Global Scenario Losses 2001 2002 Global 11 billion

Global Scenario Losses 2001 2002 Global $11 billion US $9 billion$6. 0 billion $7. 5 billion

State of the Airline Industry-wide revenue down 16. 6% In May, domestic passenger traffic at the five largest airlines fell 10% from a year earlier. Meanwhile, traffic at their five biggest discount rivals increased 11%. Midway Airlines, Vanguard Airlines and US Air -- have recently filed bankruptcy petitions Grounded more than 1, 000 jetliners, or between 17% and 21% of their fleets

State of the Airline Industry

Stock Market Blues

Drivers of the Airline Industry v. The recession v. Internet v. Intense competition from low-fare carriers v. Inflexible operating procedures v. Stubbornly high labor costs

The Recession

How Businesses are Flying? Sterling Group, a marketing consulting firm based in New York 80 -employee firm spends about $1 million a year on travel. staffers are required to buy an advance-fare ticket or switch to a low-fare carrier $515 round trip on Jet. Blue VS. $2463

Internet tremendous power to hunt down low fares consumers' freer access to fare-price information online booking tools tend to herd customers to the lowest-cost flights rather than the fastest ones planning in advance for a trip and booking a lower fare is becoming the norm for business travelers bypassing corporate travel offices whose negotiated fares are often no bargain anymore

Intense Competition from Low Fare Carriers

Inflexible Operating Procedure Hub and Spoke systems concentrate passenger loads inefficient and costly Response: Big carriers will keep hubs Accelerate development of "neural systems" use small regional jets to bypass hubs and connect smaller markets

The Hub System for Delta at Atlanta

Stubbornly High Costs Labor Costs account for more than 40. 8% of revenues in 2001 (up sharply from 34. 9% in 2000) LABOR COSTS Issue: New labor contracts, based on late '90 s profits, are inflating cost structure at a time of deep losses. Outlook: Some carriers will seek concessions or try to hold the line in new talks. To have any hope of succeeding, managements must convince unions their recovery plans spread the pain

reduce its current capacity by 9% by November eliminate 7, 000 jobs and save the company about $1. 1 billion a year phase out its entire fleet of 74 Fokker 100 -seat airplanes. speed up retirement of nine wide-body Boeing 767 -300 jets eliminate first-class service to add more business-class and coach seats eliminate hot meals and offer bag lunches on most domestic flights reduce fuel consumption by carrying less water and reserve jet fuel eliminate paper tickets within the next 18 months speed up its deployment of self-service check-in kiosks

plans to increase capacity by 20 percent from last year managed a profit of $5. 1 million last quarter since Sept 11 added service to 7 cities and 24 routes grabbed five gates from US Airways at BWI taken delivery of 9 Boeing 717's this year 11 more to come by December

Challenge newer ways to provide full service to passengers and still wring costs out of the operation and match fares with discounters Focus maximizing efficiency instead of revenue Is American Doing the Right Thing? ? ? What have you done to get your passengers to want to get on your airline more? "

Discount Carriers Full-Service Carriers Strategies Practical Perk-oriented Point-to Point Hub and Spoke One Airplane Model 6 -14 different types Planes fly 9 hours Planes fly 6 hours Labor 25 -30 of Revs Labor exceeds 40% of Revs 40% online tickets 5 -10% of tickets online Younger fleets Older fleets Quicker Turnaround Time Idle Planes

Is Niche Marketing Possible? ? Marriott and Courtyard by Marriott Cable channels with MTV, VH 1 and BET Running shoes to basketball shoes to mountain biking shoes to tennis shoes Midwest Express, based in Milwaukee, has always offered firstclass service throughout the plane Lufthansa’s daily flight between Newark, N. J. , and Dusseldorf that consists entirely of business class luxuries, with only 48 seats in a Boeing 737 -700 Southwest Airlines and other flights geared for business travelers and other passengers used to being pampered

time-share industry Net. Jets sells shares in each of its planes to as many as 16 parties for upward of $375, 000 a pop, before various fees If a Net. Jets owner's plane is busy the company will send an identical plane or something better to pick him up. it will turn to the 85 jets it manages for corporate customers. it will charter a plane from a roster of approved providers a jet to the customer with just 4 -6 hours of notice

operate 250, 000 flights this year up from 200, 000 in 2001 employs 2, 300 pilots in the U. S. , Europe and the Middle East corporations, entertainers, athletes, other wealthy individuals Why? ? Convenience Hassle-free service Privacy Flexibility Customized service

Bottom Line cannot follow the quixotic flight path of being all things to all passengers and still turn a profit cannot fly everywhere cannot give passengers the fastest travel time possible cannot provide amenities that will satisfy everyone offer niche products, with flights targeted to specific demographics a possible two-tiered future for short- and medium-haul air travel, in which airlines sharply split their products ticket pricing simplified so that passengers know exactly what they are getting for what they pay