A post today by "Professor Sabena" on the
T2 Impact blog suggests U.S. airlines have failed in their strategy to raise fares by cutting capacity. "You would think that the significant cuts in capacity from Labour Day onwards would have given the airlines market pricing power and the ability to raise yields," the professor writes. "But even with the wonderful drop in fuel prices the airlines just cannot seem to win for trying." Not only is this assessment a tad premature, it's also inaccurate.
Thus far, six major U.S. airlines have reported third-quarter numbers. Each revealed a year-over-year passenger yield improvement of at least 6.6 percent. Southwest Airlines' was 16.6 percent and American Airlines' was 13.2 percent. On an industry wide basis, U.S. carriers in September raised passenger yield by 12.5 percent, the biggest year-over-year jump for any month in 2008, according to the Air Transport Association.
Meanwhile, each of the six airlines reporting third-quarter financial performance notched growth in passenger unit revenue of at least 4.5 percent. At American, Delta Air Lines, Northwest Airlines and Southwest, the jump was no less than 8 percent.
Among the six, only Southwest--arguably the nation's pricing leader--provides average airfares. Its third-quarter figure? $124.38, up an eye-popping 18 percent.
Corresponding to all these stats, all six carriers reported higher absolute passenger revenue, even as most tallied lower traffic.
Back to Professor Sabena. He or she details four things that "didn't go right." They include:
"The reduction in premium traffic was underestimated"; "reducing the cheap seats inventory was too aggressive"; and "the airlines didn't spend enough money in marketing during this time period to boost sales." I suppose those three assertions are correct, especially the first and probably the second. But a fourth point the professor makes is that "the capacity cuts were not enough." That may end up being correct in the end, but mid-October is hardly the time to judge capacity reduction strategies that still are not yet fully in place.
While fuel prices indeed have retreated from historic highs (that "wonderful drop" the professor mentions), they still were high enough to cost airlines hundreds of millions more in this year's third quarter than in last year's. That's primarily why they have failed to regain profitability.