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Sun, Jul 11, 2004 - Page 12 News List

Trying to put airlines back in business

The days when pilots were paid the same salaries aas CEOs are long gone, and employees in the world's airlines indutries may be forced to do more for less

By Micheline Maynard  /  NY TIMES NEWS SERVICE , NEW YORK

Executives at the large airlines, including Joyner at American, contend that a network system can still work as long as they can reduce costs and streamline operations. Others, however, are less sanguine.

"One, that doesn't get you enough in revenue," Levine said. "And, two, a lot of the management at the airlines doesn't know how to do anything but ask for cuts."

Industry innovators like David Neeleman, a veteran of Southwest and the founder and chief executive of JetBlue, contend that airlines must give up on unprofitable routes and concentrate on areas where they can dominate. Lorenzo argued that it no longer made sense to continue offering service just for the sake of being big. "Companies have got to adjust to the marketplace," he said.

If they do, the industry could fragment into brands aimed at different tiers of passengers.

At the top would be premium-fare service, with international routes like those to the Asian cities served by United and Northwest, and a few choice domestic cities where there is little competition, like Detroit, which is dominated by Northwest, or Cincinnati, where Delta accounts for nine of 10 flights. Major airlines would most likely stay on top in that class of service, because the cost of entering those markets would tend to discourage low-fare carriers.

At the bottom would be highly competitive routes that offer cheap fares and minimal profits, like short flights from Dulles International Airport near Washington or Midway International Airport in Chicago. Here, low-fare carriers would be most competitive because of their low overhead costs.

In the vast, plump middle tier, low-fare carriers and traditional airlines would vie aggressively for customers, using enticements like in-flight entertainment systems and frequent-flier programs to gain advantage.

Under such a model, airlines might be able to compete in two types of service successfully, as a carmaker might produce economy cars and family sedans. But airlines would be loath to tackle all three markets because of the expense of playing at the top, the flood of competition in the middle and the razor-thin profits at the bottom.

Grinstein at Delta is one leader of a legacy carrier who has said publicly that airlines are facing a fundamental change. In an e-mail message to employees last month, he made clear that the old order at Delta was history.

"We need to reinvent ourselves," Grinstein said. "Any notion that we can simply grow ourselves out of this predicament is mistaken.

"Many of our costs are higher than those of our competitors, and our customers will not pay us to cover the difference," he added. "We must recognize this change and act quickly to address it."

LABOR PAINS

If the situation is drastic for airline executives, it is even more painful for labor leaders, whose influence is waning. The industry has never had so many major contract talks in so many places at the same time. Nor have unions that have already granted concessions ever been in the position of facing further requests for cuts - in the case of US Airways, not just once but twice.

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