Airlines: Transform or Perish

WASHINGTON, June 11 /PRNewswire-USNewswire/ -- Aviation expert Darryl Jenkins issued the following statement today:

In observing the airline industry for many years, I've seen plenty I'd rather forget, ranging from 9-11 to SARS and other extreme shocks to the system. In all cases, the prevailing notion was that it was passing and would return to normal later.

The meteoric ascent of fuel prices does not appear to be one of these short-term "we'll simply deal with it" scenarios. In fact, of all the bad happenings that could have reshaped the industry over the past 10 years, but didn't, this is the one that finally will.

Since December 2007, eight U.S. airlines have gone out of business and another is operating in bankruptcy. According to the Air Transport Association, U.S. airlines are projected to spend $61 billion on fuel this year, $20 billion more than in 2007. That's equivalent to the compensation and benefits of 267,000 airline workers or the acquisition of 286 new jets!

What's more is that the $20 billion increase is also nearly four times more than the industry has ever earned in a single year; the best year for profits at U.S. passenger and cargo airlines was 1999, with net earnings of $5.3 billion.

Clearly, if airlines are unable to cover their expenses, more airlines will go into bankruptcy, and possibly go out of business, with devastating impact on jobs and the economy. That is what's at stake.

Last year, most airlines were able to cover only 40 percent of the increase in fuel costs through surcharges. But we're now in a slow economy - with some experts already calling it a full-blown recession.

Typically, when the economy slows, so does demand for oil. Not so now with demand from China and India stronger than ever. The record prices for fuel and a slow economy create a double whammy on airlines. It should be no surprise airlines are reeling, losing millions of dollars a day, and desperately looking for new ways to cover costs.

It is time for fundamental change in the way the industry flies. It's also time for passengers to radically adjust their thinking on what flying really costs.

American (AMR), Continental (CAL) and United (UAUA) recently announced they will dramatically draw down service, a much-needed step to reduce costs and increase pricing power. However, reduced capacity on its own simply will not cut it. Increased fares, fuel surcharges and the painful but inevitable unbundling of products and services are needed if our air transport system is to survive.

Several airlines have begun this process with various fees, including most recently American Airlines taking a bold step by implementing a fee for a checked first bag on some discount domestic tickets. In doing so, they are following in the footsteps of the banking and telecom industries that years ago had the courage to successfully unbundle and charge for products and services.

If our airline industry is to survive, it must find the courage to transform now and impose higher fares and fees that directly match revenue with direct operating costs.

Darryl Jenkins is one of the best-known authorities on aviation in Washington, D.C. Jenkins was a member of the Executive Committee of the White House Conference on Aviation Safety and Security (at the bequest of Vice President Al Gore) and is a regular commentator in the national press, including CNN, CNBC, ABC News, NBC News, the Nightly Business Report and various other cable programs. His expertise in reservations systems, revenue management, operations, safety management, air traffic control, and aviation policy is widely regarded.

Darryl Jenkins has been involved in the airline travel business for twenty years, beginning as a travel agent in 1974. His background in aviation includes consulting work for a number of major airlines as well as extensive literary pursuits. He has authored several books on aviation including: "Managing Business Travel," "The Savvy Business Traveler," "Financial Distress in the Airline Industry," Failed Partnership," and "The Handbook of Airline Economics."