
Aviation Week
Chris Meyer, 212/904-3255
Chris_meyer@AviationNow.com
or
Kulat Communications
Rob Kulat, 732/219-5816
KuComm@Hotmail.com
Source: Aviation Week