The World is Changing

[Cheechako]

That was the headline from the VP of Marketing here at Alaska. He wrote a rather lengthy letter to Flt Ops discussing the near future of Alaska Airlines. There was supposed to be a fairly substantial bid effective in May. Lots of upgrades and newhires. Now, not so much.

I can't post the whole thing here, but here are the highlights:
> Skyrocketing fuel prices is making it tough to maintain lean routes. As a result,

> 2 MD-80s being parked much earlier than planned leaving behind several routes that will not be replaced.

> Fare increases are not working. Up the ticket prices and folks go elsewhere.

> The expected robust 2008 economy with its financial comeback is not panning out. When the economy slows, air travel is one of the first discretionary expenditures to get hit. Alaska's historic caution in expansion takes over.

> The age 65 rule, originally expected to be in effect mid-09, now looks like mid-08. That equals a lesser need to hire. There are about 50 captains that will reach age 60 in 2008 and almost as many in 2009.

Here's an interesting quote (bold mine):

While no one is excited to be parking aircraft, at a recent investment conference, United Airlines' CFO, Jake Brace, said "either the industry passes on the higher fuel prices or we're going to have to lower capacity, but you have to make the equation work." He said United Airlines could ground as many as 100 aircraft. To be sure, it remains to be seen whether capacity reductions can solve the long-term problems of a historically profitless industry, and there continue to be airlines even in this environment that refuse to take fuel-related fare increases. And while I'm talking about fare increases and fuel prices, I thought I'd share a couple of interesting facts from a recent report by the Air Transport Association. In their report they stated that the average charge to fly 1000 miles has declined by 10.2% since 2000 while the average jet fuel price/gallon has increased by 116% over the same period. The math simply doesn't work

 

[astrelin]

Wow, those are scary words to a guy who hopes only to be at Alaska in the next 2 years. Thanks for the post, it's good to hear "inside information" I'll just be hoping that things get sunnier in the next few years.

 

[Patrick]

The world is very much changing. At the end of the day, the real problem with the airline industry is simply a business model that does not work. The only way in the current environment the airlines can hope to make anything is to keep all their planes at or near capacity and in the air. Even then, the margins are dismal.

Freight companies know their math and make it work in their favor. The last several years, anytime you ship anything thee is a fuel surcharge. When is the last time you bought a commercial airline ticket and aid a "fuel surcharge?" As the above post points out, if anything its cheaper than ever to fly these days, and those of us who are on the other, non consumer side of things know what it costs to keep these birds in the air. The math just doesn't add up.

Corporate operations justify the cost of their aviation programs as a "necessary luxury," they don't expect to see a return on their investment and thats fine as they don't have to.

If anything, to make the airline industry work, there needs to be cooperation between companies, not competition. This is not an industry where a price war benefits anyone, as unlike a manufacturing company who has at least some control over their costs (i.e. if a new competitor has a newer, better, lower cost process to produce their widgets and can sell them cheaper than you can, you either adopt new technology and cut costs or you go out of business), the bulk of the costs for an airline are fixed. Its not like there is money to be saved on aircraft acquisition or leasing, maintenance, and especially, fuel. The only place to cut costs, unfortunately, is labor and thats where all of the new group of professional pilots and other flight staff and ground personnel are feeling the pinch.

Time will tell how this all pans out, but in my opinion, in the new market an airline job is not the job security it once was years ago.