20 June 2008

US Airlines - Cheap Inventory is being pulled back.

So the game of chicken is being played out by the US Airlines. Who can cut deeper and faster?

We are entering the season when many contracts with the airlines for Tour Operators for Wholesalers are negotiated. These are typically based on a combination of rates and inventory availability.

Word on the street is not good. Rates are skyrocketing and inventory availability is plummeting. This is not just anecdotal. We have looked at discount seats for even the Thanksgiving and Christmas periods and basically conventional cheap seats are non-existent. And you can forget about using your FF miles.

Our advice - if you have Xmas plans - better get a booking now. These prices are going to be higher than even the peaks of last year's holiday season.

From our view we believe that the airlines have not right sized enough. There needs to be either less planes cut or more people cut. Since Wall Street is looking at capacity cuts then there is a further round of people cuts that need to happen. Fundamentally I believe that the capacity cuts are too deep. So far we see Southwest looking to capitalize on the nature of the cuts and reducing their cutbacks. Certain other carriers can take advantage of the situation. We believe that there will be some carriers who will be looking to expand. While we don't see any evidence yet, there are some prime markets where the cuts have been too deep.

Is this a good time to start an airline... maybe........



No comments: