Airline executives from United, American, and Southwest, who together with Delta command the overwhelming majority of U.S. passenger revenue, had quotable moments when they discussed the state of the industry at an investor conference in New York City.
Delta was not part of the panel May 19 at the Wolfe Research 8th Annual Global Transportation Conference but its rival in Seattle, Alaska Airlines, indeed joined United, American and Southwest.
United Continental Holdings CFO John Rainey
In discussing United’s efforts to get more efficient by replacing 50-seat regional jets with 76-seat Embraer 175s and mainline aircraft, as well as taking other measures to improve the balance sheet, United Continental Holdings CFO John Rainey conceded: “Because of our checkered past, earning multiples are still depressed.”
Like other members of the panel, Rainey didn’t specifically cite consolidation and the wave of airline mergers over recent years, including United’s merger with Continental, as contributing to the upbeat market conditions but said the industry is better-positioned these days because of a “lack of fragmentation.”
The airline executives on the panel agreed that at least part of their product is commoditized, with travelers shopping for the cheapest fares, although there has been some progress in differentiation with passengers willing to pay for extra legroom, Wi-Fi and club access.
Rainey said United is studying ways to better-segment customers and personalize products in the future, a process that the airline refers to as the “segmentation of one.”
“We’ll unbundle products or rebundle them in a way that they are willing to pay more for them,” Rainey said.
Southwest Airlines CFO Tammy Romo
Southwest Airlines CFO Tammy Romo characterized 2015 and 2016 as a peak period for Southwest because of the ramping up of its operations at Dallas Love Field, where it has 18 or 20 gates, and the expected introduction of international service from William P. Hobby Airport in Houston later this year.
But when planning for the future and discussing the topic of maintaining margins, Romo said: “We are not assuming that these [low] fuel prices will be at this level into infinity.”
Infinity, after all, is a long time, and what comes down often goes back up.
American Airlines Group President Scott Kirby
American Airlines Group President Scott Kirby discussed the pending migration of the US Airways’ reservation system to American’s, and said it would be a low risk for investors and a slightly more chancy one for customers. He said any “bumps on that road” can be fixed “in short order.”
Importantly, Kirby said the migration would unlock lots of opportunities for American because many product changes, including modifications to the frequent flyer program and merchandising, have been on hold since 2013, awaiting the integration.
“For some of the things we’ll be happy to shamelessly copy what our competitors have done,” Kirby said.
Alaska Air Group CEO Brad Tilden
Alaska Air Group CEO Brad Tilden downplayed Delta’s aggressive moves in Alaska’s Seattle base, saying Delta has certain competitive advantages and Alaska has different ones.
He said it appears as though the first quarter of 2015 was the “high-water mark” of Delta’s capacity additions in Seattle, and Delta has made fewer announcements of that nature recently.
Tilden said Alaska will have to wait and see how that rivalry in Seattle shakes out, although “it feels to us like things are settling down a bit.”
Or that’s the hope.