One of the editorial columns in the New York Times this past Sunday was a piece titled The Unprofitable Skies, a commentary on the recent bankruptcy filing from American Airlines. More than just a jab at American, however, the editorial seems bent on offering up an assessment of the air travel industry as a whole. And their view is not particularly optimistic.
The company’s employees and pensioners are already bracing for job and benefit cuts. Yet the pain brought on by a big bankruptcy is unlikely to transform the industry into a profitable one.
Even more damning is the conclusion they draw:
The airline bankruptcies of the past decade were often followed by big mergers, including those of US Airways and America West, Delta and Northwest, and United and Continental. If American follows the recipe (some analysts have suggested US Airways as a partner), three big airlines would control 70 percent of the national market. Such concentration is unlikely to spur airlines to improve a dismal record on consumer satisfaction. The industry’s long-term lack of profitability is bad for consumers, employees and investors. But bankruptcy filings and megamergers may not fix the problem.
I tend to agree with this view to some extent, but not so far as they’ve taken it. Yes, less competition generally means higher fares and fewer choices for consumers. There is less motivation for the carriers to solve their systemic problems if there aren’t alternatives. At the same time, however, such a concentration of the market actually makes it easier for the smaller carriers to differentiate themselves and to show that there is value in the differences they offer. The question is whether or not customers care.
The NY Times piece seems to be convinced that the industry stands no chance of being profitable anyways and that the service is so bad no one will buy it. In reality, the vast majority of customers simply are buying whatever is cheapest without caring so much that the service can vary dramatically depending on the carrier chosen. There are some airlines who seem to be able to demand a marginal premium from their passengers but not enough to make a significant difference on the balance sheets. At least not yet.
But fewer competitors in the market and the commensurate higher prices likely mean that the airlines have a chance to swing towards profitability. At least for a little while. Yes, it will be at the expense of the employees who have or will lose part of their pension. And at the expense of the customers who will see fares increase (and in many cases the fares are already up recently).
The Times seems to believe that the industry can be profitable, provide tremendous customer service and do so without loss of choice for customers or higher fares. It isn’t quite clear what they’re basing that belief on. It doesn’t seem to be from any rational point of view.
- Unions grab a stronghold in American restructuring
- Some more thoughts on today’s bAAnkruptcy filing
- Here comes bAAnkruptcy for AMR/American Airlines; operations to be unaffected
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Great article by the NYT and your added input. Have you heard the podcast by NPR’s Planet Money? They basically covered the same issues. It was really great.
I put a link to it on my site along with some of my thoughts. I think you would enjoy the perspective they bring to the bAAnkruptcy.
Sort of a bleak outlook.
It is incredibly bleak. More surprising to me is that there isn’t any sort of alternative proposed. At all. Simply stating that the system is completely failed but without pointing out any possible means to recover isn’t helpful for anyone. And that’s all the Times did here.
That the airlines’ lobbying organization followed up today with their inflation adjusted fare numbers showing that they continue to drop is somewhat more interesting to me. Definitely deserves a bit more analysis.
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