Business Travel News
Business Travel News
  • SECTIONSOpen Menu
    • Transportation
    • Lodging
    • Payment & Expense
    • Technology
    • Distribution
    • Meetings
    • Global
    • Management
    • Travel Procurement
    • New! Sustainability
    • Recent Issues
  • VOICESOpen Menu
    • Expert Q&A
    • OpEds
    • Sponsored Content
    • Podcasts
    • What to Watch 2022
  • RESEARCHOpen Menu
    • BTN's 2022 Essential OBT Guide
    • Corporate Travel 100
    • Corporate Travel Index
    • Expense Manager Report
    • Small & Midsize Enterprise
    • Salary Survey
    • Strategic Meetings Report
    • VIEW ALL
  • WEBINARSOpen Menu
    • View All Webinars
  • EVENTSOpen Menu
    • Webinars
    • Business Travel Hall of Fame
    • Business Travel Intelligence Summit
    • Business Travel Lodging Summit
    • Business Travel Show
    • Business Travel Tech Talk
    • Business Travel Trends Forecasts
    • DEI Symposium Series
    • Entertainment Travel Summit
    • Global Travel Risk Summit
    • Government Travel Summit
    • Innovate
    • Strategic Meetings Summit
    • Sustainable Business Travel Summit
    • VIEW ALL EVENTS
  • RESOURCESOpen Menu
    • Business Travel Buyer's Handbook
    • Business Travel Buyer's Techbook
    • Corporate Travel Index Calculator
    • Data Sources: The Reference Guide
    • White Papers & Case Studies
    • Influencers
    • Webinars
    • Hotel Search
  • SECTIONSOpen Menu
    • Transportation
    • Lodging
    • Payment & Expense
    • Technology
    • Distribution
    • Meetings
    • Global
    • Management
    • Travel Procurement
    • New! Sustainability
    • Recent Issues
  • VOICESOpen Menu
    • Expert Q&A
    • OpEds
    • Sponsored Content
    • Podcasts
    • What to Watch 2022
  • RESEARCHOpen Menu
    • BTN's 2022 Essential OBT Guide
    • Corporate Travel 100
    • Corporate Travel Index
    • Expense Manager Report
    • Small & Midsize Enterprise
    • Salary Survey
    • Strategic Meetings Report
    • VIEW ALL
  • WEBINARSOpen Menu
    • View All Webinars
  • EVENTSOpen Menu
    • Webinars
    • Business Travel Hall of Fame
    • Business Travel Intelligence Summit
    • Business Travel Lodging Summit
    • Business Travel Show
    • Business Travel Tech Talk
    • Business Travel Trends Forecasts
    • DEI Symposium Series
    • Entertainment Travel Summit
    • Global Travel Risk Summit
    • Government Travel Summit
    • Innovate
    • Strategic Meetings Summit
    • Sustainable Business Travel Summit
    • VIEW ALL EVENTS
  • RESOURCESOpen Menu
    • Business Travel Buyer's Handbook
    • Business Travel Buyer's Techbook
    • Corporate Travel Index Calculator
    • Data Sources: The Reference Guide
    • White Papers & Case Studies
    • Influencers
    • Webinars
    • Hotel Search
Business Travel News
  • Business Travel News on Twitter
  • Business Travel News on LinkedIn
  • Business Travel News on Facebook
  • SECTIONS
    • Transportation
    • Lodging
    • Payment & Expense
    • Technology
    • Distribution
    • Meetings
    • Global
    • Management
    • Travel Procurement
    • New! Sustainability
    • Recent Issues
    Subscribe to NewslettersNew! BTN SustainabilityBTN DailyBTN GlobalBTN Travel ManagementTravel Procurement
    Subscribe to Print IssuesBusiness Travel NewsTravel Procurement
  • VOICES
    • Expert Q&A
    • OpEds
    • Sponsored Content
    • Podcasts
    • What to Watch 2022
    Jina SanoneFlush With Infrastructure Funding, Amtrak Readies New Trains
    Alex ChatzieleftheriouFurnished Apt. Co. Blueground Leans into Corp. Market
    Flight Centre Ready to Invest in More InnovationFlight Centre Ready to Invest in More Innovation
  • RESEARCH
    • BTN's 2022 Essential OBT Guide
    • Corporate Travel 100
    • Corporate Travel Index
    • Expense Manager Report
    • Small & Midsize Enterprise
    • Salary Survey
    • Strategic Meetings Report
    • VIEW ALL
    Annual Supplier Ratings• Car Rental Survey & Report• Hotel Survey & Report• Airline Survey & Report
    Special Reports• The Future of Meetings• The Mechanics of Sustainble Business Travel
  • WEBINARS
    • View All Webinars
    Analytics, Sustainability and Traveler Safety: Shaping the Future of Corporate Travel

