Woodside Confab Points To Changes In Airline Market

<I>San Francisco</I> - A weakening of the airline market, the acquisition of US Airways by American Airlines and an increase in online bookings were among the predictions offered by participants at Woodside Travel Trust's 1997 corporate symposium, held here late last month.

Addressing airline trends, analyst Helane Becker, vice president at Smith Barney, said that while the industry remains healthy, its best days are behind it. "The airline industry gets two or three good years every decade-and they reached their peak profitability during the first half of 1996," she said. "Next year will be good, but not great."

Becker noted that the nation's airlines reached record profitability during the past two years by not letting supply outstrip demand. "While the U.S. economy has been growing since 1994, airline capacity has not," she said. "The airlines have had a chance to build their load factors up."

The equation is about to change, however, as the airlines begin to take delivery of large amounts of new aircraft ordered last year. "Both United and American currently have over 100 new aircraft on order, and there's a huge amount of new equipment coming on line throughout the industry," she said. "We'll see capacity grow by 4 percent in 1998 and another 4 percent in 1999. Airlines are ordering this new equipment for growth, not just replacement."

What will happen to airfares is less certain, depending not just on capacity but on such wild-card factors as the on-again, off-again ticket tax and fuel costs, which have gone up more than 20 cents a gallon in the past year.

"I don't think fares can go much higher; the latest increase of 4 percent in March will be it for a while," Becker said. "A lot will hinge on what Congress finally decides to do about the ticket tax."

Becker also predicted intensifying consolidation in the airline industry, moving beyond the current wave of alliances and code- sharing agreements into outright mergers and acquisitions. "Mergers will be the next step," she said. "US Airways is the airline most likely to be up for sale next; it will probably be acquired publicly by American."

In another seminar, booking tickets online and the impact on travel management was the main topic of discussion between participants who included Dave Hilfman, vice president of national sales for Continental Airlines; Jan Wood, vice president of sales for TWA; Bob Tharp, manager of administrative services for Cincom Systems Inc.; and Nancy Fawthorp, travel program manager for the Mayo Foundation.

While Continental currently has tight commission caps on online bookings, Hilfman indicated that the situation may loosen up for corporations who commit to a certain level of business. "Right now our focus has been on online bookings, which are consumer driven, but we'll talk in the future about corporate programs," he said. "We may offer incentives here if we know we will get a certain share of business."

Wood said TWA, which has offered online bookings since 1984, is "watching what happens with them very closely. We'll continue to pay incentives as we evaluate their importance."

For the travel managers on the panel, the challenge of online booking is integrating it into the overall travel management process.

"We're a high-tech company and our employees, especially the engineers, want to solve all their travel needs by online bookings," Tharp said. "But we need to figure out how we can allow them to do that and apply it to the bottom line. The issue with online booking is measuring it: What you can't measure, you can't manage."

While acknowledging the appeal of electronic booking to travelers, Tharp said it is a mixed blessing for travel managers. "In some ways, I hate it. We have a full-service agency and this throws us right in the middle."

But not all business travelers are embracing electronic booking, Fawthorp said.

"Some of our audit and MIS people are using e-ticketing, but others, particularly our physicians, are too busy to use their PCs," she said.