Airline execs face harsh new realities
Airline executives grumbled Thursday that there is too much competition in the sky and fares are too cheap to produce profits for more than a handful of carriers.
They also acknowledged that fares are unlikely to change much and that airlines must learn to adapt to each passenger being less profitable.
Atlanta-based Delta Air Lines Inc., which ignited the most recent round of price-cutting with reductions of up to 50 percent last month, found itself the target of barbs from rivals at a conference in New York for airline investors.
“Our friends in Atlanta kind of finished off the domestic system for most of us,” said Jeffrey J. Misner, chief financial officer of Houston-based Continental Airlines Inc. He estimated that Delta’s move would cost Continental $10 million to $12 million a month.
Gerard Arpey, chairman and chief executive of Fort Worth, Texas-based American Airlines, the nation’s biggest carrier, noted he had tried repeatedly to raise fares to offset high fuel costs.
“Unfortunately, many of our competitors seem to be taking the exact opposite approach, adding capacity and lowering fares even more.”
Delta was having none of it, defending its broad fare restructuring as a necessity, even if it further erodes revenue for everyone in the industry.
“Our plan is grounded in market reality,” said Michael Palumbo, Delta’s chief financial officer. “We designed this because, candidly, we had to.”
Some executives grudgingly agreed. Arpey said American, a unit of AMR Corp., had gained customers in South Florida by cutting fares in Miami — after competitors and customers flocked a few miles north to the Fort Lauderdale airport. American is now trying that strategy elsewhere.
Glenn Tilton, CEO of United Airlines, a unit of UAL Corp., said there just isn’t room for all the large airlines remaining from the days of government regulation in the 1970s.
“I think for the industry to get to a position where it can genuinely make some progress, there needs to be fewer network legacy carriers,” Tilton said.