Technology: Airline Industry Basically Bankrupt?

George Mason University's Kenneth Button, a professor of public policy, calls an airline basically "a bus with wings."

In the same Travel Weekly article in which Button makes that assertion, he also points out that the airlines have a razor-thin operating margin of just 0.4 percent vs. 6 percent for other industries.

"The cost of flying is cheap when you compare it to the cost of driving," he said. "People expect too much for too little."

Is it true? Are we expecting too much? Have we been enjoying a free lunch at the expense of the air carriers?

I think it is. I saw a report recently that the U.S. consumer pays less today for a ticket than 20 years ago, but 20 years ago the industry was tightly regulated. Back then air travel was a luxury. Today it's Greyhound aloft.

The passenger uproar about baggage fees reflects a disconnect with reality. First of all, the airlines can't absorb the huge fuel cost increases they're experiencing. Second, it's just economic reality that the consumer will end up paying for the rising cost of fuel. No matter the industry, the consumer always pays.

Button has a lot to say about the new baggage fees. He makes an interesting point that people pack too much and that we've all been paying for other people's excess baggage because there's never been a good incentive to eliminate overpacking.

I like his idea about figuring out a way for people to pay not to get stuck in the middle seat — the middle seat of course is the title of Scott McCartney's long-running Wall Street Journal column and blog.

More severe is the claim by AirlineForecasts chief analyst Vaughn Cordle that the airline industry "is basically bankrupt."

Cordle believes that unless U.S. network carriers cut capacity by 18 percent and hike fares by an average of 15 percent, perhaps the only survivor will be Southwest Airlines, which has a farsighted "fuel hedge" program that limits the fuel cost increases that are hammering their competition.

By the same token, if the airlines are able to get significant across-the-board increases in their ticket prices, that will drive down traffic significantly — perhaps by one-quarter — and then the airlines will have to hike prices again to make up for the empty seats.

Which will only generate more empty seats.

And so on.

I think this is what they call in the flight business a death spiral.

Do you think that spiraling fuel prices are the death knell for the airlines?

And what about you? Are you cutting your travel drastically because of the shrinking schedules and rising prices?

Airline Futurist • Miami • www.us.amadeus.com

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2 Comments

  • NBA FAN

    For the life of me, I do not know why you can get a flight from Lafayette Louisiana to anywhere elese. I love Louisiana and travel there quite often by motor vehicle.

    However, if Continental Airlines is going to file for bankruptcy yet again (I believe they have gone twice), they can thank their trips to Lafayette Indiana.

    If you're losing money why are you flying? Long haul flights with high volumes seem to make more sense than the coveted Shreveport to Lafayette route.

  • Edward Sussman

    I've reduced business flying because the experience is unpleasant -- from the flight to the airport to the security. Add in the expense and you have a loser. I am much more willing to invest in advanced telecom/online meeting software and equipment than I was two years ago.