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Fri, Jun 06, 2008

Industry Pundit Predicts New Era In US Air Travel -- The Low-Cost Era

Says Legacies May Soon Disappear As Budget Carriers Reap Benefits

Some industry analysts and armchair pundits predict the current spike in fuel prices -- and resulting cutbacks in airline capacity, along with ever-climbing air fares -- may prove to have one unintended benefit for US carriers, and some travelers. Those persons predict that as fares climb, fewer "budget" flyers will fill the planes, resulting in lower passenger numbers for legacy carriers... but also a return to profitability, and possibly the return of some onboard amenities and service that had disappeared in the wake of cut-rate fares.

Raphael Bejar is CEO of Airsavings, a company that develops business strategies for low-cost airlines... so, admittedly, there is an agenda here. But Bejar's views are interesting -- he predicts that as legacy carriers behave, in his words, like "desperate creatures, slashing capacity and closing hubs," it's simply too late for many of them.

"It's years too late and millions of dollars too short," says Bejar, one of Europe's most outspoken proponents of the low-cost airline model. "I'm surprised it took this long, for US legacy carriers to recognize their model is broken."

Struggling to keep pace with deteriorating market conditions and bloated costs, US carriers are instituting a mix of cost-cutting and fee hikes, passing the exorbitant buck of air travel onto consumers.

These measures may seem like sensible economic reactions -- as costs go up, so do prices. But that rationale is built on a faulty premise, says Bejar -- the supremacy of the legacy carrier business model.

Some are even lashing out at low cost airlines. Bejar cites the words of Gerard Arpey, CEO of American Airlines parent company AMR. "The industry has been hurt by some airlines growing faster than conditions warranted; that impact has worsened in light of recent economic trends and soaring fuel prices," Arpey said.

Bejar responds Arpey chose to ignore the reason for the surging popularity of low-cost carriers like Southwest, or Europe's Ryanair: people want to fly, they want to do it cheaply, and they want to arrive on-time. He says most US legacy carriers fail when held against those simple expectations.

Predictably, Bejar believes it's time for US travelers to seek an alternative to the "disastrous" state of air travel options -- by demanding low-cost travel.
"Offer the basics -- safety and a seat at low cost -- and let the customers pay for everything else," he says. "And so far that's worked well; low-cost airlines have outgrown legacy carriers by 25% in Europe and 15-20% in the US.

Bejar adds as US carriers continue alienating customers with fee increases, there'll come a point when consumers snap. "How many times can airlines increase baggage fees to keep up with rising costs -- 20, 30 times?" he asks. "There have been 12 fee increases already this year; there'll be a backlash soon. The market here is seeking a different product than what's offered by the legacies."

According to Bejar, US legacy carriers have also ignored a key aspect of low-cost airlines' success -- ancillary revenues. "Successful LCCs, like Southwest and JetBlue, have transformed no-frills air travel into a customizable experience, and have been rewarded with growth and profitability," he says. "They've stripped down flying to its elemental core and sold each fragment back to willing customers... and if legacies are to survive, they must adopt a similar strategy -- quickly."

FMI: www.airsavings.net

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