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The Future of the Industry posted on October 30, 2007

Northwest Airlines emerged from bankruptcy recently and that is good news for its employees but bad news for prior shareholders, who lost everything. A fact that is arresting in considering airline business is that the aggregate fares for travel ever collected versus the total operational costs, reveal an industry that has never turned a profit. This is doubly arresting when you factor in the myriad subsidies granted to airlines such as airports build at the public expense, an air traffic control system run by the Feds and after 9-11, a huge financial bailout. Northwest, to its credit, did not take any public funds post 9-11. But, Northwest has a major structural wage problem in that its flight attendants average 56 years old and its pilots are not spring chickens either. In fact, it was those same flight attendants union who held up the emergence from bankruptcy, nearly rendering a viable airline dead.

The question is why would anyone invest in an airline, excepting Southwest which continually makes a profit, with these dismal results? Looking at other countries, which usually have a single airline, provides a clue. It may be that airlines have be considered as a public utility, as they were before deregulation. I enjoy cheap fares as much as anyone, but free market economics may or may not apply. My prediction is that in 10 years, the US will have 3 major carriers and a host of regionals. Fares will increase and pressure will be applied by the public to re-regulate. Everything old will be new again!

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By | Douglas Wolf
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Douglas Wolf
www.howtosoftware.com