The Tables are Turning in the Airline Industry
STEVE INSKEEP, host:
As you know, oil prices have been going down, and lots of people are traveling. All of that's good news for airlines. They're making money again. American and Continental are poised to end the year in the black for the first time in six years.
The industry as a whole is expected to post a profit this year for the first time since 2000. Beneath the surface, though, the industry still faces challenges. NPR's Jack Speer has the first of two stories on the airlines' finances, and he begins with discount carriers.
(Soundbite of woman talking)
Unidentified Woman: Your boarding pass and your picture ID, please.
JACK SPEER: At the JetBlue ticket counter at Washington Dulles International Airport, travelers wait to check in. Most seem pleased with their choice of airline.
Mr. DANA PLOUD(ph): I like the service that JetBlue provides. It's real comfortable, like the little TVs that they have on the seats, and I think the seats are real comfortable. So decent legroom, I mean, it's a good deal for me.
SPEER: Dana Ploud is heading off to San Diego. He also likes the airline's low ticket prices and the fact he can book online. But while JetBlue has an almost cult-like following among its customers, the carrier has stumbled lately.
Rob Land is JetBlue's head of governmental relations. He blames higher fuel prices earlier in the year, coupled with a too-rapid expansion.
Mr. ROB LAND (Governmental Relations, JetBlue Airlines): Late last year after Katrina and the first quarter of this year, we lost - combined, in those two quarters - about $80 million. We've never experienced anything like that. It's fairly commonplace for the majors. The other legacy majors get big losses. We have never had that. So we really took a very hard look at ourselves and began a program called RTP, Return to Profitability, and it - nothing was off the table.
SPEER: JetBlue's turnaround program has included slowing the airline's rate of growth, looking at how it does business, even selling some planes. Through its efforts, JetBlue hopes to achieve annual cost savings of as much as a $150 million. The airline hopes to avoid laying people off.
All of this is raising questions about whether the discount airlines are now running into some of the same headwinds as the older, established carriers.
Mr. RICHARD ABOULAFIA (Aviation Industry Analyst, Teal Group): I wouldn't count JetBlue out, but there's no question that their first five years were almost a charmed life.
SPEER: Richard Aboulafia is an aviation industry analyst at the Teal Group.
Mr. ABOULAFIA: They were going against defenseless majors. They were pursuing low-hanging fruit markets - Washington, L.A., point to point, great frequency, great service, young fleet, few pension-overhang costs. I mean, they were growing because they were competent in a time where competence was rewarded. But when people start to get smart again, then the growth process really begins to slow.
SPEER: All of the airlines are being cautious these days, even industry darlings like Southwest. Southwest is still profitable, but the airline reported lower than expected third quarter earnings recently.
William Swelbar is a former airline consultant who now teaches at MIT. He says in an era when everybody competes on price, it's getting harder to differentiate the airlines from one another.
Mr. WILLIAM SWELBAR (Former Airline Consultant): It's no longer my $400 fare competing with American's $2,200 fare. And American has a much broader network and ability to offer that to not only its frequent fliers but it's business passengers and the like. And so fare is really much less a differentiator today between the low-cost carriers and the network carriers than it was five years ago.
SPEER: So does all this mean older, established airlines are back, countering the critics who said they would be turned into dinosaurs by discount carriers like Southwest and JetBlue? Industry analysts say that story is still playing itself out as some of the major airlines like United and Delta work their way out of bankruptcy.
Jack Speer, NPR News, Washington.
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