Airlines see fuel costs, flyer loyalty as top issues

9th May 2007

While concerns
about the environment are growing significantly in international
markets, fuel costs dominate all other issues impacting the airline
industry, according to results of a survey.
The poll was conducted among North
American and international airline executives by Sabre Airline
Solutions, the global leader of software and services for the airline

  By wide margins, leaders of the 197 airlines who participated in
the survey viewed fuel costs as their top challenge and the most
significant impediment to profitability. Government regulations and
customer loyalty round out the top three issues impacting the airline

  “While most airline-related surveys reflect the opinion of
passengers on airline service, our survey polled the world’s top
airlines on the issues that are directly affecting them, their
operations and roadblocks to their successes,” said Gordon Locke, vice
president, Sabre Airline Solutions and Distribution Marketing.

  The Sabre Airline Solutions survey highlights the emergence of
environmental issues, as well as the disparity between airlines
headquartered in North America and those based in Latin America, Asia,
Europe, Africa and the Middle East. Only 5 percent of North American
airlines currently view environmental concerns as a major challenge,
while 34 percent of international airlines named it as one of the
three biggest challenges they will face in 2007.

  “As long as U.S. carriers are focused on survival and rebuilding
their balance sheets, and their regulatory climate is not pushing
hard, they will not likely embrace environmental concerns as much as
European or other regions’ carriers,” said Steve Hendrickson, Sabre
Airline Solutions senior strategist. “The momentum for potential
regulatory actions against airlines’ carbon emissions is much more
pronounced in Europe than in the United States. Also, U.S. airlines
are still obsessed with the emerging financial recovery they are
slowly achieving, while carriers in many other regions are largely
doing pretty well.”


  North American and international airlines were virtually identical
on the impact of fuel costs with 95 percent of international and 94
percent of North American airlines saying it will have a “significant”
cost, revenue or operational impact. Eighty-two percent of North
American and 77 percent of international airlines said government
regulations would have a significant impact; and 77 percent of North
American and 74 percent of international airlines cited customer

  While high fuel costs are a top airline concern, the Sabre Airline
Solutions consulting practice said cost savings in this unpredictable
facet of operations can be achieved.

  “Our consulting group recently engaged with a North American
carrier and a Latin American carrier and found US$5.1 million and US$8
million, per year, of potential fuel savings for these carriers,
respectively,” said Khaled Al-Eisawi, of Sabre Airline Solutions
consulting. “This level of savings opportunity is significant for any

  He confirmed that high fuel costs are consistently being cited by
airlines as their most pressing issue. “Airlines realize that they
have to absolutely optimize their use of fuel resources to remain
competitive,” Al-Eisawi said.

  Nearly half of the 197 airlines that participated in the survey,
48 percent, believe developing new revenue streams is important to the
overall airline revenue strategy, but only about a third or fewer
thought some of the most talked-about ideas for generating new revenue
would be effective, such as some airlines moves toward offering
unbundled pricing and service.

  Thirty-five percent said charging extra for seat selections would
be an effective source of new revenue and even fewer said in-flight
entertainment (34 percent), meals (24 percent) and in-flight comfort
items such as pillows and blankets (17 percent) would be effective
revenue sources. There was a significant difference of opinion on this
issue between North American and international airlines, however; 30
percent of international airlines said meals could be an effective
revenue source but only 13 percent of their North American
counterparts agreed.

  Slightly more than two thirds of the respondents—68 percent (73
percent North American, 57 percent international)—predicted the
number of low-cost carriers would increase by January 2008, while 9
percent believe the number will decrease and 23 percent predict it
will stay relatively the same. Far less than half the airlines
surveyed saw increases in the number of regional or international
long-haul carriers.

  While 45 percent of North American airlines said airline
bankruptcies will have a significant revenue or operational impact on
their airline, only 29 percent of international carriers agreed. “Each
region or nation has its own unique bankruptcy laws, and the U.S.
airline industry has now spent many years learning all the ins and
outs of Chapter 11 restructurings,” Hendrickson said.

  “The ones taking place today are more sophisticated and well
managed than those a decade or more ago. The U.S. industry had a lot
of legacy costs and related issues to cleanse itself of in bankruptcy
court, and they had a lot of intellectual capital—lawyers,
accountants, consultants, etc.—at their disposal to work all the
leverage that a court-supervised restructuring allows. The bankruptcy
gambit in other parts of the world is just not as accepted or
conducive to effective restructuring as it is in the United States and

  In another notable difference of opinion, while 30 percent of
international airlines thought the inability to secure new routes
would be among their top three revenue impediments, only 15 percent of
North American airlines agreed.

  “The U.S. domestic market is totally deregulated and thus any
airline can fly where it wants, when it wants,” Hendrickson said.
“This is not necessarily so for many other domestic markets around the

  “Plus, the U.S. government has secured a good array of bilateral
route authorities and even open skies agreements from which its
carriers can draw their expansion opportunities,” Hendrickson added.
“Contrast that to some of the other countries around the world where
airlines may still face restrictive route freedoms, slot scarcity or
gate constraints. In some cases, the traditional flag carrier may be
owned by that country’s government and hold the majority of route
authorities while newer rivals, who might be privately funded, are
only slowly gaining route authorities from the government.”

  Respondents expect 46 percent of all passengers will book their
travel directly online in 2007. This number is considered an increase
by 87 percent of the respondents over the number that booked online in
2006. Among those who book their travel online, airline executives
said six out of 10 will book through an airline’s Web site while the
others will use online distributor Web sites.

  Sabre Airline Solutions conducted the online survey between March
13 and March 23.


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