Thursday, June 05, 2008

The Incredible Shrinking U.S. Air Transportation System (Continued)

Just asking: When are the words "national air-transportation crisis" going to sink in in Congress and in the media?

A national air-transportation crisis is what we're facing, after all.

The latest indication comes this morning from Continental Airlines, a day after United Airlines announced major domestic capacity and fleet reductions.

In a desperate sounding letter this morning to its 45,000 employees, Continental says the current airline business model "doesn't work" and that successive fare increases this year have not been sufficient to address the crisis.

So, Continental says, it is:

---Reducing flights, with fourth-quarter domestic mainline departures expected to be down 16 percent from last year's fourth-quarter. That will translate into a mainline seating capacity reduction of 11 percent.

---Cutting its fleet. By the end of next year, the airline will have removed an additional 67 Boeing 737s from the fleet -- 27 of them in September alone.

---Eliminating about 3,000 jobs.

Despite what you may have been reading, the airline story is not about stock prices and mergers and those pant-loads occupying the executive offices of the major airlines.

Incidentally, while some major airlines are run by incompetents, I do admire Continental's Larry Kellner and Jeff Smisek, who have run the best major airline, and who have honorably chosen not to accept salaries for the rest of this year. And I also admire the people running Southwest, who were smart enough to sacrifice cheap short-term stock market gains and instead look down the road beyond the next quarterly report and invest in hedges on oil.

The airline story is about transportation, the national economy and the American travel culture.

It's about the increasing difficulties you and I are going to have getting from here to there in the United States.


Here is an excerpt from the Continental letter:

"Dear Co-worker:

We've always said that you deserve open, honest and direct communication. This letter and the attached employee bulletin and Q&A are part of that commitment.

The airline industry is in a crisis. Its business model doesn't work with the current price of fuel and the existing level of capacity in the marketplace. We need to make changes in response.

While there have been several successful fare increases, those increases haven't been sufficient to cover the rising cost of fuel. As fares increase, fewer customers will fly. As fewer customers fly, we will need to reduce our capacity to match the reduced demand. As we reduce our capacity, we will need fewer employees to operate the airline. Although these changes will be painful, we must adapt to the reality of today's market to successfully navigate these difficult times.

The attached employee bulletin and Q&A outline some of the steps we are taking to address this industry crisis. The situation for all airlines is serious, and the actions we are announcing today are necessary to secure our future. We regret the loss of jobs caused by this crisis, and we will do our best to minimize furloughs and involuntary terminations.

These actions will help Continental survive this crisis. You have our ongoing commitment to keep you informed as the industry evolves and adapts to these unprecedented challenges. It is important that we all keep our focus on working together during these difficult times."




Rich Ireland said...

Joe, I have been telling everyone I know that we are in the midst of an Transportation crisis. I am a frequent flyer who happens to fly out of a small market, so the pain is sometimes doubled-up. My drive vs Fly tolerance has increased dramatically, with me now choosing an eight or nine hour drive over flying.

When Kellner says the business model isn't working, it isn't. I am the last person who would suggest our Government step in to run or interfere with anything, but I think it's time that they get involved. We don't have a fall-back system for travel like the European rail network. Air travael is the "only way" for business in America. Maybe we should implement taxpayer subsidised fuel cost control along with a "Passengers Bill of Rights"? The airlines would all buy fuel at below market prices and would then be able to compete within the new model. Any airline that files for bankruptcy protection would be immediately liquidated, no Re-org.

Just a few Ideas...

Steve said...

Dear Joe,

I appreciate the kind comments about Continental's leadership. We are very fortunate to have them at our airline. We are equally as fortunate to have you writing such excellent articles.