Return to Transcripts main page

CNN Sunday Morning

Interview with Michael Dyment

Aired March 10, 2002 - 08:16   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.
MICHAEL DYMENT, ANDERSON AVIATION PRACTICE: (AUDIO GAP) ... White House to be restored.

KYRA PHILLIPS, CNN ANCHOR: What's the percentage of air passengers to profits? Is there a big gap?

DYMENT: Well, historically, airline costs and airline revenues have more or less tracked each other. But in the last couple of years, particularly after the meltdown of a couple of the economic sectors, like the telecom industry in early 1990 -- early 2001, the gap began to increase between costs and revenues. And now, it is at historic highs. Of course, the significance of September 11th is still being felt by the airline industry and its profits and particularly in its cash flows.

PHILLIPS: So let's talk about a couple of the major problems here. Number one, debt -- right? Airlines are sinking in a big hole.

DYMENT: Well that's right. The airlines have seen pre cash flows drop from about $12 billion on an annualized basis last year to negative territory. And the problem with the falloff in traffic over -- since September 11th has been exacerbated by a very slow return to normal levels by the business traveler. And there are really two challenges that the airlines have that are going to make this a very sustained long-term recovery.

One is that they are increasingly digging themselves into more debt, and they have less options available now to get out of debt. For example, the -- the equity markets are pretty much closed to the airline industry. And, increasingly, the commercial banking sector, where the airlines would turn to in times when it could not raise...

PHILLIPS: Michael, I'm going to ask you -- Michael, hold your thought there for a moment. We're going to take you live to Andrews Air Force Base. We've been telling you about the vice president and how he's going to be making a trip to the Middle East to, of course, address the situation among the Israelis and the Palestinians. Also, to make a stop to a number of countries while he's out there.

He's going to be meeting with heads of states and governments and foreign ministers in a number of countries: Kuwait, Egypt, United Arab Emirates, the U.K. Saudi Arabia, Bahrain, Katar, Turkey, Oman, Jordan and Israel. We're going to continue to follow the vice president's trip as he takes off with his wife there and this war and peace mission that he's on. We will follow the discussions from here on forward with heads of state.

Let's get back now to our guest, Michael Dyment, Anderson Aviation Practice. That was kind of a nice little twist there, Michael, talking about airplanes. Obviously, the vice president hasn't had any issues with the airline industry, he's got his own airplane. So let's get back into our discussion.

We were talking about the debt of airlines, but are CEOs really admitting -- the CEOs of these airlines admitting that they're in trouble, that they're in debt?

DYMENT: I think there's a general acknowledgment from the top echelons of the industry that something has to be done. But I think CEOs are generally thinking that the recovery of their industry is going to be led by revenue-based recovery. In other words, passengers will eventually return to the skies. And I think that's one of the very, very significant risk areas.

The airlines generally are not in touch with their business travelers, and that's the sector that, if any sector could, would pull the industry out of the terrible situation it's in right now. And I think business travelers are the second major issue that the airline industry has to begin to listen to. Because there's a big gap between the expectations of this sector of their traveling customer base and the airline's understanding of their needs.

PHILLIPS: Well, there's always going to be a need to travel. We know that. Everybody is going to need to fly. But, obviously, the airlines are going to have to do some major reconstructing. What do you think will have to happen first? What do you foresee?

DYMENT: Well I think there will be a period of consolidation of the airlines over the next two to three years. There are too many fragile operators. The prospects of their recovery -- for some of these anyway -- is doubtful. And a further consolidation is necessary. Now on top of that, the business traveler, who accounts for something like 30 percent of all passengers, but really 60 percent of airline revenues and virtually all their profits...

PHILLIPS: Wow, that is a big difference.

DYMENT: ... are looking -- are looking for alternatives, because of the lack of travel productivity that's in the system today.

PHILLIPS: Yeah. I tell you what, I wish those tickets would go down. So many high prices, especially last-minute flights that I have to make. It's amazing how expensive it's getting. Michael Dyment of Anderson Aviation Practice, thanks for sharing your thoughts with us this morning.

DYMENT: Pleasure.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com