Airline Finances Improving, But is Safety?

By Debra D'Agostino  |  Posted 07-24-2006

The U.S. airline industry has had its fair share of troubles over the past five years. Starting with the terror attacks of Sept. 11, 2001, carriers have struggled to remain profitable despite debilitating circumstances such as SARS, the conflict in Iraq and, of course, the soaring price of fuel. As chief economist for the Air Transport Association, John Heimlich has his finger on the pulse of the airline industry—and he says things are improving. Senior Reporter Debra D'Agostino chatted with Heimlich about the future of airline travel and how technology can help get things back on track. What follows is an edited version of his remarks.

CIO Insight: U.S. airlines have taken a beating. How do things look from your perspective?
Heimlich:
It's no secret that it's tough times for all carriers. Fuel now accounts for as much as 30 percent of a carrier's operating expenses. In 2000, it was half that for some carriers. The good news is that the airlines have tightened up the amount of capacity in the domestic market, and that has leant itself to some gradual recovery.

What about business overseas?
Historically, the airlines have been very tied to macroeconomic fortunes and corporate profitability in the U.S. That's changing now that we have global opportunities. So if the U.S. economy isn't so hot, for example, maybe there are opportunities for the carriers in Europe.

Technology is certainly improving efficiency for companies like Continental Airlines, but can it also help the overall infrastructure for U.S. aviation?
Certainly. One area where technology is going to have a huge impact in the future is how we actually fly our airplanes. Today, for example, we are using a 1950s-based air traffic control system that uses ground-based radar beacons with intermittent sweeps. The airplane is forced to fly along the radar path. But guess what? That's never the most efficient path for the airplane. Why don't we use GPS? Automatic Surveillance Broadcast is in testing over the Gulf of Mexico, UPS is already using it. It's a way to allow airplanes to broadcast to one another their location continually, not just every time the radar does a sweep. So we can burn a lot less fuel, and save time for our passengers and shippers. Plus doing this will actually increase safety because you will have constant information in real time from every single airplane in the sky.

We've had GPS technology for some time now. Why isn't the FAA already using it?
The problem is the resistance to change on the part of Congress, and the need for an improved funding mechanism that draws from all users of aviation. It also requires the willingness to shut down the current system. I do think the current FAA leadership wants to move in this direction, though. Technology is having a universal impact on the industry.

So how long do you think it will be before the airlines return to profit?
It's hard to say, but 2006 looks like the best year since 2000. That doesn't mean it will be as good as 2000 or that all the airlines will be profitable. Continued cost reduction and high load factors will certainly help. But fuel is an even greater challenge than last year. The good news is that the economy is strong, and the airlines have made tremendous strides to close the gap between airfares and fuel prices. But there's still more catching up to do.