Don’t you feel just a bit sorry for the airline industry?
You should.
America’s domestic airlines are in the eye of a perfect financial storm, and when the winds die down, one of the big airlines will probably be gone. With aviation fuel at astronomical rates with no sign of relief in sight, bets are being taken on which will be the first out of business.
In a recent bankruptcy odds article, 5 major airlines were in the top 10 companies most likely to file for Chapter 11 between now and the end of the year.
The odds are as follows:
1. American: 1 in 2
2. United: 1 in 4
3. Northwest: 1 in 5
4. Delta: 1 in 10
5. Continental: 1 in 25
I was surprised not to see US Airways in that group, especially after the announcement that it will now be charging for soft drinks as well, but I am sure they are not too far behind. As a matter of fact, the only airline that can rest easily during this industry crisis is Southwest.
Many people will smirk, “I always hated that airline anyway, they deserve to be out of business.” Yet, there are many reasons why you don’t want a major airline to go bust.
1. Your wallet. One of the biggest is that the minute one of the major airlines goes under, your ticket price will most probably rise by 20 percent or more. Why? Because with less competition, the survivors can successfully get away with it and most definitely will.
2. Economy jitters. The number of people that it will put in the unemployment line will only add to the country’s financial mess.
3. Human aspect. There are many good people in the airline industry in which their family’s livelihood is invested and nobody should wish hard times on them.
These days when I tell someone that I work in the airline industry, there are two usual reactions that I get: sympathy or anger. It’s usually followed by a long story on how the airlines messed up their last trip. I now try to avoid telling others of my job when asked. Incredibly, people now think more highly of the IRS than of the airlines. Why do people have such a bitter view of the airline industry?
I asked frequent fliers at random why they hated the airlines so much. Here are the top answers:
1. Complete inefficiency.
2. Always late.
3. Ruined my vacation.
4. They are liars and thieves.
5. General employee attitude.
6. Poor management.
7. They are a necessary evil.
But in the back of your mind, don’t you kind of feel sorry for the airlines?
Since the beginning of commercial aviation ticket prices have steadily decreased as compared to the inflation rate, while capacity has dramatically increased.
Oil prices are at unsustainable levels for airline survivability.
Airlines need to charge for as much as they can get away with, to reduce their operating deficits. And the industry still hasn’t fully recovered from 9/11.
The quick answer is no, you don’t feel sorry for them because they haven’t learned from the demise of one-time giants in the field, such as Pan Am, TWA, and Eastern. And when one airline exits, surely another will rise and the vicious circle will continue once again.
It’s a crazy industry. Round and round she goes. Where she stops, nobody knows.
{ 10 comments… read them below or add one }
I thought the perfect storm was back in 2001-2002?
I completely understand where you are coming from James, but it does seem they management does not learn from the mistakes of others (or even themselves).
As one of your “poll respondents” said, flying is a necessary evil. To a degree it is true and people will continue to fly. The capacity may not be there, but commerce must continue, and leisure travelers will continue to fly when they can afford it.
In the meantime, if the airlines woudl stop the nonsense of charging for this and charging for that and playing games with fares, fees and surcharges, things woudl be a lot better.
Regardless of what management believes,. the consumer is pretty smart and can see through the smoke and mirrors they are attempting to erect. I can fly non stop on Air Jamaica for $600. Or I can fly connecting with AA for $500. $100 is a lot of money so the initial thought is do American. Well, now when you add in the $30 for my suitcase, and the (likely) $40 I will spend while on layover in Miami on a newspaper, snack and magazine, that $100 is not so vast. So for what is reality–$30 I will fly AIr Jamaica non stop–and be there sooner.
I have said it before time and time again. They need to tie their ticket prices to the cost it takes to fly the planes. It is basic business. Sure every now and then someone tosses out a loss leader and it is an effective marketing tool. But the airlines are tossing out ALL loss leaders and expecting to make any profit on the generosity of the government (bankruptcy), and their customers by nickel and diming them!
John F, you’re right — the airlines should charge the real cost to fly passengers. US Airways CEO Doug Parker says it now costs the airline operationally, on average, $299 per passenger, per flight. US Airways like American, Delta, United and the rest are paying $140 a barrel for fuel — Southwest is hedged at $51 a barrel. So, Southwest can charge less, but how do the other airlines compete with that? They can’t.
