1 / 20

The Impact of Deregulation: 25 Years Later

The Impact of Deregulation: 25 Years Later. Seth Rosen IFALPA Industrial Advisor April 2005 Cape Town, South Africa. Overview. Introduction 25 years since U.S. deregulation Three rounds of financial restructuring 1980’s – began process of industry consolidation

hilary-arnold
Download Presentation

The Impact of Deregulation: 25 Years Later

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. The Impact of Deregulation:25 Years Later Seth Rosen IFALPA Industrial Advisor April 2005 Cape Town, South Africa

  2. Overview • Introduction • 25 years since U.S. deregulation • Three rounds of financial restructuring • 1980’s – began process of industry consolidation • Goals of U.S. airline deregulation • What has happened in the industry? • Where are we today? • Unprecedented challenges ahead • The missing link - labor

  3. The U.S. Airline Industry was Deregulated in 1978 • Some of the Goals of U.S. Deregulation included: • Providing more service to the traveling public • Providing lower fares • 49% lower in real terms (adjusted for inflation) • Higher growth in traffic • RPMs have increased 223% • Enplanements have increased 154% • More competition • Higher profits for U.S. Carriers

  4. 25 Years Later = Mixed Results

  5. What Has Happened in the Industry? • Economic recessions • The role of government • Structural changes • Increased competition • IT and transparency of fares • Cost reduction programs • Fleet simplification plans • Role of management • Unforeseen events – terrorism, war, epidemics • Consolidation • Duration of cycles

  6. Role of Government • 1981 and the PATCO strike • Fiscal and economic policies • Regulatory policy (DOT/FAA/DOJ/PBGC/ATSB/TSA) • Tax policy • Labor policy (National Mediation Board and White House) • National Security Issues • Gulf Wars • Aftermath of 9/11

  7. U.S. Airlines Face a Ticket Tax Burden that is Estimated to Have Exceeded $14 Billion in 2004Taxes on a $200 Domestic TicketSingle-Connection Round Trip w/$4.50 PFC January 2005 Taxes=26%($52) Airfare 93% Taxes 26% Taxes 7% Airfare 74% Source: Air Transport Association

  8. Taxes on a $100 Domestic TicketSingle-Connection Round Trip w/$4.50 PFC January 2005 Taxes=44%($44) Airfare 56% Taxes 44% Source: Air Transport Association

  9. What Has Happened in the Industry? • Economic conditions • The role of government • Structural changes • Increased competition • IT and transparency of fares • Cost reduction programs • Fleet simplification • Role of management • Unforeseen events – terrorism, war, epidemics • Consolidation • Duration of cycles

  10. Structural Change • Corporate structure • Holding Company structure • Branding • Global Air Systems developed • Low Cost Carriers and regionals reach critical mass • 1978 – 38 scheduled carriers • 2005 – 150 scheduled carriers and 18 applications pending • Consolidation • 140 bankruptcies since deregulation • Continental and America West • 30 mergers • Fragmentation (1990’s) • Capital access • Leveraged buyouts • Employee stock ownership programs • Role of Management

  11. SAS Delta Branding Marriott Song, LLC Comair Inc. Residence Inn by Marriott Scandinavian Airlines AirBaltic Marriott Hotels & Resorts Delta Airlines, Dublin, LLC Delta Connection, Inc SAS Braathens Blue1 Renaissance Hotels & Resorts Courtyard by Marriott Atlantic Southeast Airlines Delta AirElite Business Jets Wideroe Flyveselskap Spanair Ritz Carlton Club Marriott Execu-Stay Ritz Carlton Hotel Company, LLC Fairfield Inn by Marriott Estonian Air Comair Holdings, LLC ASA Holdings Inc. Snowflake Townplace Suites by Marriott Horizons by Marriott Marriott Convention Ctrs SpringHill Suites by Marriott JW Marriott Hotels Marriott Vacation Club Int’l Lufthansa Qantas Marriott Executive Apartments Marriott Grand Residence Club Lufthansa CityLine GmbH Air Dolomiti Qantas Freight Qantas Transnet Limited Lufthansa German Airlines Thomas Cook, AG Qantas Link JetStar South African Airways SA Airlink Bmi British Midland Eurowings Qantas Holidays JetConnect SA Express Airways SAA Cargo Luxair Globe Ground Australian Airlines Germanwings

  12. U.S. Capacity ForecastLCC’s and Regionals Gaining Marketshare LCC’s 21% LCC’s 15% Big Six 81% Regionals 8% Regionals 4% Big Six 71% Source: Fulcrum Capacity Forecast March 2005

  13. Asia-Pacific is the Next Region to be Affected as LCC’s are Emerging Rapidly Air Do Skymark Skynet Asia Japan Express Air Japan JALways Asia Air Deccan Airone * Crescent* Air Arabia OkayAirways Oasis Hong Kong Airlines WOW Australia Freedom Air Pacific Blue JetConnect AirAsia Virgin Blue Australian Airlines JetStar Orient Thai Thai AirAsia Diet Jet One-Two-Go SkyAsia** Nok Air Cebu Pacific Valuair* Tiger Airways Lion Air SkyConnections* Paradise Int’l City Link *Indicates airline is planned or ready for launching Source: Orient Aviation Magazine, March 2004; various news sources

  14. What Has Happened in the Industry? • Economic conditions • The role of government • Structural changes • Increased competition • IT and transparency of fares • Cost reduction programs • Fleet simplification • Role of management • Unforeseen events – terrorism, war, epidemics • Consolidation • Duration of cycles

  15. Labor and Cost Reduction Programs • Labor • Contentious or collaborative • Goals are well-defined • Outsourcing and job instability • Returns are limited and downgraded • Other reduction programs less successful • Fleet simplification plans • Unwillingness of some lessors, airports, others to cooperate • Quality of service declines

  16. Labor Rates Have Converged Between Network Carriers and LCCs Labor Rates Are Converging Between LCCs and the Network Airlines Pilot Wage Rate Comparisons Small Narrowbodies – 2005 Low-Fare Network Source: AIR, Inc., contracts, Lehman Brothers estimates. Slides developed by Gary Chase & Winnie Clark, Lehman Brothers

  17. Where are We Today? • Capital access and the debt burden • The tax burden • Soaring fuel prices • Increased competition and low yields • Security issues • The uncertainty of the next unforeseen event • On-going restructuring/consolidation • Which business model will prevail? • Southwest/Continental • Ryan Air • Winners and losers

  18. Unprecedented Challenges Ahead • Energy, Capital access, Yields and Government policy • Marginal revenue improvement • Absolute (not unit) cost reductions • Consolidation • Capital access – a new twist • New entrants • ATI • Merger and fragmentation • National Policy • Fiscal • National security • Aviation trade

  19. The Missing Link - Labor • Service-intense industry • Customer satisfaction • A balanced approach to collective bargaining • Pension reform • Consolidation and labor protective provisions • Consistent government policies • A final observation

  20. THANK YOU

More Related