PHOENIX -- Douglas Parker seems normal. But he runs an airline, America West, and is cheerful, so what does he not understand? Preternaturally optimistic, he thinks government policy will become more sensible, other events will cooperate and the airline industry, which has been in the red since flight began at Kitty Hawk, will make money. But not soon. Parker is optimistic, but not delusional.
The industry lost $15 billion in the past two years and probably will lose $5 billion in 2004. Jet fuel, now at a 15-year high, is up more than 70 cents per gallon since last May. Every penny increase costs the industry $180 million.
Yet antitrust worries caused the government to disapprove a merger of United and US Airways. How do you get a dangerous monopoly in such an industry? How would the public suffer from the merger of two of the nation's 13 major airlines -- those with at least $1 billion in annual revenue -- when both of them have costs 50 percent higher than Parker's airline?
Just 21 years old, America West is the only airline founded after deregulation that has made it to the status of a major carrier. Under the old regulatory regime, fare competition was minimal and labor costs were essentially the same industry-wide. Those costs were passed on to consumers, who had few choices -- and no Internet to bring the choices to their fingertips. America West has market-based labor costs.
The Internet creates real market-driven fares. It allows airline seats to be treated as what they are, a perishable commodity: When a flight takes off, its empty seats are lost. The Internet makes possible the sale of some seats at declining prices as flight time approaches.
America West, based in this booming city, is thriving -- more or less, relative to most other carriers -- because most of its passengers' trips either originate or terminate in Phoenix or the only other American city booming as much, Las Vegas. America West, which depends less than other carriers on business travelers, is more insulated from business cycles. With just 150 planes and projected annual revenue of $2.5 billion (American Airlines, the largest U.S. carrier, has 730 planes and revenue of $17.4 billion), America West is the eighth-largest.
It has just one gate at Chicago's O'Hare airport. United, which is based in Chicago, has many gates and huge financial problems but is not selling any gates. There should be ongoing auctions of gates. However, airports, to ensure their revenue streams, like to lease gates for 20 years.
The industry could benefit from a 20 percent reduction of capacity, which is United's share. If this were not an election year, and if many United employees were not constituents of House Speaker Dennis Hastert, and if the government's response to Sept. 11 had not included establishment of the subsidy-dispensing Air Transportation Stabilization Board, United might be endangered. Continued... |