Airline execs expect cut-rate fleets to grow By Hal Mattern, The Arizona Republic PHOENIX =97 As U.S. airlines struggle to reinvent themselves in the face of= =20 massive losses, a picture is beginning to emerge of what the industry might= =20 look like in the future. There will be more of the smaller low-cost=20 carriers, or "minnows," nibbling away at the major hub-and-spoke airlines=20 and luring away their passengers, industry executives predicted Wednesday=20 during an aviation symposium in Phoenix. They said that major airlines will= =20 shrink and shed unprofitable hubs to cut costs, with some consolidation=20 inevitable as the industry tries to reduce capacity to meet the lower=20 demand for air travel. The ailing industry is expected to lose $7.5 billion= =20 this year. One executive even predicted that major U.S. and European=20 carriers would join forces to create a handful of huge global airlines. "We are at the very beginning of a multi-year, multi-event shakeout of the= =20 business," Frederick Reid, president and chief operating officer of Delta=20 Air Lines, said at the 12th annual Phoenix Sky Harbor International=20 Aviation Symposium. One of the themes of the three-day conference at the=20 Phoenician Resort was the emergence of low-cost, low-fare carriers and=20 their effect on traditional hub-and-spoke airlines. George Mikelsons,=20 chairman and CEO of ATA Airways, said that even if the traditional airlines= =20 restructure their operations and cut their costs, small carriers will=20 continue to grow because they offer passengers a better value. "Value will= =20 continue to be the absolute driver in air travel," said Mikelsons, who=20 referred to his Indianapolis-based airline as a "small fry" and a "minnow."= =20 "And value carriers will continue to eat away at the core of the=20 hub-and-spoke system." But he warned that small airlines need to be wary once the major carriers=20 recover, or they will be "swallowed like Jonah by the whale." Most of the=20 executives at the conference agreed that low-cost airlines would continue=20 to grow, but not everybody expects them to eventually dominate the=20 industry. "I don't agree that low-cost carriers are going to rule the=20 world," said Douglas Parker, chairman and CEO of Tempe-based America West=20 Airlines, which has reinvented itself as a low-fare carrier. "The big=20 airlines are going to be here. This is not going to be an industry that=20 will look dramatically different in 10 years." But competition from such=20 low-cost airlines as Southwest and JetBlue has caught the attention of the= =20 big carriers, causing some of them to consider creating their own low-cost= =20 subsidiaries. Delta Air Lines, for example, has launched Song as an airline within an=20 airline, a concept that has never been successful in the United States.=20 Critics contend that airlines that create such subsidiaries risk=20 cannibalizing their own mainline businesses. They also question whether=20 airlines can effectively operate as Wal-Mart and Nordstrom at the same=20 time. But Delta officials see Song as a way of growing. The airline, which= =20 is starting out with 36 planes, is expecting to double or triple in size=20 over the next several years, they said. "We certainly think we can run a=20 Wal-Mart and a Nordstrom," said David Pflieger, vice president of=20 operations for Song. Airlines such as Song and JetBlue are described by=20 some in the industry as "cheap chic" because they offer low fares but such= =20 amenities as seat-back television programming. Several major airlines=20 already have cut their capacity and costs. But they acknowledge that they=20 still have a ways to go before they can match the lowest-cost carriers. US Airways, which recently reorganized and emerged from Chapter 11=20 bankruptcy proceedings, reduced its capacity by 30 percent and reached new= =20 labor agreements with its employees. "It's tough to restructure," said=20 David Siegel, president and CEO of US Airways. "It was an unbelievably=20 difficult, painful experience." Siegel and other executives said the=20 biggest difference between traditional and low-cost airlines is their labor= =20 expenses. Reid of Delta said that wages in the airline industry are in the= =20 top 5 percent of all corporations in America, while their financial results= =20 are in the bottom 1 percent. Even so, he said, some airline unions still=20 threaten strikes, when in reality the future of the industry is going to be= =20 higher productivity with fewer workers. Some executives said that U.S.=20 airlines have to stop copying each other and create their own business= plans. Bob Fornaro, president of AirTran Airways, said that everyone used to watch= =20 American and United airlines to see what they were doing, and then follow=20 suit. But United has filed for bankruptcy protection and American narrowly= =20 averted a similar move "We should stop paying so much attention to what=20 other airlines are doing," Fornaro said. "We should compare ourselves to=20 other businesses, not just to other airlines." All the executives agreed=20 that some consolidation is inevitable if the industry expects to reduce=20 capacity. But efforts by major airlines to form alliances already have=20 drawn criticism from smaller carriers who fear it will stifle competition.= =20 Mikelsons suggested that airlines are hurting themselves by constantly=20 trying to undercut one another through fare wars and other initiatives,=20 which often result in huge financial losses. "The industry fights itself,=20 spending billions of dollars trying to kill each other," he said.=20 "Infighting has brought the industry to its knees." *************************************************** The owner of Roger's Trinbago Site/TnTisland.com Roj (Roger James) escape email mailto:ejames@xxxxxxxxx Trinbago site: www.tntisland.com Carib Brass Ctn site www.tntisland.com/caribbeanbrassconnection/ Steel Expressions www.mts.net/~ejames/se/ Site of the Week: http://www.cso.gov.tt TnT Webdirectory: http://search.co.tt *********************************************************