Major domestic airlines today praised the industry's restraint from adding new supply into the domestic market as executives committed to flat capacity this year during presentations at the J.P. Morgan Aviation, Transportation & Defense Conference in New York City.
Citing J.P. Morgan 2010 estimates, US Airways COO Robert Isom today said industry capacity would remain relatively flat compared with last year. "The industry as a whole in 2009 took out about 6 percent of capacity," said Isom. "We did our share with 4.5 percent. As we look forward, we want to make sure that discipline is maintained going into 2010."
Other major airlines gave a similarly flat view of their capacity equations this year, particularly as several noted that a return to pricing power is dependent on keeping supply matched to demand.
"When measured against 2007, 2009 mainline domestic capacity for the network carriers was down a whopping 14.5 percent," American Airlines CFO Tom Horton told investors today. To put that in perspective, American held the largest domestic marketshare between December 2008 and November 2009 at 13.9 percent, according to the Department of Transportation's Bureau of Transportation Statistics data.
AA said its capacity only would increase by 1 percent this year—which Horton described as merely the illusion of growth since that modest increase is largely attributable to reinstating service to Mexico that was pared last year amid the H1N1 scare and the Chicago-Beijing service it deferred last year to 2010.
Delta Air Lines president Ed Bastian said Delta's system capacity is down between 4 and 5 percent this quarter, and the carrier would "continue to maintain that level of capacity restraint."
United Airlines CFO Kathryn Mikells said the likelihood of new entrants filling any of those capacity gaps is unlikely since capital remains elusive in the industry and variable costs make up a growing portion of the airline cost structure.
"I think that certainly is going have a dampening impact on what we've seen historically as we've come into the recovery period of a cycle where we have a lot of new entrants entering the marketplace," Mikells said.
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JetBlue Airways CEO Dave Barger said the carrier in late January transitioned to the SabreSonic reservations platform from Navitaire, which it had used since its launch. In addition to enabling interlining and codesharing, the new system would allow for more expansive revenue management capabilities and more ancillary revenue opportunities and let the carrier "be more relevant to the corporate flyers," Barger said, by enabling corporate agreements. Though JetBlue officially cut over to the Sabre reservations platform on Jan. 29, Barger said full conversion and further capability adoption would play out in the next several months.
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Sharing internal sales figures, Delta's Bastian said corporate sales volume last week was up more than 35 percent compared with the same period last year. He said that "pricing typically lags volume," but said there were signs that pricing is firming and even beginning to approach levels not seen since 2008.
Asked if the carrier's corporate volume growth was an indicator of recovery or marketshare shifts resulting from renegotiations that now include its integrated Northwest buy, Bastian pointed to the former, but said Delta is targeting a 2 percentage point marketshare gain in its corporate contracts. "That's roughly $100 million in annual revenue value," Bastian said.
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Once a reluctant follower in product unbundling, Continental Airlines now considers ancillary revenue generated from a la carte pricing "a key part to our future," CEO Jeff Smisek told investors today.
Continental in 2008 was the penultimate holdout among legacy carriers to charge for a second checked bag—American was last—but Smisek detailed today how beneficial that decision has been to the carrier.
In addition to reducing the number of second checked bags by 60 percent in the United States, which reduced fuel burn and improved baggage-handling performance, Smisek counted revenue as the most appealing result. "We expect bag fees to generate over $350 million for us this year," Smisek said. "That's a considerable sum that basically wasn't there before."
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On the impact of new tarmac delay rules coming into force in April, Continental's Smisek said, "We're going to cancel a lot of flights" in instances when tarmac delays inch closer to three hours—which is the point when airlines must either allow passengers who wish to disembark to do so or face fines greater than $27,000.
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American's Horton said he expects to implement a joint business agreement with British Airways, Iberia, Royal Jordanian and Finnair in the second half of the year, following DOT's tentative approval last month of antitrust immunity.
American also has an antitrust immunity proposal with Japan Airlines before DOT. "Our proposed joint business agreements—both with BA/Iberia as well as with JAL—are particularly important to corporate sales efforts," Horton said in his prepared remarks, echoing competitor sentiments
(BTNonline, March 8). "Today, global companies are increasingly looking to negotiate large parts of their airline network needs with one alliance. With an immunized partnership like the ones enjoyed by our competitors between Europe and the U.S., we can offer a one-stop shop to key corporate clients. Our joint business agreements will allow our sales teams to work together to sell a more comprehensive network in key business markets."
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Delta's Bastian said Italy's flag carrier and SkyTeam partner Alitalia would "soon" join its transatlantic joint venture that also includes Air France-KLM. DOT already granted Alitalia antitrust immunity with those airlines, but was not part of the original transatlantic joint venture.
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Continental's choice a few years ago to not merge with United was "a point-in-time decision," CEO Smisek said, calling it "the right decision at the time."
Smisek continued, "I voted against it myself as a member of management and a member of Continental's board. That said, that was a point-in-time decision, and we'll continue to watch the competitive dynamics, and if we think it's in our best interest to bulk up defensively, we'll do so. I think it's premature to make that decision at this time."
Continental's new Star Alliance and antitrust-immune transatlantic joint venture partner United—a longtime proponent of industry mergers and acquisitions—had little to add. "Our approach and our thoughts around consolidation are unchanged," said Mikells.