May 08, 2007

What airlines' new spending means for fliers

After years of airline cutbacks, some fliers may have become resigned to dingy seats, costly snacks and surly service. But, now somewhat more flush with cash, carriers are planning a host of upgrades.

Middle-aged airplanes like Boeing 757s and 767s are getting interior makeovers at American, Delta and US Airways with enhancement like new seats, overhead bins, carpeting, video monitors and entertainment systems. Some airlines, including Delta and US Airways, are planning to add tastier and heartier food to sell on flights. Carriers are sprucing up some airport terminals. And airlines are testing new technology that may shorten lines.

Continental Airlines Inc. says it will begin installing new kiosks at its Newark, N.J., hub later this month that will let customers rebook themselves after they miss connections or have flights canceled by storms. For travelers, that would be a huge improvement over waiting in an airport line or a telephone queue.

Delta Air Lines Inc., just coming out of bankruptcy, has been spending $25 million a year to "deep clean" airplanes once a month, and by December should be finished installing "Live TV" entertainment systems on planes that fly long-domestic trips. The new systems include on-demand movies, live TV, music and games.

The five biggest airlines do have some money to spend, having added $2.6 billion in unrestricted cash to their balance sheets over the past 12 months, a 19 percent increase. AMR Corp.'s American Airlines upped its cash position by $1 billion to more than $5.4 billion and even paid down $2.2 billion in debt at the same time. American's total debt is still huge, however, $17.5 billion.

Though carriers have turned profitable, they still worry about high oil prices, softening domestic demand and having enough money to make it through the next downturn or crisis. Some have been reluctant to make major investments in planes and people, knowing the economy can turn on them again. Paying down debt is a major issue for the industry.

Still, having postponed improvements and seen airports and airplanes age during the prolonged downturn, airlines are starting to spiff up their products.

Some are putting money into technology. Southwest Airlines Co. is investing to improve its Web site and airport kiosks, says Chief Financial Officer Laura Wright. Most of Southwest's cash goes toward buying new airplanes. Baggage handling is also getting more money for improvement this year, she said.

Travelers also say in-flight enhancements are long overdue, especially when discount competitors are offering nicer products. Entertainment systems like satellite television and higher-quality food for sale would be welcome, especially on long flights.

A few carriers are also beefing up staffing, putting more resources toward training and launching programs aimed at boosting employee morale. US Airways Group Inc. says it is rushing to hire 1,400 additional airport workers by summer and Continental plans more "soft-skills training" for airport customer service staff. Delta is giving bonuses to employees, instituting profit-sharing and paying 4 percent raises for most workers as it comes out of bankruptcy.

"Having better morale among employees really helps the operation," says Jim Whitehurst, Delta's chief operating officer. One example he cited: Delta put flight attendants in new uniforms last year hoping to improve morale. Indeed, the company found that after donning the new uniforms flight attendants treated customers better. Customer complaints about in-flight service dropped by half.

The new focus on staff at a few airlines is welcome news for many travelers hoping for shorter lines, fewer cancellations and friendlier service. "Fliers who are always on planes just want service, politeness and a clean plane," said Judith Schwager of Chicago.

Rich Bohnsack missed a connection in Chicago to Syracuse, N.Y., recently because of a late flight. No seats were available to Syracuse on UAL Corp.'s United Airlines for two days, so he flew to Scranton, Pa., and drove three hours to Syracuse. "If there is extra money to be spent, I would like to see them invest it in spare or reserve aircraft and crews," he said.

Andrew Watterson, a director at Mercer Management Consulting, says he's advising clients to invest in improvements that will boost productivity and help companies through the next downturn. Airlines need to move people faster and easier through airports by making kiosks handle more travel functions and speeding up ticket lines, baggage lines and security lines, for example. "A New York subway station is a lot more productive than an airport," he said.

Airlines are tackling major airport renovations, some of which were tabled or delayed in the downturn. American spent $1.1 billion for new terminal at New York's Kennedy Airport that should be completed by the end of this summer; it also spent $100 million in Chicago O'Hare improvements and is working on a new terminal in Miami.

Delta said it spent $30 million during its bankruptcy reorganization to spruce up the airport lobby in Atlanta. Next on Delta's "To Do" list: Upgrade JFK and LaGuardia facilities in New York, upgrade planes that fly international routes and roll out better food for sale.

That should be a top priority across the industry, says Randy Babbitt, chief executive of Eclat Consulting, an aviation firm. He flew 10 hours on two United flights from Washington, D.C., to Los Angeles and on to Hawaii recently and had only two beverages and two bags of pretzels. The crew ran out of snacks for sale by the time it reached him.

"That's pathetic," he said.

SCOTT MCCARTNEY The Wall Street Journal

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