The need for US airlines to control costs is greater than ever with losses
creeping back onto balance sheets and shares slipping, but carriers are simply
running out of fat to trim after years of restructuring. The main
culprit undercutting profits is high fuel prices.
 But overall US economic
weakness is threatening to erode travel demand and make it more difficult to
generate revenues.
Nearly all carriers, even low-cost airlines such as JetBlue Airways and
AirTran Airways, are looking for ways to run their operations more efficiently
without compromising their services in the ultra-competitive industry.
"The high fuel costs just make you look harder and harder and
harder," said Bob Fornaro, chief executive of AirTran Airways.
Fornaro said airlines must be creative in saving money now that much of the
industry has completed a wholesale restructuring. "Cost reductions
are not necessarily what you take away. It's really how you manage your assets
and how you use your assets," he said. AirTran constantly
reevaluates its route structure to add capacity in markets were it sees demand
and cut capacity in markets that cannot support it. American Airlines
has set a 2008 cost savings target of $150 million, half its 2007 target. The
carrier has not identified specific ways it intends to reduce its costs.
"Now they're getting to the point where they're cutting into things
they shouldn't cut," airline consultant Michael Boyd, referring to the
airline industry in general. "Any major slashes, they're just not there
any more." In fact, carriers must brace for even higher costs in
the coming year as unions demand higher wages and benefits after their
sacrifices of the last six years, he said. In one revenue-based
approach, Alaska Air recently realigned its schedule between Seattle and six
California cities to soak up more premium-paying business travelers. The
airline also has its eye on costs. It is planning to complete the phase-out of
its remaining 14 MD-80s this year, having accelerated the exit dates for two
of these aircraft due to high fuel costs. "We're looking at the
fall schedule now to see if there are further opportunities to pare
unprofitable flying and perhaps retire some of the MD-80s a couple of months
sooner than currently planned," Brad Pedersen, Alaska's vice president of
finance, said recently.
JetBlue, meanwhile, is focused on increasing secondary revenues during
2008. Last year, the airline increased change fees and established a telephone
reservation fee. Last month, JetBlue launched refundable fares as a lure to
passengers who want flexibility. "This is the first of several
initiatives we intend to announce in the next couple of months as we work to
diversify our product to attract high-yielding customers," chief
executive Dave Barger said. JetBlue is also cutting its growth rate to
between 5 and 8 percent for the year, selling more older Airbus A320s and
deferring some deliveries.
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