Can the legacy airlines win back customers?
Posted
Sep 23 2008, 01:12 AM
by
Matt Koppenheffer
Rating:
Falling oil prices will no doubt provide some breathing room for America's airlines, but bigger questions still loom for the big legacy carriers like Continental, American, and United.
In recent years, competition and costs -- both from fuel and outside fuel -- have caused most of the US's major carriers to cut back on many of the perks that made flying more comfortable and enjoyable. The effect has been that flying on Delta is mostly indistinguishable from flying on Continental.
My wife and I just returned from a trip to the Caribbean and our experience on American only underscores this point. The planes were old and shabby with fixtures that made me feel like I was flying in a small town diner, the employees were uninspired at best, and if we wanted a bite to eat on the four-hour cross-country flight, choices were limited and we had to break out our wallets. In fact, the only way I really knew that we were flying American was the fact that at the end of the flight the flight attendant announced "we know you have a choice in carriers, and we thank you for choosing American." Trust me, I wasn't choosing American.
The problem is that, similar to me, most travelers these days are choosing a price, not an airline. Without anything really differentiating the flying experience from carrier to carrier, the legacy carriers are only escalating the cutthroat price war. They're simply not giving travelers any reason to want to fly on their airline.
Now I have to point out that I'm talking primarily about the legacy carriers here. Younger airlines like Southwest, Virgin American, and JetBlue have realized the need to differentiate and offer perks, services, and atmosphere that makes fliers actively choose them as an airline. Don't get me wrong, price is still the primary factor in most cases, but when prices are similar, the smaller airlines give customers a reason to choose them even if the ticket is slightly more expensive.
The number one concern for investors in airlines will continue to be oil prices -- if oil stays high, it will be hard for air carriers to report pleasant results. Comparing across airlines, though, members of The Motley Fool's CAPS community clearly prefer the younger breed. Southwest, JetBlue, and AirTran all carry two-star ratings on CAPS (out of a possible five), while the legacy carriers are at a rock-bottom one-star across the board.
CAPS member sdbri, who recently rated Southwest's stock an outperformer, said "Southwest is well run, efficient, with a committed work force. It's been expanding market share as other airlines falter and give way, burdened by legacy costs." Joerancho67 added that Southwest is an "O.K. house in a bad neighborhood."
Finding CAPS members bullish on the legacy carriers is tough. Most CAPS members sound like RoadRunner91910, who gave AMR a thumbs down last month:
The airlines have shown exactly how to make a difficult situation even worse i.e. abandoning all perks that made airline travel more than just a mean of getting there and then charging for items (C'mon charging for water!!) that were previously already part of the high cost of flying. Watch as this stock continues to due the limbo ("How low can you go").
But what do you think about the airline business? Head over to CAPS and join the 115,000-plus other investors that have already started sharing their opinions on over 5,000 stocks.
Matt Koppenheffer is a Top Stocks blogging partner.