James, as for US Airways not being on the list, I am not surprised. They cut the most fat after September 11 — 130 aircraft, 15,000 jobs. Plus, they are a lot better managed than people give them credit for. Additionally:
1) Lowest labor costs in the industry
2.) Newer fuel-efficient fleet
3.) They have no material debt payments until 2014
4.) They 3.5 billion in cash
As for charging for sodas — they won’t be the first domestic carrier. Air Canada, SAS, and a bunch of European discount carriers charge for soft drinks.
Airline survival is all about generating revenue and if going to ala carte service charges is how they make it through, so be it. Otherwise, we’re going to be down to three large airlines and I guarantee you fares will remain high even when oil prices steady.
Best,
Anita
I have no sympathy for the airlines, especially since Southwest and JetBlue, the two that treat you like humans are making money.
When I fly Southwest, I can pick my seat. I can check two bags for free. I get a drink and a snack for free. If I need help, I just call their booking agent and they assist me. Their web fares are not “fake”…meaning the junk fees are added right in on the price.
Heck, two weeks ago when I was afraid I was going to miss a connection after we had to change equipment due to a faulty air conditioner, the FA actually seemed to CARE. She managed to find out that they were HOLDING the other plane for the 15 of us who had to make that connection. She gave everyone on the flight free alcohol for the delay and even OFFERED to check on the connections.
Now, last November I was stuck aboard an NWA flight with mechanical problems. I asked the FA if I could get off and try to get a different booking (since their call center insisted we were in the air) so I could make my connection. She said, “I don’t care what you people do but if you get off, you’re not getting back on!”
I got off, and the NWA gate agents in PVD refused to help any of us who deplaned after being TRAPPED on board for 2 hours. No food. No water. No toliets. And this wasn’t weather. This was…oops….we lost the gas cap. (WHAT?)
I had to go down to their ticket counter and wait for the Continental agent to assist me. Why? Because the bimbos working the NWA counter were “on break” for an HOUR. After one of their planes was stuck on the taramac and people were getting mad…apparently that is the best time to take a break and dump unhappy customers on a partner airline.
Do you see the difference? I have no sympathy for an industry that does not value my time. I’d love to see some of the other money-hungry, rude and arrogant “big lines” treat me the same that Southwest and JetBlue do. Hopefully in the next few years, those two will be the only ones in business.
I don’t hate airlines. I do hate Chapter 11. In my view if a company can’t pay it’s debts, it’s creditors should go to the bankruptcy court and have the management replaced by court appointed managers to get their payments made. If there are insufficient funds, that’s what liquidation is for. Under the current law, if American Airlines goes into Chapter 11, Gerard Arpey and the board get to keep their jobs, that’s insane.
US airlines finance far too many of their assets with debt. This is a financially risky business that requires a higher percentage of shareholder’s money. I found it interesting watching the recent takeover bid for Qantas. The bidders proposed changing the debt/equity structure. The Australian Government came right out and said that if the bid succeeds (it didn’t) and Qantas ends up in trouble, there would be no rescue package from the government.
The employees and management of the so called legacy airlines need to realize that they are no longer working for cash cows. The airline industry is extremely competitive and even loyal customers can get po’d and change airlines. The situation described by Nashua is a case in point. If I walked into a retail store and was given that kind of treatment by a cashier, you can bet that after my complaint, the cashier would be looking for a new job. The airline industry is a service industry, its customers deserve some respect, regardless of how much or how little they paid for their tickets. Customers need to realize as well that they have contractual obligations under the terms of carriage, and airline staff need to be accorded the same respect that the customer expects.
I agree with John F and Anita, the airlines were lazy when they had the opportunity to upgrade to more fuel efficient planes and better business all around but they passed that up because they didn’t need to. And now that they do need to fix a problem its too late. This article I read called The Airline Waiting Game… talks about how you are starting to see the gradual changes of the airlines into something that will be nearly unrecognizable in less than a year. Its interesting and really makes you wonder what its going to be like when this day comes to fruition.
We may feel sorry for the airline employees; I do. However, we have to face facts. Air travel is very energy-intensive. Energy costs have gone up, probably permanently. (We may get some relief eventually from other energy sources, but even then the cost of aviation fuel will be a lot higher than it was a few years ago.)
