Prices "too low" for 10% margin
The number of transatlantic flights needs to be cut by between 10-20% if airlines are to make a profit, Bob Schumacher, Continental Airlines' sales director for the UK and Ireland, said today (June 18).
Mr Schumacher, speaking at the Business Travel Market in London, said prices on prices on transatlantic trips were also "too low."
He said that when Willie Walsh had taken over as ceo of BA, he said he wanted to achieve a 10% margin.
But Mr Schumacher said that airlines "were nowhere near that margin."
He added: "We need fundamentally to re-adjust on supply and demand. We would need to take out 10-20% out on the Atlantic but that would take a huge number of planes out and see a huge number of job losses," he said.
Earlier Mr Schumacher and Tony Berry, HRG's industry and fare distribution and director, both said there was still too much capacity in the industry, despite carriers cutting back in the last year.
"Capacity is still outweighing demand although it is shifting. The closer it gets, the more confident airlines will be," Mr Berry.
Mr Schumacher said that Continental had been hit hard by the decline in business travellers.
He said the revenue environment was "hideous" and revenue per available seat had fallen by 20%. This was a "monster hit."
At the same time, airlines were seeing the price of oil rising again. This is the "perfect storm", he said.
At the same time airlines had to invest in the future and buy new aircraft but carriers were being charged "almost pawn rates for new aircraft."
Mr Berry said capacity and seat numbers had both dropped on internal flights in North America by 7% in the last year.
On domestic flights in Europe capacity was down 7% and seat numbers 5%. Globally capacity was down by 9%.
"The challenge to the industry is really in North America and Europe. Until those regions begin to improve, the figures will be in the negative," he said.
Mr Berry said that fares had started to plummet last June, not last October. But from January, after capacity cuts, they were now starting to go up again.
But he warned that rates were changing on an almost daily basis and that "fixed price" deals with corporates had been "eradicated" in favour of variable price deals.
"There has been tremendous activity in fare contracts. The airlines are hungry to compete and they are competing and that is good for the industry," he said.
On long haul, Mr Berry said that business class had "tailed off" with some corporates not actually travelling and this was having an effect on the market.
But fares in premium economy and economy were both rising with the latter increasing by 15% which is "stunning", Mr Berry said.
"There are signs, although this is still a depressed market, that the figures are starting to upturn. It is encouraging that there is an element of growth."
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