Airline Weekly - December 23, 2004
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Airline Weekly - December 23, 2004

The Year Ahead: Airlines Hope 2005 Will Be A Happy New Year

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Cover Story

The Year Ahead: Airlines Hope 2005 Will Be A Happy New Year

It was a year of mixed fortunes for the world’s airline industry, a year in which traffic boomed but so did fuel prices. Some regions fared better than others, but everywhere, uncertainties will persist in 2005.

In the U.S., the airline industry remains in the midst of a massive restructuring that is now in its fourth year, with traffic finally recovering but profits still nonexistent. Carriers have already sliced billions from expenses, much of which merely helped offset the dramatic rise in fuel prices. And as labor and other costs have fallen, so too has revenue, pressed by overcapacity, transparent pricing and the new market power of low-cost carriers. In 2005, legacy carriers will respond by continuing to cut costs and look for new revenue opportunities.

For United, that means a shift to more international flying, hoping that this—coupled with new concessions from unions—will win it the financing it needs to emerge from bankruptcy. American hopes United’s cost cuts and a potential repeal of the Wright amendment, which protects its lucrative Dallas hub, do not imperil its own competitiveness. Like United and others, it will also look abroad to improve its fortunes. Delta, unenviably exposed to some of the most oversupplied domestic markets—the north-south flow along the nation’s east coast, for example—will engineer a massive schedule change in early 2005, folding its Dallas hub and beefing up service at its remaining strongholds. Its task will be easier if two carriers facing existential threats, US Airways and Independence Air, fail to turnaround in 2005. Northwest will solidify its position in the relatively yield-strong Midwest, hoping ATA’s new lease on life doesn’t get in the way, while Continental will launch new flights to Europe and Africa. Both carriers will pursue labor cost reductions while using their new place in the SkyTeam alliance to boost revenues.

Growth pressure will force low-cost carriers to find new markets and increasingly compete amongst themselves. Southwest, which now carries more domestic U.S. passengers than any other airline, must continue to improve its industry-leading productivity to offset some of its rising fixed costs like salaries... (359 of 1438 words)

Also Inside this Issue:

As the year comes to a close, a record number of holiday travelers are taking to the skies. But even as vacations began, business in the airline industry remained eventful.

Helped by a weak US$, airlines around the world announced a flurry of yearend aircraft purchases, including key orders for both the B7E7 and the A350.

Labor unions in the U.S., meanwhile, find themselves squeezed between the ailing finances of their employers and the threat of losing pay and benefits via court order. The next few weeks are likely to be critical for United and US Airways.

Amid all the turmoil, Southwest emerged victorious, as it usually does, this time winning approval for its surprise bid for ATA and its Midway assets.

There are other airlines around the world closing 2004 on a good note, but the industry remains turbulent and unstable. We close our last issue of 2004 with a wish for better times ahead, hoping all airlines and their workers fare better in 2005 than they have in 2004.

About Airline Weekly

Airline Weekly is a subscriber-supported publication, paid for by readers who want a more interesting, more valuable read about the airline business. Each Monday, Airline Weekly reports who's flying where, new marketing approaches, fleet, finance and key airline and airport data. And, most importantly, Airline Weekly readers enjoy a critical context, insightful analysis and new ideas found nowhere else.

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