Global$11 billion$7.5 billion

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Global Scenario
Losses 2001 2002
Global 11 billion 7.5 billion US 9
billion 6.0 billion
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State of the Airline Industry
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
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State of the Airline Industry
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State of the Airline Industry
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Stock Market Blues
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Drivers of the Airline Industry

• The recession
• Internet
• Intense competition from low-fare carriers
• Inflexible operating procedures
• Stubbornly high labor costs

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The Recession
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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 JetBlue VS.
2463
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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

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Intense Competition from Low Fare Carriers
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Intense Competition from Low Fare Carriers
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Intense Competition from Low Fare Carriers
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Intense Competition
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Inflexible Operating Procedures

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
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The Hub System for Delta at Atlanta
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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 '90s 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
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• 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

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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
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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?"
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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
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Is Niche Marketing Possible??
Marriott and Courtyard by Marriott Cable
channels with MTV, VH1 and BET Running shoes to
basketball shoes to mountain biking shoes to
tennis shoes Midwest Express, based in
Milwaukee, has always offered first-class service
throughout the plane Lufthansas 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
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time-share industry NetJets 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 NetJets 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
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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
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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

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Will the Landing be Safe for Your Airline Company?