Low-fare carriers could be biggest, expert says

LOS ANGELES -- As the major carriers continue to lose their best customers, low-fare carrier Southwest eventually could emerge as the nation's biggest airline, aerospace executives were told here yesterday.

And JetBlue, another discount airline that is not even in the top 10 of largest airlines in the United States right now, will not be very far behind Southwest.

"That's where it could go," said Edmund Greenslet, president of ESG Aviation Services, which provides consulting services to airlines, manufacturers and leasing companies.

"The trends are clearly in that direction," said Greenslet, whose Airline Monitor newsletter is widely read by the airline and aerospace industry.

Speaking at an annual aviation industry suppliers conference here sponsored by SpeedNews, Greenslet made it clear why he believes the major U.S. airlines are in such bad shape, with three already in federal bankruptcy protection, including United.

Many industry analysts believe American Airlines, the country's biggest carrier, could be next to the courthouse.

"I'm mad as hell, and I'm not going to take it any more," shouted Greenslet during a luncheon address.

"You want to know what's wrong with the U.S. airline industry? That's what's wrong," he said. "That's the business traveler talking to the airline industry.

"You are the pillar upon which they built their business model, and you have rebelled, openly and completely rebelled."

He used the example of one of the speakers at the two-day SpeedNews conference that ended yesterday. That person was a last-minute substitute and had to fly from his home in Washington, D.C., to Los Angeles.

Because it was such short notice, a major carrier wanted $2,200 for the round-trip flight. But the Southwest fare was only $400.

The speaker took Southwest, even though it meant driving to Baltimore to catch the plane and making one stop in Nashville, Tenn. Greenslet noted that when the U.S. airline industry was deregulated in 1978, full fares averaged 19 cents per revenue mile and discount fares averaged about 10 cents.

By last year, the full fare average was up to 40 cents, he said, while the discount fare was only 11 cents.

"This has set the stage of the rebellion that we are talking about, the rebellion that is well under way," Greenslet said.

Tuesday, one of the conference speakers, Paul Thomas, chief economist for Continental Airlines, said the business travelers will return once the economy rebounds.

Those business customers won't return, Greenslet said. "They have gone."

He said the biggest change in the "air transport economic equation" since the Sept. 11, 2001, terrorist attacks has been the decline in airline revenue generated by those full-fare passengers.

The decline has been on the order of 50 to 60 percent, he said, or from $10 billion down to $4 billion.

That accounts for nearly all the loss recorded by the U.S. airline industry last year, he said.

Much of this year's SpeedNews conference was marked by grim assessments by various speakers of the outlook for the U.S. airline industry, especially now that the U.S. has started the war against Iraq.

The fallout will also hurt airplane makers Airbus and The Boeing Co., since the industry recovery could be pushed back, depending on how long the war lasts.

Boeing has slashed its production by more than half since 2001. Boeing is forecasting it will deliver 280 planes this year and from 275 to 300 in 2004. Airbus has said it expects to delivery 300 this year and next.

Greenslet said there is still a surplus of planes in the worldwide fleet. "The fact is, all the airplanes built in the last two years were not needed," he said.

Ideally, Boeing, Airbus and the regional jet makers should produce no more than 400 planes this year and next, he said.

"That's the kind of production levels needed if we are going to get that surplus down to a manageable number that will allow production to increase when traffic returns," Greenslet said.

But because production is not going to get that low this year and next, Greenslet predicted it will be 2009 before total production hits 800 planes, including regional jets.

"It does not appear likely to be a great decade for aircraft manufacturers," he said.

P-I reporter James Wallace can be reached at 206-448-8040 or jameswallace@seattlepi.com

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