"Full planes, empty pockets"

Monday, August 25, 2003

Full planes, empty pockets 
BY JOHN GILLIE
The Tacoma (WA) News Tribune 


If you've flown on a chock-full plane or been caught in the serpentine
security lines at Sea-Tac Airport this summer, you're uncomfortably part of
what airlines hope is an emerging phenomenon: 

The long-awaited revival of the airline business.

After the worst travel slump in aviation history, recent statistics show
that people are flying again in increasing numbers.

   .Air Transport Association figures show that airliners in June and July
were more crowded than they've been in 30 years. The fleets of the nation's
largest carriers, American Airlines and United Airlines, were 82 percent
full in July, the highest percentage since the ATA began collecting
statistics in 1970.

   .The passenger count in July at Sea-Tac was up 75,655 from July 2002, a
2.71 percent increase, Port of Seattle figures show.

   .The Northwest's largest carrier - SeaTac-based Alaska Air Group - said
Alaska Airlines' July traffic jumped 15.2 percent above the same month last
year. For its regional carrier, Horizon Air, July traffic increased 15.4
percent.

   .Southwest Airlines said its revenue passenger miles, a standard measure
of business activity in the airline industry, rose 9.8 percent.

   .Upstart airline JetBlue Airways reported that its business was 79.2
percent higher in July than during the same month last year.

   .AirTran Airways of Orlando said it recorded the busiest month in its
history in July. Revenue passenger miles grew by 32.4 percent over the same
month last year.

   .Denver's Frontier Airlines said its fiscal first-quarter traffic grew by
nearly 31 percent compared with the first quarter of 2002.

Not all the numbers are as encouraging as these, a fact that keeps airline
executives cautious about the future. Their companies have been battered by
the Sept. 11 terrorists attacks, the economic downturn, the war in Iraq and
the worldwide Severe Acute Respiratory Syndrome (SARS) outbreak.

Some of the lower-cost, smaller and more nimble carriers have managed to
grow during these tough times, but the industry giants are still in a
muddle.

Consider these numbers:

   .Delta Air Lines, the nation's fourth-largest carrier, saw its traffic
decline 2.7 percent last month after it cut its capacity an additional 3.5
percent.

   .Northwest Airlines said traffic fell 3.9 percent after a capacity
decrease of 7.5 percent.

   .US Airways, freshly emerged from bankruptcy reorganization, said its
traffic dropped 3.5 percent after it cut its capacity 9.5 percent.

   .The world's largest airline, American, said its traffic dropped 0.4
percent last month on a capacity decrease of 6.9 percent.

Indeed, the record percentage of seats filled - which the airlines call the
"load factor" - is due in large part to the fact that airlines have parked
more than 600 jetliners in the desert to cut operating costs.

More importantly, airline chieftains say, average fares are still too low
for airlines to be profitable.

"These great numbers are a real tribute to all of the hard work our
employees have been doing this summer to keep the airline running smoothly
and meet our customers' expectations for outstanding service," said Glenn
Johnson, American's vice president of finance.

"Unfortunately, we dug a pretty deep hole for ourselves in the first
quarter, posting a $56.3 million loss. And, at today's fare levels, 2003
will be likely be our fourth consecutive year of losses - even with strong
summer traffic."

Profit problems

Much of the increase in traffic has come in the persons of vacationers
traveling on bargain fares, not business travelers paying higher last-minute
prices, airlines said.

"Leisure traffic was strong in July, producing a record load factor," said
Ben Baldanza, US Airways senior vice president of marketing. "However,
overall yield has not improved significantly over last year."

Those low average fares hurt profitability.

Merrill Lynch airlines analyst Michael Linenberg said in a research report
that despite higher traffic, profitability is still elusive.

"The broken record continues to play: 'Yields remain weak,'" he said.

"We have to become profitable, but as to when, we are not prepared to say,"
said Northwest Airlines President Doug Steenland.

"The challenge is going to be for the network carriers to get their costs in
line so that they can be fully price-competitive with the low-cost
carriers," he said.

Alaska, Delta and Northwest are all in talks with their workers, trying to
reduce labor costs to levels more competitive with the low-cost rivals such
as JetBlue, AirTran, Frontier and ATA.

Orders for new jetliners reported by The Boeing Co. and Airbus reflect the
disparity between the prospects at the low-cost carriers and the less agile
and more expensive mainline carriers.

Boeing's largest orders in recent months have come from emerging carriers
such as Europe's Ryanair, AirTran and Virgin Blue of Australia.

At Airbus, large orders have come from discount carriers JetBlue, Frontier
and EasyJet.

Major U.S. carriers such as American and Continental have been deferring
orders.

World picture brightens

The International Civil Aviation Organization, which tracks airline traffic
worldwide, said that traffic is stabilizing around the world after a 2.9
percent drop in 2001.

An article in Jane's Airports Equipment and Services said air freight
traffic, usually a precursor of trends in passenger traffic, has risen 4
percent this year.

Airlines are hoping that rising demand ultimately will create pressure that
will allow them to raise prices.

"The real question right now is whether the higher load factors will
ultimately create upward pressure for fares," said John Heimlich, chief
economist for the Air Transport Association.

US Airways executive David Siegel gave his employees the bottom line earlier
this month:

"What matters is not how many people are in the seats, but how many dollars
are on the airplane."

Summer winners, losers

Summer travel is picking up for airlines. Chart compares air traffic of July
2002 and July 2003:

Winners Change (%)

JetBlue +71.3

Frontier +38.0

AirTran +32.4

ATA +18.7

Alaska +15.2

Southwest +9.8

America West +7.5

Continental +5.6

Losers Change (%)

United -9.1

Northwest -3.9

US Airways -3.5

Delta -2.7

American -0.4

Source: Federal Aviation Administration

Attached Photo:

Airliners wait their turns for takeoff at Sea-Tac.

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