    Thurs., Dec. 8 at 1pm ET / 10am PT
    Sponsored By: Emburse

    The Future of Meetings

    Fri., Dec. 2 at 2 PM ET / 11 AM PT
    Sponsored by: American Express Meetings & Events, Cvent, Group360

    Understanding Booking Behavior and Its Impact on Travel Experience

    Tues., Nov. 15 at 12pm ET / 9am PT
    Sponsored By: TripActions

  • EVENTS
    • Webinars
    • Business Travel Hall of Fame
    • Business Travel Intelligence Summit
    • Business Travel Lodging Summit
    • Business Travel Show
    • Business Travel Tech Talk
    • Business Travel Trends Forecasts
    • DEI Symposium Series
    • Entertainment Travel Summit
    • Global Travel Risk Summit
    • Government Travel Summit
    • Innovate
    • Strategic Meetings Summit
    • Sustainable Business Travel Summit
    • VIEW ALL EVENTS
    Business Travel Show Europe Kick Off

    Virtual Event - 23 February, 2023

    Strategic Meetings Summit Series

    In Person Event Series

    3rd Annual Travel Procurement Virtual Workshop Series

    Virtual Event Series - March/April 2022

    Business Travel Trends and Forecasts Series

    Business Travel Trends & Forecasts is a one-day,

  • RESOURCES
    • Business Travel Buyer's Handbook
    • Business Travel Buyer's Techbook
    • Corporate Travel Index Calculator
    • Data Sources: The Reference Guide
    • White Papers & Case Studies
    • Influencers
    • Webinars
    • Hotel Search
    BTN CTI Calculator

    Filter in or out as many as 200 cities, as well as hotel and car rental class and meals of the day and watch as the per-diem calculator automatically adjusts per diems to your program. Drill down into cost breakdowns and export the results.

  • Business Travel News Supplier DirectorySUPPLIER DIRECTORY

2010 Business Travel Survey: Domestic Carriers' Discipline Bodes Well For Recovery

By Jay Boehmer / July 02, 2010 / Contact Reporter
Share

Leaving behind the billions in losses they racked up over the past two years, major domestic carriers are queuing up not just profits in 2010, but the prospect of longer-term profitability and, perhaps, a structural shift toward financial sustainability. In the past decade, domestic airlines have shed 150,000 jobs and posted losses nearing $60 billion, and dozens of them filed for bankruptcy, some the kind you don't return from. What emerged, carriers and analysts said, is a leaner and smarter, albeit smaller, industry ready to manage through the next decade thanks to lessons learned in the last one.

(Click here to see a pdf of this section, with all charts and auxiliary features.)

"What we know with certainty," United Airlines executive vice president and CFO Kathryn Mikells said this month, "is that in our hyper-competitive industry, the future must look significantly different from the past in order for us to break the boom-and-bust cycle that's been the norm."

As airlines learn time and again, however, the industry's outlook changes in real time, bending with each spike in oil costs, each economic downturn, each new entrant, each new presidential administration and each world event.

"We have long struggled to find a healthy equilibrium between supply and demand here in the United States," American Airlines CEO Gerard Arpey said this month. "If we assume the current economic recovery has legs—and perhaps that's a brave assumption—then I think as an industry we are much better positioned to leverage the upturn than we have been in previous recoveries. There are far fewer seats for sale in the marketplace today than there were five years ago. There are also signs that the industry has learned its lesson about keeping capacity growth in line with demand and will continue to apply that lesson even as the economy comes back."

When the International Air Transport Association in March released its annual forecast, the association targeted U.S. carriers to rival 2009 with yet another $1.8 billion in losses. All it took were a few months for IATA to reverse that outlook, and this month the association said it now expects North American carriers to count $1.9 billion in profits this year.

