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Now that fall is upon us, the airlines are cutting back capacity. While fuel is cheaper than expected, capacity is still being restricted. I published this article back in June, 2008. The impact shown here will now hit us in unexpected ways.
One of which is pressure on airline upgrades for frequent flyers. With fewer flights, there will be more platinum elite business customers competing for the available first class seats. I saw that one personally last week on a flight to Newark. Over 100 platinum customers on the same plane as me. Despite my Y class ticket and status, I was number 24 for an upgrade!
Anybody who follows the airline business in the US reads daily about job cuts, capacity cuts and grounded aircraft. Anybody actually flying feels it in delayed flights, reduced amenities and increased fares. Face it, its not a fun time to be in the airline business. It has to be absolutely horrible for airline employees and their families.
Here's a snapshot of some of the major North American airlines and the impact that the weak dollar and higher fuel are having. Frankly it is a fiasco. Once the peak season this summer is over, the following cuts in people, planes and capacity have been announced. No doubt more will be coming.
The interesting thing is Southwest. Southwest will be growing their business by 4% as they take advantage of abandoned markets. Southwest has always been very aggressive on fuel hedging and is benefiting from that practice yet again. All carriers hedge fuel to some degree, but buying fuel on forward contracts takes cash. With so many major carriers fighting just to make payroll every week, the liquidity isn't what it used to be. JetBlue and Airtran stand to also benefit though those carriers have made steps to delay delivery of new aircraft to help manage the stress.
Some of the ways the airlines are attempting to cope with the crisis are
- Increased fares!
- Increases in peak season fares and surcharges.
- Increased fees for baggage
- Eliminating older aircraft
- Increased use of Regional Jets
- Postponed or canceled receipt of new aircraft orders
- Eliminating unprofitable domestic routes
- Eliminating less profitable international routes
- Employee layoffs
- Urgent work to convert to biofuels when possible
- Fewer and fewer on board amenities
- Increased service to higher margin international routes
- Reduced number and hours of operation of Airline Clubs
Its not just the carriers here in the US that are struggling. Qantas is having major problems in Australia and the Pacific as well. They've eliminated a number of routes between Asia and Australia as they refocus their aircraft on more profitable markets.
The Cargo Airlines aren't flying above the clouds either.
CargoItalia has returned it's aircraft to the leasing company. They may not return. Other carriers like Polar, Air Canada Cargo and Cargolux have reduced their capacity to Europe. Singapore Airlines, EVA, Northwest Cargo and Air China have all cut capacity on the Asia to US tradelane. Even on trades with high demand like the Latin American trades, carriers like Arrow and Centurion have been reduced to flying only on the weekends.
Air Freight Forwarders are receiving letters almost daily on new peak season surcharges and increases in fuel surcharges from the air carriers. These get passed along to the customer who in turn either has to adjust his sales price on his goods or seek alternative modes of transport. Any wonder why the ocean carriers are completely FULL?
For folks like me, there is opportunity and pain in this mix. The pain comes from my weekly air travel. I hate getting beat up every week just like the next guy.The benefit however is that shippers are more willing than ever to consider new supply chain ideas. Creativity and opportunities to shift the status quo are always fun. Lately that has taken the form of modal shifts to ocean freight and expedited LCL, strategic placement and allocation of inventory. Considerable focus takes place on green use of trucks/trains and planes as well as how to balance speed, shipment size and transit times across multiple supply chains within a conglomerate environment.
How are you managing both the stresses of fuel prices and the weak dollar in your business?
Eric
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