Apparently both Southwest and Continental have announced fare increases due to rising fuel costs. Continental also announced a first quarter loss, while Southwest saw its profit down by 2/3. Continental’s current position doesn’t surprise me, but Southwest’s does. Southwest bases itself on the “spend less” principle rather than the “give more” principle (prime examples of the latter include BA, Cathay, Emirates…) and does quite well at it, utilizing concepts as important as a single-type fleet or an entirely coach cabin. It also flies relatively short domestic routes, from its hub at DFW to large airports in the southwest.
This said, the airline business in the United States should really brace for impact, if the merger between Delta and Northwest works out (which for the sake of both companies, especially Northwest, will probably work out), the results could be brutal. Northwest has a large route system set up in the Pacific, with a huge amount of destinations to Asia, meanwhile, Delta has a large Atlantic route system. This will leave the new airline with not only the spot as the largest airline in the world, but also with a geographical strategic advantage. Not good news for other American carriers like Southwest or Continental.
So what does the future entail for airlines flying within and into the United States? For non-American carriers, nothing new. Airlines such as BA, Iberia, KAL, Swiss, etc will be hurt by the raising oil prices, but the market fluctuations within the US wont affect them nearly as much as their American counterparts, and with the new “Open Skies” agreement, flying between the US and the EU becomes much easier for both carriers and passengers. For American carriers, things will probably get rough. Assuming the Delta-Northwestern deal works out, I see American Airlines and Delta-NW in a fierce struggle, with smaller carriers such as US Airways and Continental falling into a regional flight system or directly scrambling to form alliances in order to survive. A couple of them will probably file for bankruptcy such as Aloha Airlines and ATA. If I were head of one of those middle to large airlines, the first move I would make would be to reduce the fleet variety “à la Southwest.”
An interesting airline to watch will be Virgin America. A relatively small airline based in SFO, it flies A319s and A320s (similar aircraft,) which follows Southwest’s model. What is interesting is that even if it does not prosper, it has Virgin Atlantic and the Virgin corporation behind it, in case of financial problems. It should be interesting to see how the airline progresses, and whether they continue past their current 23 aircraft (14 orders.)
In any case, it seems like the airline business has to squeeze itself in order to survive, it should be interesting to see how many can’t go through.
