State of the Airlines

Wednesday, September 27, 2006

Dangerous Words from Continental Airlines

Continental Airlines announced Tuesday (Reuters link)that they are forecasting an increase of 5-7% in their capacity over the coming years. Continental's capacity has already grown nearly 9% this year due to increased competition at their hubs. Here's what I consider to be the dangerous words from Continental President Jeff Smisek at a company conference for investors that was available by Webcast :
The company responded, and will always respond to incursions at its hubs, with lower prices and more flights..."We will never lose customers at our hubs on price,"

Legacy airlines with a hub system will always protect those hubs like a mother protecting her young...I'm not exaggerating. They will brutalize competitors by pouring capacity and offering low fares even if it means losing money. In a microcosm you would just consider that tough business practices in a competitive environment. But it becomes a vicious cycle in the airline industry that can run unchecked. The result is over-capacity and an inability for the airlines to control pricing in order to make money. Sound familiar? It should because the airlines have just this year managed to get their pricing under control and they did it by reducing capacity. So now, as business improves we will sit back and watch. Have the airlines learned anything at all from their debacle?

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