Archived Speeches
Joseph Leonard,
Chairman and Chief Executive Officer
AirTran Airways
to Aero Club, January 23, 2001
I appreciate the opportunity to speak to you today about some very important topics in what seems to be a constantly changing business.
Of course, I wouldn’t be an effective spokesman for my company if I didn’t make a quick advertisement about what we consider to be America’s most successful new airline!
AirTran Holdings this morning reported its eighth consecutive quarter of profits. Our net earnings were up more than 50 percent for the year, our yield and unit revenues continue to increase significantly, and we are well on our way to significant long-term growth – stable and profitable growth, I might add – at a rate of about 20 percent per year for at least the next three years.
We are growing by continuing to add new Boeing 717s at a rate of one per month over the next three years, retiring older DC-9s and 737s in the process. By the time our firm order of 50 aircraft are delivered, AirTran Airways will have one of the youngest, most fuel-efficient fleets in our industry – an extremely important asset in these days of up-again, down-again, up-again fuel prices.
With a current fleet of 55 aircraft, AirTran Airways serves 34 cities, with our primary hub at Hartsfield Atlanta International Airport, the world’s busiest – in good part, thanks to us! We compete head to head with most of the nation’s largest airlines, and we are the better for it, as we believe they are, too.
We also have developed a very effective internet site at airtran.com. While most major airlines seem content to drive around five to ten percent of their bookings to their web site, AirTran Airways regularly generates 35 percent of our daily bookings to ours! In fact, on some days we have surpassed 45 percent! We expect that to continue to rise to nearly 50 percent in just the next two years. Bookings on airtran.com rose more than 150 percent in 2000 compared to 1999.
We just started service to two new points in mid-December – Pittsburgh, which for many years has suffered from particularly high air fares – and our first international destination, Grand Bahama Island – giving us a total of five new destinations in 2000. From Pittsburgh, we started nonstop services to New York Laguardia, Chicago Midway and Atlanta, and from Grand Bahama Island we now operate nonstop service to Atlanta, with continuing service to Chicago. Already bookings for both these new destinations have exceeded our expectations.
Most importantly, this morning I was very happy to report that AirTran Holdings made $47.4 million in the year 2000, representing an increase of more than 50 percent in earnings per share compared to 1999. Despite a 100 percent increase in fuel costs, we were able to report outstanding results.
Imagine what our company would have earned had fuel prices not increased at such a rapid rate!
Although many of you know we have been attempting for many months now to gain access to Ronald Reagan Washington National Airport, AirTran Airways has made a healthy start at Washington Dulles with seven daily flights to Atlanta and connections to dozens of other points throughout the southeast and southwest united states. So, if you haven’t tried us yet, now is the time! As our advertising proclaims, your airline has arrived!
Speaking of competitive air fare service…
I’m sure many of you in this room were living in Washington, and possibly working in the aviation industry, on October 25th, 1978.
Does anyone here remember what happened that day here in the nation’s capital? President Jimmy Carter signed the Airline Deregulation Act of 1978. According to an article published in the Washington Post and written by Carole Shifrin, a respected Post reporter and longtime aviation writer, Carter made some brief remarks after he signed the bill into law.
In fact, Carole Shifrin is with us today! I’m glad you could be here, Carole. It is significant that an official observer of the signing of the Airline Deregulation Act should be here today for such an important discussion of what must be done to fulfill the promise of the bill that was signed into law more than 22 years ago.
Commenting on the goals of the Airline Deregulation Act that day, Carter said, and I quote, “one is to help our fight against inflation, and the other is to assure American citizens of an opportunity for low-priced air transportation.”
Today, I believe that vision is in great danger of being lost to a potential series of mega-mergers that, unless critically reviewed by the federal government, will create a stronghold over key public facilities at key airports throughout the mid-Atlantic and northeast United States – and the result will be a fundamental shift in the very positive benefits that airline deregulation brought to U.S. air travel consumers.
Although I don’t always agree with what consumer advocate Ralph Nader says, he summed it up pretty succinctly in an article last year in the Chicago Tribune. He said, quote, “the fewer the airlines, the higher the prices. When giant companies merge, the consumer pays more, and innovation suffers.”
Alfred Kahn, the former Civil Aeronautics Board chairman -- long considered the architect of U.S. airline deregulation -- was even more blunt. His statement, made before the most recent agreement was announced between American Airlines and TWA, United and US Airways, is telling indeed.
Kahn remarked, quote, “we may be confronting a very radical consolidation of the industry that would threaten to reverse the great benefits of deregulation. Once the number of major airlines is reduced to a very small number, it becomes less likely that airlines will engage in spirited competition by undercutting each other’s fares. Airlines will have greater incentives to avoid retaliatory fare cuts from competitors and protect profit margins on their existing business.”
His concerns several years ago about an “emerging oligopoly” in U.S. air transportation, it seems, were indeed an understatement.
Today we see a proposal that would allow two airlines, which arguably already control enough of the U.S. air travel market to dominate prices, to further control the air travel market. By its own admission, American, together with United, would control at least half of the U.S. air travel market once the two carriers’ plans to carve up the eastern half of the United States are implemented. In addition, our own analysis shows that nearly three of every four passengers who fly to or from Washington National and Dulles airports would be forced to fly American or United.
Does anybody realistically think, based upon their traditional behavior, that the primary loser in this attempt to monopolize the U.S. aviation market won’t be the air travel consumer?
