16 experts advise on what’s to come this year.
Los Angeles - The chief executives of the three largest U.S. carriers—Delta Air Lines' Richard Anderson, United Airlines' Jeff Smisek and American Airlines' Doug Parker— late last month took the stage separately during the Global Business Travel Association's annual convention here. What follows is an edited transcript of their comments on some key issues related to corporate travel and the aviation industry.
On Plans For Regional Service:
Anderson: People don't fully appreciate what happens when a barrel of oil goes from $20 to $110. It has impacted small communities and, more and more, it's really a look at what are the intermodal ways people can get to the airports. When you think about how we ought to be organizing transportation in the United States, in the short haul, more and more, due to the cost of carbon, we should expect to see more light rail and other ways to get into airports. The impact has been on the small communities and the lack of favorable economics on 50-seat jets. The U.S. aviation policy has been focused on low-fare, high-frequency between large cities. It has not focused on small and medium markets. For many years, large carriers like Delta subsidized those markets, and we made the decision, when fuel prices got up to $110, we can't subsidize those markets anymore. We did close down Comair, and that was part of needing to reduce from 600 50-seat regional jets. On the September schedule, we have 185. Fifty-seaters are going to continue to dwindle. You need about 150 percent load factor with these fuel prices.
Smisek: We've been very focused on improving our on-time performance, particularly [at] our Express carriers; we are changing the way we allocate our Express operations to our hubs. We've had too many individual Express carriers operating at any given hub, and we're rationalizing that, which gives our Express partners opportunities to do better maintenance flows and recover better from irregular operations, such as weather. We're also reducing significantly the number of 50-seat regional jets. By next year, we'll have about 130 fewer 50-seat regional jets. We're replacing many of them with brand-new 76-seat RJs with first-class product and Economy Plus product, and improved food offerings.
Parker: Eagle is a really important part of the network. What's happening to regional flying is it has truly become a feeder to the mainline. We price the product, we schedule the product, and it's all about who can do that reliably at the lowest cost. We have an issue right now with the pilot contract—[which] will be resolved—that makes growth sub-optimal. Eagle will be a part of the growth of the airline if we can get this worked out with the pilots, but nonetheless, it will still be a big part of American.
On Fare-Based Loyalty Programs:
Anderson: When frequent-flyer programs were first started, they were fare-based. Over time, they became not-fare-based. The banks went down this road first, when you think about Capital One and a lot of the bankcards, so we went to a revenue-based model, and it makes redemption a lot easier. Redemption is about the same as the fare level, so the airline becomes indifferent as to whether miles are used or dollars are used or a combination of both.
Smisek: We're not trying to encourage travelers to spend more, though we'd love it if they would. This is a natural evolution of the loyalty programs. If you look at most loyalty programs, they're dollar-based, if you go to Nordstrom or Neiman Marcus. It applies the value of the loyalty program to the highest-value customers. TMCs and other providers of services to corporate buyers do a very good job making sure their people adhere to corporate policies, and I expect they'll continue to do so. All we're trying to do is to allocate better what is a very valuable, expensive set of benefits we offer to our best customers.
On Safety And Security:
Smisek: We take events like [the shootdown of Malaysia Airlines Flight 17] incredibly seriously. We clearly have a lot of contacts in the U.S. government and people all around the world, security people, so we have a lot of information. With that, we in many cases have to make swift decisions, always erring on the side of caution.
Anderson: We establish our own no-fly zones. At Delta, we have a prohibition on dispatching airplanes across Afghanistan, Iran, Iraq, Syria and North Korea, and that's a dynamic process. We have security offices in every region around the world that make those decisions very conservatively.
On Competition With Middle Eastern Carriers:
Smisek: They clearly have a huge advantage with very low labor costs, no labor unions and little to no taxation. They're state-subsidized and state-controlled. Their governments recognize the importance of aviation and are very supportive of aviation. Our government views us as an ATM machine, a piggy bank. The most recent increase in the [U.S. Transportation Security Administration] fee is not being used for security; it's being siphoned off the national debt.
Anderson: Broadly, we're in favor of Open Skies agreements, but we're also in favor of Fair Skies agreements. A number of those carriers are not airlines. They're governments. Those enterprises have huge subsidies and huge structural advantages. We've got to look at the balance of traffic to make for a level playing field. Fifth [freedom traffic rights] were really originally intended to be basically fuel stops, and we've reached a point now to be able to avoid fuel stops, so you can fly nonstop anywhere in the world.
On United's Integration In Concur TripLink:
Smisek: I would analogize our deal with Concur similarly to our wanting to be on every shelf, everywhere. We want to be omnipresent. However our buyers wish to buy our product, we wish to be there, and we have buyers interested in coming direct to us but making sure they have all the reporting, back-office function and duty of care. We want to facilitate that. We're not forcing anyone to use this. We want to move with technology.
On The Carriers' Respective Mergers:
Parker: Putting two airlines together is a really long and difficult process. For our customers, for the most part, by 2015, it should feel like one airline, but we certainly won't be done with the integration [with US Airways]. There's a tendency to try to put things together and try to come up with something even better, to integrate and innovate at the same time. What we're doing this time is relying mostly on American systems, because that causes the least disruption to the team, because more people are used to using those.
Smisek: A majority of our employees have now joined collective bargaining agreements. We have two larger groups left: one is our technicians and maintenance personnel, and one is our flight attendants. The flight attendants are taking longer than I would have wanted. We have three sets: the old Continental, the old Continental Micronesia and the old United, and they have very different forms of compensation. There's been some degree of difficulty in the three sets of unions coming together to decide what they want. I'm confident we'll reach an agreement, but I can't tell you when, because these things have a life of their own.
On Delta's Acquisition Of A Fuel Refinery:
Anderson: If you look in the last quarter, the second quarter of 2014, the industry average fuel price per gallon was $3.08, excluding Delta. Our fuel price was $2.93 per gallon. One penny per gallon is worth $10 million a quarter, so the advantage we've been able to build on fuel costs is large and sustainable.
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