Airline Execs See Return to Premium Fares in the Wings

How do new entrants to the global aviation marketplace measure up against the world’s legacy carriers? According to Etihad Airways CEO James Hogan, the answer is surprisingly well.

Addressing a packed house of corporate travel professionals during the Airline CEO Exchange at the recent National Business Travel Association (NBTA) convention and exposition in Houston, Hogan, while admitting his Abu Dhabi-based airline was understandably light on industry experience and market penetration at this point, told session moderator CBS News Travel Editor Peter Greenberg, that Etihad’s strongest competitive advantage could well be the fact his airline “is starting off with a clean slate. As such, we’re not burdened with the same pacts as the legacy lines.”

He added that, because his airline “bypasses the usual European hubs, travelers are able to arrive at Asian and Far Eastern destinations in good shape.”

Rather than directly countering Hogan’s remarks, Continental Airlines chairman/president/CEO Jeffrey Smisek’s observations touched on fares, fees, frequency plans, and his carrier’s upcoming merger with United Airlines and the resultant aircraft mix, which will feature more Boeing 787 Dreamliners.

He also noted that the combined company will have complementary route structures, with just 15 routes overlapping worldwide. Asked about the effect of the merger on the airlines’ frequent flyer programs, Smisek said it would probably “take some time to harmonize them.”

Prices to Rise

In the area of ticket-pricing, Smisek said, “The nation’s economy [is strengthening and] can support a return to premium airfares.” Moreover, he said this is a move sorely needed, what with “low barriers-to-entry and high barriers-to-exit making for tough competition,” citing that as a prime economic reason why “more carriers are moving offshore.”
 
On the hot-button topic of ancillary revenues and fees, the Continental chief deftly sidestepped their annoyance factor by claiming the levying of such fees makes the ticket-purchasing process “much more fair.”

He explained that the new fee/service structure meant that passengers willing to go the bare-bones route are not subsidizing other passengers enjoying more flight-related amenities and conveniences.

Turning to industry relationships and overall working relationships, Etihad’s Hogan lamented the fact his airline has—so far—had little experience with travel-management companies. “We just have not had much corporate penetration… yet!”

With regard to his carrier’s place in the industry, the Etihad CEO claimed he sees “the industry moving from branded [airline products] to alliances.” To that end, Hogan reported his airline is “already working with 23 code-share partners,” and he expects Etihad to be “a natural fit within a major airline alliance in [about] five years.”

Other topics addressed by Smisek were:

• Biofuels — “At this time, they’re not a viable option [given their] price and quantity available.”

• Airport Bottlenecks — “Unfortunately, [long waits have] moved from the flight line into the terminals. Of late, unduly long delays are not really commonplace… for Continental, or industrywide.”

• Federal Aviation Administration Re-Authorization Bill — “There’s a real cost-to-benefit; it will definitely cost… but it is absolutely necessary.” In the grand sense, “the next generation of Air Traffic Control [that this bill would usher in] is underfunded by the government.”