How much does Vaughn Cordle know about the state of the U.S. airline industry? Well, the CEO and chief analyst of AirlineForecasts -- who has 25 years-plus of experience as a pilot for a major airline -- makes a large part of his living selling what he knows about airline finances and economics to hedge funds, government agencies and consulting groups. At the end of a week of airplane horror tales that included raw sewage flowing down the center aisle of Continental trans-Atlantic Flight 1970, I caught up to Cordle by telephone just after he landed in San Francisco -- where earlier in the week 400 people on a Cathay Pacific Airways jet had been stuck on a runway for seven hours:
Q: Is this summer going to be as hellish for air travelers as we're being told it will be?
A: I don't think so. The benchmark everyone is referring this summer to is the summer of 2000, "The summer of hell," as some call it. That was about labor issues. This summer we don't have labor issues. Traffic is back up pretty much to where it was in 2000. Fares are much lower. Load factors are at historic levels. So it's much more crowded on planes and less convenient and there are more travel hassles because of security concerns and TSA security checks. So it's a very uncomfortable summer but delays won't be as bad.
Q: What's the airline industry's biggest problem right now -- and who or what is to blame for it?
A: The U.S. airline industry is the least-profitable in the world. I believe there are too many competitors. We've been crunching numbers on all the passenger-carrying airlines in the country and there are 34 airlines that produce more than $100 million in revenue. So it's highly fragmented and hyper-competitive. We estimate that those 34 airlines in the domestic market are coming up about $8 billion short from earning their cost of capital.
The big 12 airlines account for about 96 percent of passenger capacity. They're doing quite well internationally but it's the domestic market that is not doing so well. The airlines have to crowd more people into their aircraft. Load factors (percentage of a plane's seats that are sold) have gone from about 65 percent a decade ago to in the low 80s and this summer some airlines probably will have 90 percent load factors. So this means effectively some flights have too many people and they have to turn people away.
It's crowded and airline employees are demoralized because they are working more for a lot less. And when you have to deal with more passengers, employees are working more and they and passengers are stressed out.
Q: Has the airline industry finally figured out how to make profits?
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