That reversal reflected not just what's going on the economy at large, but also what has taken hold within the airline industry, as companies maintain capacity discipline, bring in new sources of revenue, find new partners and carefully watch every penny that makes its way onto the balance sheet. Morgan Stanley aviation analyst Bill Greene this month said, "The airline industry is firmly in the recovery phase of this upcycle."

JP Morgan aviation analyst Jamie Baker has taken IATA's outlook and Greene's assessment a step further, saying he remains "bullish" on the domestic airline industry as airline managements and economic trends have coalesced to the benefit of the industry for more than just a year. "Manageable fuel, tight supply, incremental revenue streams, disciplined managements and rapidly recovering demand portend a multiyear profit run for U.S. operators," he said in a recent research note.

UBS aviation analyst Kevin Crissey also is anticipating at least one profitable year for U.S. airlines. "If this is a cyclical recovery that lasts multiple years, the airline industry could be in position for the best run in a long time," he said.

US Airways president Scott Kirby this month said he sees the current recovery that is brewing not as just a cyclical, but a structural, change. "The industry appears to be turning a corner and hopefully it really is different this time," he told investors assembled this month at the 2010 Bank of America Merrill Lynch Global Transportation Conference in New York. "One of the things I've become really fond of saying in my meetings with investors recently is you never should say it's different this time, because it very rarely is. But the environment does seem different this time around and for some real structural reasons."

Among those, Kirby pointed to the sustained capacity discipline that started with the legacy carriers a couple years ago, spread to the once growth-happy low-cost carriers and has been maintained on an industrywide basis, even as demand has picked up in recent quarters.

The second major structural change, he said, is the industry's embrace of ancillary pricing, which has lifted passenger revenue at a time when base fares were doing everything but growing. "It's hard for me to overstate the importance of that to the industry and what a structural change that is," Kirby said of the blossoming a la carte pricing options with which airlines continue to experiment.

The CFO-Led Industry

While the shift from billions in losses to the prospect of multiyear profits is no doubt a positive development for a dysfunctional industry, a few years in the black hardly is the measure of a sustainable industry, said UBS's Crissey, who for years has peppered his research notes with the warning that "trading airline stocks may be hazardous to your wealth."

By way of an introduction during a presentation at the Business Travel News/National Business Travel Association Strategic Travel Symposium in March this year, he said, "This is a bad business." Considering domestic airlines have lost so much in the past decade, Crissey said, "Someone has to be subsidizing these airlines into existence, and that's the investor base."

To Crissey and other investor advocates, that is a troubling reality. "The thing about large losses is the owners of the company aren't happy, labor can't be happy because they can't get the pay increases and the opportunity for growth that they want, and suppliers aren't as happy because they're not selling as many planes," he said.

While profitability is a start, what investors ache for are companies that deliver a return on invested capital, generally a measure of how well a company is at steering investment into returns. Airlines don't even calculate their return on invested capital, Crissey said, as even the most U.S. profitable carrier hasn't gotten that far. "Southwest posts profits every year, but profits aren't the measure by which I measure. I look at everything relative to the return on invested capital relative to the cost of capital." The Air Transport Association, in a report this month, similarly noted, "Even profitable years have been inadequate to cover the cost of capital."

Though he's not changing his "hazardous to your wealth" warning, Crissey said the underlying fundamentals of the industry have improved. He and others, meanwhile, have spoken of yet another change: Major domestic operators largely have gone from marketing-led organizations to CFO-led organizations, making them more investment-minded and focused on earning their cost of capital and returning investments. "In the past, you had so many aircraft coming that airlines had to be marketing machines to fill their planes," he said.

US Airways' Kirby noted a similar shift in how airlines are run. "The industry by and large is led by CEOs who have a different view of the industry than perhaps the CEOs of yesteryear. They're much more focused on returns and financial performance than they are on empire building. Today's crop of CEOs are mostly former CFOs or general counsels—people much more focused on finances and on return than they are on, ‘How big is my airline? How big is my marketshare? How many cities do I fly to?' " That, investor advocates said, is a good start toward long-term financial health.

Delta president Ed Bastian agreed. "You've got managements across the industry that I believe are much more focused on shareholder return," he said this month. "You've got companies that have gone throughout the bankruptcy process and are highly sensitized to delivering and generating the level of return that's required."

