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American Morning

What is on Horizon for Nation's Airlines?

Aired January 02, 2002 - 07:30   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
LEON HARRIS, CNN ANCHOR: After the tragedy and the turbulence of 2001, what is on the horizon for the nation's airlines? The terrorist attacks staggered an industry that was already hurting, but will the airlines ever recover from 9/11?

And joining us from Washington to talk about that is David Field. He is editor of "Airline Business" magazine -- good morning and happy New Year to you, David.

DAVID FIELD, EDITOR, "AIRLINE BUSINESS": Good morning and happy New Year to you.

HARRIS: All right. Let me -- I'm getting the sense from what I have been reading and what I've been hearing that the airlines, really considering how bad things have been, are actually breathing a sigh of relief today. Is that true?

FIELD: Yes, because they're not as bad as we thought they were going to be. We have seen very encouraging return of people to the airport. The month after the September 11 attacks, revenue -- domestic revenue was down by over 30 percent. For November, it was down by just 19 or 21 percent. If that trend continues, why, we'll be at breakeven by sometime next year.

HARRIS: Yes, but if people...

FIELD: Now, it's bad, but it's better than we thought it was going to be.

HARRIS: Yes, but the question I have, though, are people coming back here for the right reason? Are they coming back because they're ready to get back to life as usual? Or is it just because the fares have been so cheap lately?

FIELD: I think people are drawn by the cheap fares. Perhaps a slight impedance of it's my patriotic duty to fly. I know I exercise my patriotic duty to buy over the holidays. But I really think that's on the margins. Right now, it's price, and if you look at revenue vs. occupancy, it's not real encouraging. There are bodies in the seats that if you look at what they're paying, they're not paying a heck of a lot.

HARRIS: Yes. OK. Well, how much longer is that going to last? FIELD: It's certainly going to last through much of this first quarter. The first quarter is always a bad quarter. Airlines try to make money in the summer and autumn, and you know, pile up all of the money they can to get through the winter. You never make money in the winter. And now, it's just going to be pushing how much worse the losses are going to be.

HARRIS: All right. How about the -- just getting back to the traveling public's psychology right now. I'm going to show a poll graphic that we've got here from the Associated Press. We were wondering about what people are thinking right now about how safe it is to fly right now. And as you see there, some say as far as the likelihood of more terrorist attacks against the U.S. in the near future, very likely, 23 percent, somewhat likely, 47 percent, not too likely. Not at all likely and don't know or refuse to answer, those responses are about 30 percent of the total poll there.

But you see 70 percent say that they believe that some sort of attack is likely, very likely or somewhat likely. Is it because -- are people more concerned about, you know, attacks on something on the ground or on planes? And is that keeping people away at all still?

FIELD: I think the conventional wisdom right now is that the next attack, if and when it comes, won't be against airplanes or airports. There will be a different attack and a different modus of attack. That security has been stepped up too much. They wouldn't be foolish enough to come up against the airlines.

But if you look at the last time that poll was done for CNN, which was about a month before, the numbers are a lot more encouraging this time. That the definitely we're going to get attacked people have moved down in numbers, and the maybe it will happen have moved up in numbers. And in that sense, it's getting better.

HARRIS: All right. Let's talk about the airline business itself. Before September 11, so much of the focus was on the labor problems that each of the airlines had, and the way that they were all just hemorrhaging money left and right. Have they learned anything from this experience in the last three-and-a-half months or so that's actually going to help them transcend those problems when it's all over with?

FIELD: I think at some airlines, you have seen a dramatic turnaround, not so much in trust between labor and management, but in a realization that it's a reality that's beyond their control. And that, yes, there are going to have to be some sacrifices. And also, you have seen that even though airlines thought they were doing precision surgical cuts when they made their October 30 percent type cuts, they've already been recalling some people. And this was because of a really encouraging development. By working closely with the unions, you had a lot more people taking volunteer leaves, furloughs, going onto military service than the airlines had calculated, and therefore, the number of people who had to be bumped involuntarily fell dramatically.

HARRIS: How about... FIELD: So you were able to...

HARRIS: I'm sorry, go ahead.

FIELD: So you were able to call him back sooner.

HARRIS: I'm sorry. I didn't mean to cut you off that soon. I'm just thinking right now about profitability. Do any of the airlines look as though that they'll be back in the black anytime fairly soon, or what?

FIELD: There is only one airline that's expressed real optimism with a date on it, and that's Continental. Probably they'll be making money by the summer. Most people expect Southwest Airlines to be profitable. But, no, it's not going to be a good year.

When we calculate all of the 2001 losses, you're looking at 7 billion, 8 billion, 9 billion, 10 billion for the U.S. airlines. And I can't imaging it's going to be (UNINTELLIGIBLE) in the industry a year from today, I can't imagine it's going to be much better than a $3, $4 billion loss. I hope I'm wrong.

HARRIS: Wow!

FIELD: It really doesn't look good.

HARRIS: Yes, that's a pretty big number, when you start talking about billions in losses like that. Any -- I don't know -- any sense of how the markets are going to handle information like that?

FIELD: We've seen some buying, some sort of downside buying in the last couple of weeks. As investors said, gee, it's not that bad -- it's not that bad a value in terms of the company. The stock is a good price right now. And when we saw government money starting to come into the industry with the loan guarantee to troubled America West, there was a real surge in buying, because investors began to believe that the government would not let the industry die.

And if you look back to September when people were predicting, oh, bankruptcies, mergers, death, blood, that hasn't happened. And I don't think anyone is really going to go out of business.

HARRIS: OK. Well, let me ask you again getting back to the rates and the fares right now. Will there be any permanent changes to the rate or fare schedules, you know, based again, of course, of what we have seen happen so far, and what has been successful in the past couple of months?

FIELD: I think what we're going to see is the airlines going back to what they were doing right before September 11, realizing that their most precious traveler, the high paying, high fare business traveler, is revolting (ph), is buying away, is using alternative methods. And airlines have actually begun to say maybe we have to rethink the basic fare structure, maybe it has to be one where people don't feel they're getting ripped off, because the other person paid $3,000 less or more. HARRIS: Yes.

FIELD: But there has to be some predictability, some accountability, what a consultant would call transparency. And I think as the year goes on, as it stabilizes, airlines will get back to thinking about that. I know that the business travel community, which is an enormously powerfully lobby, really demands a basic restructuring, and the airlines have begun to realize they were losing money before September 11. They really don't make money. Airlines are not a good way to make money. They're going to have to rethink the basic business model. And with that, is going to come a rethinking in fares.

HARRIS: I've got to think that would make it a heck of a lot easier on the consumer -- the general consumer, not just the business flyer, but anyone who is looking for a fare to know exactly that the fare system actually makes some sense, and that, you know, if you book it at 9:00 a.m., you get a different rate than if you had booked it at 9:05 a.m. or whatever.

FIELD: Exactly.

HARRIS: That sort of thing that drives people crazy, and here's -- I'm one person who is hoping that they do get away with that system. David Field, thank you very much for time this morning -- we sure do appreciate it.

FIELD: Thank you.

HARRIS: And happy travels to you and happy New Year.

FIELD: Happy New Year.

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