CEO sees consolidation of airlines as industry changes

Wednesday, June 23, 2004 | 10:40 a.m.

The airline industry is on course to consolidate and only two or three companies are likely to emerge, the top executive of one of the nation's major carriers said in Las Vegas on Tuesday.

Douglas Parker, chairman, president and chief executive of America West Airlines, the No. 2 commercial air carrier serving McCarran International Airport, told 3,000 executives of the nation's airports attending a convention and trade show at the Las Vegas Convention Center that airlines are part of "an industry in turmoil," thanks to high fuel costs and an overabundance of seat capacity.

Parker addressed a lunch session of the American Association of Airport Executives, which will conclude its four-day event Thursday.

The event's trade show includes exhibitions of a variety of airport-related products, ranging from high-tech security technology to digital gate displays that flash the flight number and departure time of departing aircraft.

Parker said the industry is ripe for consolidation because United Airlines is struggling to get a loan guarantee from the Air Transportation Stabilization Board; US Airways, which emerged from Chapter 11 bankruptcy protection is on the verge of returning to bankruptcy court; Delta Air Lines is threatening to file for bankruptcy protection; and Continental Airlines, one of the industry's steadiest financial performers, is also struggling.

Even America West recently announced that after three consecutive profitable quarters, the company is in a struggle to finish in the black in the second quarter, which ends next week.

In an interview following his presentation, Parker said he doesn't expect there would be any liquidation of airlines, but that in order to survive, companies would merge and consolidate.

The beneficiaries of the movement to consolidate would be low-cost carriers such as Southwest, America West, Jet Blue and Air Tran, he said. He said he expects low-cost carriers to win between 40 percent and 50 percent of the market, up from the 25 percent they have traditionally held.

In addition to fuel costs that have hit historic highs, Parker said overcapacity has hurt the airlines.

"We're all used to competition," Parker said in the interview. "If you're Safeway and Wal-Mart opens a supermarket across the street, they'll compete vigorously. But in the airline industry, it's like when Wal-Mart opens the supermarket across the street, Safeway opens another store next door to them" and none of the stores does well.

In the first and second quarters of 2004, America West has had a new low-cost competitor from United subsidiary Ted Airlines, which competes head-to-head with America West on routes to Denver, Los Angeles, San Francisco, Chicago's O'Hare International Airport and Washington's Dulles International Airport.

Parker said Ted has not affected his company because in introducing one-class service on its Airbus A320 fleet, United has removed its first-class service.

"They're pretty much flying the same schedule they had as United, but by removing the first-class seating, they've allowed us to offer a superior product," he said.

America West and its commuter partner, Mesa Airlines, which operates as America West Express, has 111 flights a day to and from McCarran and earlier this week announced the addition of four more flights beginning in September, October and December.

Parker indicated America West could grow even more in Las Vegas, but the airport doesn't have enough gates to accommodate all the planes it wants to bring in at night.

America West pioneered the "night flight" concept in Las Vegas in which McCarran operates as a late-night hub to move passengers to their destinations in time for early-morning meetings.

Parker said the problem is that other airlines have caught on to the concept and the gates are full in the evening. America West has adjusted its schedule to have two "banks" of flights.

Randy Walker, director of the Clark County Department of Aviation, said America West's dual banking system has helped increase capacity and the airport's common-use computer technology enables America West to use gates belonging to other airlines that may not have planes using them.

Walker said the airline uses 17 gates during the day, but that expands to between 28 and 31 at night.

When a new baggage transport system is completed, the airport will begin construction of a bridge linking the B and C gates so that America West can have access to more gates at night and the company's biggest rival, Southwest Airlines, can use America West's gates during the day.

Walker said the $18 million project won't be completed for two to three years.

McCarran is adding new gates in its D terminal, but it's too far away to conveniently serve all customers, Walker said. The D terminal has been designed to accommodate long-haul flights and several amenities in the terminal reflect that -- higher-end restaurant choices and stores for passengers who want to shop during flight layovers.

In Tuesday's AAAE opening session, new Golden Nugget hotel-casino owners Tim Poster and Tom Breitling discussed the transition of owning an Internet company that sells plane tickets and hotel rooms to being the providers of those rooms.

The two casino operators, who have received national publicity as the stars of a television series called "The Casino," received a gaming license from the Nevada Gaming Commission in January after acquiring the Golden Nugget for $215 million from MGM MIRAGE last year.

In a session Monday, a representative of McCarran participated in a panel on balancing airport security needs with good customer service.

Rosemary Vassiliadis, deputy director of the Clark County Department of Aviation, said McCarran has enhanced the passenger experience by placing airport staff -- known as "front-end loaders" -- along lengthy lines leading to the security checkpoint.

Vassiliadis said the front-end loaders have cut processing time through the security checkpoint by preparing passengers for the screening process.

Part of the problem airport officials experience is that the processing of passengers is different at every airport.

Panelist Jonathan Fleming, associate administrator and chief operating officer of the Transportation Security Administration's Department of Homeland Security, said a standard procedure can't be developed for all airports because the systems are so different.

"The configurations are different," Fleming said in an interview following the panel. "The queuing methods are different, some are long, some are short, some have staging areas, in some, the belts themselves (the conveyor belts taking carry-on baggage through X-ray machines) are different. The scanning systems are different, with some taking longer to operate."

Fleming said the passenger profile of each airport also is different. For example, it's more likely that inexperienced travelers -- those that go on a vacation once a year -- would be in the lines at McCarran, while savvy business travelers, like those who fly through airports in New York, Los Angeles and Chicago, would have a better idea of how to prepare to walk through security lines and reduce the time spent in those lines.

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