Though obstacles continue to challenge the sector, airlines are cautiously optimistic that their outreach initiatives and innovative strategies to combat rising fuel costs will help the industry turn a corner.
In recent years, rising air fares and increased security has caused many passengers to stay grounded. But experts say 2006 may be the year when people start to take flight again. According to the Air Transport Association (ATA), the industry load factor, or the percentage of seats filled by paying customers in 2005, was up by about 2% from 2004. A small increase, but one the industry is welcoming.
"As an industry, we're having better than expected revenue performance this year so far," says John Heimlich, VP and chief economist at the ATA. However, he predicts that this will be a year of breaking even or barely surviving for airlines, adding that 2007 could bring profitability for the industry for the first time since 9/11.
Still, there are big obstacles standing in the way of the industry returning to its glory. The cost of jet fuel is weighing heavily on the industry and driving most of the other financial problems that air carriers still face.
The biggest obstacle
While customers are experiencing rising prices at the pump, airlines are dealing with the same issue on a much larger scale. "It will come down to fuel costs," says David Fuscus, president and CEO of Xenophon Strategies, which is AOR for the ATA.
One of the biggest blows of 2005 was the impact of Hurricanes Katrina and Rita on fuel prices. The hurricanes took out the capacity to produce about 25% of the jet fuel that was normally produced in the US, causing prices per barrel to soar above $75.
Two carriers stand out in their efforts to burn less fuel. JetBlue has initiated an internal campaign amongst pilots to try to save 1% of the fuel that it was projected to burn this year. This is a message that the airline is trying to send to shareholders as well, citing fuel costs as the reason for its first quarterly loss since its 2002 IPO, leading to many headlines.
"Our full-year loss did warrant coverage," concedes Jenny Dervin, director of corporate communications for JetBlue. Regardless, the airline is expanding to four more cities this year with local PR campaigns.
Meanwhile, American Airlines has instituted its FuelSmart program to combat the higher prices. FuelSmart is challenging employees to come up with creative ways to save on fuel costs.
American is also addressing the thorny issue of labor within the airline industry by launching "Working Together," an initiative to work with unions.
"Labor is not a problem, it's a solution," says Roger Frizzell, VP of corporate communications and advertising for American. Its marketing efforts are encouraging customers to see American as a brand that will get people to the important moments in their lives, not a company tangled up in the bottom line.
However, not every airline will be able to look beyond that bottom line in 2006.
Delta Airlines, which filed for bankruptcy in September and is reintegrating the separate Song brand into the master brand, has had to deal with a very public union struggle in its attempts to cut pilots' pay. But the airline is looking to move beyond its recent negative press and has made several changes to its agency roster. It has made Song AOR SS&K the agency for parent Delta brand to replace Ogilvy & Mather, and it has brought in Dan Klores Communications for domestic and international PR.
"Delta viewed Song as a significant success in terms of helping redefine how it approaches the marketplace," says Joe Kessler, a partner at SS&K. "[Delta looked] at the Song model in a way that could inform its marketing for Delta." (Delta itself did not return calls for comment.)
US Airways, which emerged from bankruptcy through a merger with America West last September, has been integrating the two brands and proving to customers that it is reliable.
"We don't want to sugarcoat it to the media, we want to be as pragmatic about it as we can," says Elise Eberwein, SVP of corporate communications for US Airways.
The airline reached out to reporters earlier this year in what it called "Extreme Makeover: Airline Edition," inviting industry reporters to its headquarters to see the internal workings of the newly merged company.
US Airways is still working out the kinks of combining the two brands. It intends to phase out America West by mid-2007.
"Customers are still confused about the brands," adds Eberwein. "[That] will be a key communications challenge this year."
Eye on expansion
Southwest Airlines, the low-fare veteran, is expanding its service area in 2007. It is concentrating on customer service and distinguishing its people from the rest of the industry.
However, while the airline prides itself on its customer service, it has experienced some media woes in the form of lawsuits resulting from mistreatment of passengers by its crew. The most recent resulted in a jury awarding a woman $27.5 million.
"Our customers and employees are entitled to a safe environment when they are on our aircraft and we've tried to provide that," says Beth Harbin, director of strategic communication for Southwest.
Despite the turmoil of the past five years, the airline industry is trying to turn a corner. It is poised to get back into the black with significant efforts to cut fuel costs and to work with labor unions to strike a balance.
"Like no other industry around, airlines serve a purpose," says Frizzell. "It is a noble thing."
Reported a net loss of $0.4 million for Q4 2005
Reported a Q4 loss of $604 million in 2005, compared to a $387 million loss in Q4 2004.
Net loss of $43 million in Q4 2005, as compared to a $206 million net loss in Q4 2004.
Net loss was $1.2 billion in Q4 2005, as compared to $2.2 billion in Q4 2004.
Net loss for Q4 was $42.4 million, as compared to Q4 2004 net income of $1.5 million.
Net income for Q4 2005 was $86 million, up from $56 million in Q4 2004.
UAL, the holding company that owns United Airlines, reported a Q4 operating loss of $182 million in 2005, a $388 million improvement over the same quarter last year.
Reported a Q4 2005 net loss of $261 million.