Let’s look at some current markets in which American and United are the dominant competitors. From Washington National Airport to Chicago O’Hare, American operates 10 daily flights each way, while United operates 16 flights each way – two virtual shuttle services. You would think that, given the level of increased frequency and competition on that route, that fares might be lower than in other markets where frequency is not as great.
Wrong! The current walkup fare – matched precisely by both airlines yesterday was precisely $1,394 roundtrip, including taxes, fees and surcharges! It is a similar story in the O’Hare-Dallas/Fort Worth market. A very interesting note: United and American also yesterday charged precisely $1,394.50 between Dallas and O’Hare for a roundtrip ticket.
Yet, look at a similar market between Hartsfield Atlanta international airport – the world’s busiest airport – and Washington’s Dulles airport. This is a market that AirTran Airways entered in January 1994. It is similar in trip length to Washington-Chicago and Chicago-New York. Yet the current roundtrip walkup fare is $400.
Of course, AirTran Airways still cannot serve Washington National, one, because every time we try to purchase or lease slots, a mega-carrier comes in and outbids us – in part, we believe, simply to keep us out of the DCA market – and two, because the Air-21 law, as useful as it has been in promoting additional competition in slot-controlled markets, did not allow our bid for DCA-Atlanta service to become a reality because that market already had nonstop service.
Unfortunately, the circumstances in which we find ourselves is that the number two airline taking a 49 percent stake in the new DC Air – with literally no time limits on when American can take majority control – means very high air fares will continue to dominate flights to and from Washington national.
You know, the deal that United and American announced the other day absolutely amazes me. No doubt, it is one of the most brazen attempts by any two dominant businesses in the industry to simply accomplish together what they so vociferously resisted in recent years – the re-regulation of the airline industry. Two airlines are proposing to literally divide the U.S. air travel market. They even have a section in their agreement that proposes code-sharing on routes where they would begin competing!
United and American have resisted a national competition policy, claiming that such a policy would be tantamount to re-regulation by the government. However, instead of competing on a level playing field, they have colluded to determine and when each airline will fly and how they will go about hoarding the public property necessary to keep successful low-fare airlines from competing against them. Apparently they prefer to re-regulate the industry themselves.
To some of us who have watched the steadily decreasing number of major airlines in the United States, and at the same time seen service levels among those airlines drop precipitously, this issue really has become a “no brainer.”
It’s time for the Department of Justice and the Department of Transportation to look very closely at requiring the divestiture of landing and takeoff slots, gates and other public facilities to successful low-fare airlines that must occur if U.S. consumers are to continue to have access to low fares -- the hallmark of airline deregulation. If DOJ and DOT don’t take this opportunity to require these asset “carve-outs” as a part of two of the largest airline buyouts in American history, the air traveler, particularly in the northeast and mid-Atlantic, will suffer.
Awarding significant access to airports such as Washington National to a successful low-fare airline is now the only way to ensure the success of airline deregulation that President Carter, Alfred Kahn and many others envisioned as the triumph of their collective efforts.
The DOT just last week confirmed the widespread public benefits that accrue from the establishment of entry by low-fare carriers into markets previously dominated by major airlines. In fact, the study titled “dominated hub fares” is replete with examples that specifically cite AirTran Airways, especially at our Atlanta hub.
However, much of the reason that we have been able to bring the benefits of deregulation to so many consumers is that we have been able to establish a network of affordable-fare services.
The new DOT study claims that passengers in dominated hubs pay on average 41 percent more than do their counterparts flying in hub markets with low-fare competition. The study claims that it is reasonable to expect that with the benefits of low-fare competitors, another 25 to 50 million passengers annually would travel in these markets.
The study also notes, and I quote, “to the extent that consumers and their local representatives are aware that they are penalized by high airline prices, they have the incentive to seek competitive alternatives. This is the primary reason why we will continue to provide information about price to consumers, and to resist efforts to downplay the magnitude of the fare penalty millions of passengers pay, and the absence of service millions more could enjoy if more competitive prices were available.
It is precisely for that reason that we are announcing today that AirTran Airways is beginning an important new public campaign today. The central theme of the new campaign is that these mega-mergers provide a unique opportunity – possibly the only such opportunity in this generation – to truly enhance low-fare competition in the air travel market. We’ll be making our opinions known both here in Washington and elsewhere to airport directors, mayors, businesses and interested groups in cities throughout the mid-Atlantic and northeast United States. These are the groups whom, as DOT so aptly noted, need to be most aware of the air travel consumer rip-off of which they are victim, and which will only accelerate if nothing is done to increase access to limited-entry airports by successful low-fare carriers.
Why are we doing this? We believe that it is critical that the federal government take this once-in-a-generation opportunity to re-strengthen airline competition. Did you know that there are fewer airlines today than there have been since that landmark bill was signed in 1978?
Do we have a self interest in this effort? Absolutely. Some of the most significant accomplishments of our lifetime were made when self-interest matched the public’s interest. In this instance, we believe that AirTran Airways’ self-interest in gaining access to what we all know are public assets – limited slots, gates and other facilities – easily meets the criterion of being in the public interest.
It’s important that people understand why we are doing this. Do we have a selfish agenda? Of course. But we also strongly believe, as I think many people in this room do, that our arguments make good public policy. And they are the right policies to ensure that the vision our friend Carole Shifrin wrote about back on October 25, 1978, is fulfilled.
Thank you. At this point I would be glad to take any questions that you might have.
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