Capacity control aids US airline recovery
Industry consolidation and a tight rein on capacity has been key for the turnaround of US carriers since the dark days of the early 2000s, a senior airline executive has told a conference.
John Gebo, senior vice president financial planning and analysis at United Airlines, said the industry has been “transformed” after a turbulent period that saw the collapse of 100 carriers in the 1990s and 2000s.
Yields fell up to 20% as the industry was “buffeted by economic and geopolitical issues”, he said.
The difficult trading environment dovetailed with carriers taking on “tremendous debt” as they acquired new aircraft, he added.
“Since the inception of the airline industry in the US, 195 carriers have gone bankrupt, around 50 of those in the 1990s and 50 in the 2000s,” Gebo told the CAPA aviation conference in Sydney.
But since emerging from chapter 11 bankruptcy protection, carriers have got their act together with “more capacity discipline” and “less fragmentation through a wave of consolidation”.
Between 2007 and 2012 capacity fell 6% while yield climbed 6%, despite the severe recession in 2009, Gebo said.
“That [yield growth] would have been impossible without capacity discipline,” he said.
Improved earnings has also enabled carriers to invest in product, people and services, Gebo added.
Meanwhile, carriers sought out partners to complement their own operations. His own airline, United, partnered with Continental which Gebo said provided a strong trans-Atlantic business, a Latin American network and a New York presence which United lacked.
“If you were to build an airline from scratch in the US, you’d put two hubs on the west coast, two on the east coast, have a strong hub in the centre and one in the south for Latin America,” Gebo said. “That’s what we have.”
After the combined "massive losses” of US$25 billion between 2001 and 2006, the industry recovered to generate profits of around US$3.6b in 2007.
The resilience of the industry was highlighted by achieving a similar result in 2012 despite having to absorb $13b in additional fuel costs, Gebo said.
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