ARC's 1st Law: As a "progressive" online discussion grows longer, the probability of a nefarious reference to Karl Rove approaches one

Sunday, June 05, 2005

The Airline industry: Dead Dinosaurs

Weekly, I read AvWeb, a website/newsletter devoted to pilots and people associated with aviation. There's a regular column called CEO of the Cockpit that covers the perspective of a pilot for an airline.

His latest column, covers attempts by his management to cut costs to stay in business. He laments:

Our mission? To somehow staunch the rapid flow of money from our airline into the coffers of the fuel vendors. The ship had long since sailed on the idea of raising ticket prices to match our expenses, and the airline had spent the past few years in a vain attempt to cut the employees' salaries, retirements and medical benefits to the serf level to compensate.

He goes on on and on with nonsensical solutions to the problem of the major airlines not being able to make any money. Including not turning on the airconditioning, filling cargo holds with helium, and removing the seats.

In the end he concludes one solution:

We could save all the fuel in the world. Even if we could find a way to fly without using fuel, it wouldn't make any difference. The airlines will take every cost-cutting result we come up with and turn it into cheaper ticket prices. They are literally killing themselves and there is not much left that we can do about it.

His solution is to simply raise the ticket prices. That of course would be doomed to failure, which is why his CEO in the article didn't allow that as an option.

The Airline industry has very high fixed costs; the costs for the jets, and the costs for the union, high-priced labor are there if the plane flies with 1 seat or all seats filled, or even if it just sits at the gate. The flying public has gone from the business traveler who would pay any price to get somewhere when he needs to, to the family/vacation travel who will travel only at the lowest price, and if its not low enough will simply not go, or drive. A raise in ticket prices will simply leave his plane a quarter full, and cause his airline to lose even more money.

Their are too many legacy airlines left that have inefficient business models, who are still pining for the days of regulation, when only business travelers traveled, and they could charge what they wanted since they had a monopoly on the route.

The "minors" of the airline industry (Soutwest, JetBlue) are making money and slowly eating the major's lunch. They have controlled their cost game. Their employees are paid less, but are still loyal, they reduce maintenance expenses, and they pass those savings on to customers, who continue to fly them instead of the majors.

Business travelers are more and more utilizing new technology (web/video/audio conferences) to conduct business, or utilizing fractional charter operations for those instances when money is no object. With new VLJ's coming into production soon, even more business travelers will be lured away from the majors.

Your Co-Conspirator,
ARC: Brian