What The Airlines Can't Control

There are many things these new investment-minded CEOs can control. They get to determine what cities they fly to, what their capacity levels will be, when they initiate a fare sale or, conversely, when to raise the price to check a bag. However, airline management controls only a portion of their fate.

As such, they remain wary as ever of a spike in fuel, a second dip into recession or some other, unforeseen exogenous event. Such a thing is all it takes to upend their steps toward profitability. As summed up by airfare analyst and CEO of FareCompare.com Rick Seaney, the airlines are rightfully suspicious of seemingly good times.

"Airlines are like the whack-a-mole game," he said. "Every time they stick their heads out, they get smacked with a mallet—whether that's $145 barrel of oil or a recession."
More

Sponsored Content

VIEW ALL
Delta’s Accelerated Sustainability Flight Plan
Delta’s Accelerated Sustainability Flight PlanBy Pam Fletcher, Chief Sustainability Officer – Delta Air Lines

At Delta, we see travel as a noble force for good – and the miracle of flight is helping us to better understand the far-reaching impacts of climate change.  KEEP READING

Delta: Your Partner in Travel
Delta: Your Partner in TravelBy Delta Air Lines

Partner with Delta and get access to innovative products and services, award-winning account support and powerful tools that help your business reach new heights. KEEP READING

Travel is back – easy solutions to maximize your travel budget
Travel is back – easy solutions to maximize your travel budgetBy United Airlines

As the world returns to travel, you may have more questions than answers when it comes to managing your resurgent business travel needs. KEEP READING

Subscribe to Our

Free Newsletters

pixel2

Click Here for our Terms and Conditions and Privacy Policy.

  • Most Read
  • Most Shared
  1. Amex GBT Restructuring to Two Global Segments: Multinational, SME
  2. Managed Travel Unicorn TripActions to Rebrand as ‘Navan’
  3. As Airline Rollovers End, Buyers Assess Status-Loss Fallout
  4. Contracted Corp. Business Losing Prominence at American
  5. STR Increases 2023 U.S. Hotel Rate Forecast
  1. Report: U.S. Mtg. Volume Exceeds 2019, Signaling End of Recovery Efforts
  2. AHLA Survey: Most U.S. Corp. Travelers Returning to Normalcy
  3. TakeTwo Partners with Serko to Offer Zeno Booking Tool
  4. Delta to Offer Free Wi-Fi, Special Content for SkyMiles Members
  5. Could the FAA Outage Hinder Business Travel's Recovery?
Business Travel NewsBusiness Travel News
  • About Us
  • Contact Us
  • Advertise
  • Editorial Calendar
  • Business Travel News on Twitter
  • Business Travel News on LinkedIn
  • Business Travel News on Facebook
BUSINESS TRAVEL NEWS
NORTHSTAR TRAVEL GROUP
Business Travel News
  • About Us
  • Contact Us
  • Advertise
  • Upload Print Ad Material
  • Purchase Reprints
  • Editorial Guidelines
  • Subscribe to BTN
  • Subscribe to Travel Procurement
  • Subscribe to Newsletters
  • BTN Europe
  • Privacy Policy
  • Terms & Conditions
Business Travel News
Business Travel News Travel Procurement The Beat
Northstar Travel Group
  • Retail Travel
  • Travel Weekly
  • Travel Weekly Asia
  • Travel Weekly China
  • TravelAge West
  • TravelPulse
  • TravelPulse Canada
  • TravelPulse Quebec

  • Hotel Investment
  • Burba Hotel Network

  • Travel Technology
  • Inntopia
  • Phocuswire
  • Phocuswright
  • Web In Travel
  • Meetings & Incentives
  • Northstar Meetings Group
  • Meetings & Conventions
  • Meetings & Conventions China
  • Meetings & Conventions Asia
  • Meeting News
  • Successful Meetings
  • Incentive
  • SportsTravel

  • Data Products
  • Agent Studio
  • AXUS Travel App
  • Intelliguide
  • travel42
Northstar Travel Group
Copyright ©2023 Northstar Travel Media LLC. All Rights Reserved. 301 Rte. 17N, Suite 1150, Rutherford, NJ 07070 USA | Telephone: (201) 902-2000
RRManagement rrtestprocurement