Washington, D.C. — Dashing the wildest hopes of airline representatives among the travel executives attending the 14th annual Masters Program held here last month, Guy Caruso, administrator of the U.S. Department of Energy's Energy Information Admin-istration, told participants, "We're not going back to the $20 to $25 per barrel of oil that we were used to in the '80s and '90s."
However, that does not mean the price of oil is returning to the $70-plus highs seen last year, he said. He anticipated a steady oil market staying in the $50 range. Not in actual dollar figures and adjusted for inflation, the $50 mark will linger for between 20 and 30 years, Caruso said. "We're not running out of oil," he said. "We have an investment problem, not a resource problem." However, IJet CEO Bruce McIndoe during the session interjected that oil is "a finite resource and we are depleting it."
Caruso said airline fuel consumption is staying steady and may even go down, while load factors are up and more fuel-efficient aircraft continue to enter the marketplace.
Mike Koetting, Carlson Wagonlit Travel executive vice president for North America, said, "That's relatively good news, especially for carriers in bankruptcy that require fuel below $60."
Whether oil prices abate, increase or hold steady, consultant Julius Maldutis, president of Aviation Dynamics, gave the Wall Street perspective on what fuel means for the struggling U.S. airline industry. "Oil at $50 to $60 a barrel will help most airlines produce profits or break even," he said. "Oil at $60 to $70 per barrel will keep the airlines' financials at roughly on par with 2005. Oil at $70 to $80 per barrel will produce a slide into financial oblivion for some."
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"When it comes to fares, Sabre wants to say we have them all," said Tom Klein, executive vice president and group president for Sabre Travel Network/Sabre Airline Solutions. Sabre, which recently signed Northwest and US Airways to separate five-year, full- content arrangements
(BTN, Feb. 6), now has full content from carriers that make up 20 percent of the U.S. market and expects that others will follow.
With six presentations on the subject in a two-day event, distribution was the most talked-about issue at the Masters—and Klein noted a lot of it still was simply talk. "When file sharing emerged in the music industry, it didn't start with rhetoric, but real innovation," Klein said of new global distribution system alternatives.
"We'll work through airline deals, then begin to discuss incentives," Klein added. Although Klein said he "won't get into those clauses" in terms of specifics on the deals with Northwest and US Airways, Scott Barry, Credit Suisse First Boston's managing director of equity research, said the deals' "multiple moving parts" make it difficult to decipher. Yet, he guessed the $10 to $12 per- ticket costs would migrate down to the $5 to $6 range for carriers. "It will take some time to get there," he said. Northwest last week in an earnings report said its agreement with Sabre "will improve Northwest's global distribution system costs."
Barry added that the "the two deals are a positive indicator" and represent "a level of stability I would not have seen a year ago."
Meanwhile, following Klein during the program, G2 SwitchWorks president and CEO Alex Zoghlin derided the GDS model's value proposition. "Unless you own the seat, unless you own the butts, everything else is cost of distribution," he said.
Among those costs, Zoghlin noted GDS fees between $4 and $12, credit card fees of $4.50 plus and fulfillment fees of up to $15. For GDS fees, Zoghlin said the Holy Grail lies where distributors can offer low cost with high touch. Zoghlin said G2 is working on it. He said 80 percent of work at G2 is on "capabilities TMCs can offer travelers," while only 20 percent is working on "base capabilities to airlines."
Barry said the GDS issue is "not a matter of value, but a matter of what airlines think is fair value," and according to Continental's John Slater, the industry is not there yet.
Slater said the carrier is working "to get rid of the costs that don't work for us" as GDSs "continue to raise prices unchecked." Continental is considering other pricing models, striving for the $3 per ticket on G2 and its own Web site, where about 20 percent of its bookings are made.
Slater noted a preference for different value propositions on different types of tickets. "GDSs want to charge the same amount on high-yield and low-yield tickets. Why can't we find a middle ground? I don't have a problem with the higher distribution fee on that higher fare."
Pfizer director of global travel Phil Dunphy said that if an airline would eliminate itself from the GDSs, "then their content might not be available through the channels we use at Pfizer. If it's not, then I suspect that would be provided by one of their competitors." Dunphy likened it to Southwest or JetBlue, which do not display in the GDSs. "Yes, we buy from them, but on a limited basis."
American Standard Co. travel buyer Tom Barrett said, "If a value proposition is pushed forth, we have to look at it."
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"The probability that we'll have a flu pandemic this year, or any other year, is small," said Alex Azar, deputy secretary, U.S. Department of Health & Human Services. However, "There will be another influenza pandemic," he said. "No one can say when or to what magnitude."
Azar described how the influenza mutates regularly in either drifts—small changes—or shifts, which "are potentially more harmful." A shift in the current avian flu strain could make it far more contagious.
"Right now, the worry is not bird flu insofar as humans are concerned, the worry is one more change could be the next pandemic," he said. "We can't begin vaccine until the pandemic virus appears."
Al Martinez-Fonts, assistant secretary for the Private Sector Office of the Department of Homeland Security, said he was "very concerned on the impact to the economy" should such a pandemic break. Azar said such a pandemic could disrupt the economy more than the hurricanes in the past year. "It's not an issue of a bad thing happening in one place and resources pouring in from other areas," he said.