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Chris Jones

Executive Sees Rough Skies Ahead for Airline Industry

23 June 2004

The head of Southern Nevada's second-busiest airline painted a dismal portrait of the U.S. aviation industry Tuesday, telling a Las Vegas audience high fuel costs and rigid competition could soon permanently ground many of today's largest carriers.

"Our industry is still in serious turmoil ... and has lost $24 billion between 2001 and 2003," said Doug Parker, president and chief executive officer of America West Airlines. "When you lose this much money for this long, some seriously bad things start to happen."

Parker told those at the American Association of Airport Executives trade show, which runs through Thursday at the Las Vegas Convention Center, he is not among those who believe his industry's so-called legacy carriers -- American, Continental, Delta, Northwest, United and US Airways -- will simply go away.

But over the next three to five years, Parker expects today's Big Six will consolidate into two or three very large airlines whose combined domestic market share will fall from its current 75 percent to approximately 50 percent to 60 percent. Those surviving would likely have lower operating costs and fewer hubs, he added.

Parker also believes today's lineup of seven or eight major low-cost carriers will simultaneously be reduced to three or four such airlines, though their combined market share would likely grow to 40 percent or 50 percent of U.S. capacity.

"Because of the success of JetBlue ... everyone seems to think they can start up a low-cost carrier now and become billionaires," Parker said. "I think the next phase you're going to see is the low-cost carriers fight each other off."

Parker took over America West on Sept. 1, 2001, just days before terrorists disrupted the global travel industry by hijacking four airliners, crashing two into New York's World Trade Center and one into Washington's Pentagon. The fourth jet crashed in a Pennsylvania field, killing everyone aboard, and the global aviation industry has only recently showed signs of recovery.

"I had a nice 10 days," Parker said of his first few days on the job before the Sept. 11 attacks. "Since that time it's been a little rough."

Still, Parker said recent improvements in the U.S. economy were expected to make 2004 a break-even year for the aviation industry. Instead, he said record-high prices will increase America West's fuel costs by more than $100 million compared to what it paid a year ago.

"And every airline is saying that," Parker said of increased fuel costs eroding their profit margins.

The effects of those costs are complicated by an overabundance of available seats.

"The economy is coming back, but demand is not coming back," said Parker, whose airline still plans to grow by as much as 10 percent this year, including Monday's announcement of four new Las Vegas flights starting in September and October.

Randy Walker, who oversees McCarran International Airport, agrees that the current aviation industry business model will soon change significantly. He hopes airline leaders can strike a balance that will help their companies' finances without significantly reducing travelers' ability to easily fly to and from Las Vegas.

"We have an industry that's not making money, and right now I think capacity is one of the issues," said Walker, who is Clark County Aviation director. "There needs to be a rationalization of the seats (capacity) because we need to have profitable carriers over the long haul or there will be a drastic reduction" caused by an airline shutdown.

Walker hopes the industry's seat reductions won't go too far, however, or Las Vegas could face a shortage of available seats similar to what took place in 1998 and 1999, a period when many airlines made high-fare routes targeting business travelers their top priority.

The best way for Las Vegas to remain an attractive option for airlines is to keep its operating costs as low as possible, said Walker, who said McCarran's $5 per passenger cost to airlines is much lower than the $17 charged in San Francisco or $25 charged in New York.

Parked also urged the airport executives to keep their charges to airlines low.

"What we'd like to see from airports is what we've all been doing as airlines: scrutinize every single category of expenditures," Parker said. "The airports that are going to be the most successful are the ones that are most efficient."

America West's fortunes are important to tourism in Southern Nevada. Through April, the most current data available, the Tempe, Ariz.-based company was Las Vegas' second-busiest carrier this year. Its nearly 2.15 million arriving and departing passengers trailed only Dallas-based Southwest Airlines' reported 4.1 million passengers, according to the Clark County Aviation Department.

Shares of America West Holdings Corp., the airline's parent company, closed Tuesday's trading session at $9, down 33 cents, or 3.54 percent.