This means fewer people will be flying. Most people won’t fly for pleasure any more (even if the terrorists hadn’t already made “flying for pleasure” an oxymoron). Business flying will decrease. In places where there is good rail service, more business trips will be made by train. In areas or to destinations without good rail service, trips will be either consolidated for efficiency or eliminated. Businesspeople will discover the benefits of teleconferencing.
Other consequences for the future:
(1) There will be fewer and smaller airlines.
(2) Vacation destinations that depend strongly on airlines will be hurting. Hawaii, for example.
(3) Rail and water transport will grow. (Want to go to the Bahamas? Take a train to Miami and connect with a hovercraft to Nassau.)
(4) Ocean liners may make a comeback. If you can get from New York to Southhampton or Cherbourg in two or three days by ship, and actually have an enjoyable time on board, then why not sail?
Jim C, for ocean liners to make a come back, and do New York to Southampton or Cherbourg in three days, they need to get a lot faster, avergaging around 40 kts (RMS Queen Mary 2 has a cruising speed of 29.62 kts). On the ocean faster ships burn more fuel. Faster on the Atlantic also means rougher, especially in winter – add icebergs to the equation and there is yet another issue. Cruise lines are already hurting from increased fuel costs. Unless shipping lines are prepared to use nuclear reactors rather than diesel engines to generate the electricity for their azimuth pods, I don’t see ocean liners challenging aircraft for the transatlantic trade any time soon.
Matthew B. is right — I miscalculated. Five days to Europe is a bit excessive if Europe is a travel destination rather than a cruise stop.
James–Nice spin. I do not feel sorry for the airlines. They don’t feel sorry for travelers who have to put up with their garbage. $$ for checked bag. $$ for soda pop. $$ for UM. $$ for fuel surcharge. Puh-leeze. As if this somehow will make a difference. As my friend Holly Hegeman (www.planebusiness.com) sez, these fees are kinda like peeing in the ocean–they really don’t make a difference, other than ANNOYING the traveler to no end.
Deep inside much of the airline management DNA is the script for dealing with travelers who are upset for any reason:
a. Deer-in-headlights response to any complaint.
b. Fake smile.
c. Say anything…but the truth in your eyes speaks loudly: “Look. I fly for free. Somebody’s got to pay. And today, it’s your turn.”
The passenger airline business would change dramatically if airline executives (not pilots, not f/a or others going to/from work) took the dare:
a. Arrange and purchase your own tickets.
b. Fly in coach.
The level of contempt for travelers in the passenger airline arena is reprehensible. And it starts at the very top. I love it when it’s reported that AA Pres. Don Carty won’t even fly his own airline, rather takes a private jet to a meeting from Dallas to San Juan, PR. HA! Or United’s Glen Tilton–what a jerk.
On reflection, I do feel sorry for some of the good people at these airlines. They are working so hard–for such losers. Pity.
I feel for the employees who have enough time in that it is hard to switch industries/jobs, and I also have sympathy for James in getting barraged when he tells folks what he does for a living (as a lawyer, I get the same with bad law stories, or sympathy for having to work with jerks). But, the fundamental truth is that either the business model or the business managers don’t work.
Potential business model issues: The airline industry competes on price, but most customers claim to be angry at how expensive it is to fly; Or maybe the real issue is not cost, but the perceived unfairness of cost (why should a round trip on Tuesday the 1st returning Friday 4th be more expensive than a Tuesday the 1st returning Friday the 11th?); Or maybe, why is the guy next to me paying $500 more to be on the plane, or more galling, $200 less?; Why is improved seating 10 times more expensive, not just 50% if you’re only getting 40% more room and a little more food/drink?
Business managers: Don’t learn from mistakes; don’t listen to employees; do employees offer suggestions to run things better?; is it a customer service business, or a bus?; Frequent Flyer miles and their value?
I changed jobs 5 years ago, not to stop flying, but the new job has no travel involved, and although I miss the free ticket to Europe I “earned” via FF miles, I think I have a much better life.
So James, I do feel for you, but I really think the management does not react well to the business model problems. Let’s see how Virgin does from my new hometown of Burlingame, CA, and maybe I’ll add “doesn’t learn from other’s success” to the managment foibles.