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Well no, the sky isn’t falling, but with all the airlines going into bankruptcy this week, chances are you might get hit with one of those planes coming down.

 

The Wall Street Journal on Friday had no less than FIVE articles on the airline industry, global and domestic. This industry is going to be the next auto industry in decline.

Let me take a step back. Time for a little personal history on your author. I love airplanes. I love the commercial aviation industry…a lot. If I wasn’t going into the political/public policy field, I would have been a pilot. My dream job would be VP Gov’t Affairs for an international airline. Well, any airline that isn’t going into bankruptcy…which are basically all of the airlines in the United States.

Since most of MediaLizzy’s readers are savvy, most of you probably fly a decent amount. Those of us in politics fly more than we’d like to admit. And everybody knows that flying is basically an awful experience, even in first class.

I worry about the state of the commercial airline industry in America, and I worry that it might be the next “auto industry” or “financial industry” crash. Let’s recap…

1.) 3 airlines have died in the last week (Aloha, ATA, and Skybus).

2.) While going through their bankruptcies, the legacy carriers have been unloading their costly pension programs (ie: the funds their retirees depend to live on) on the PBGC – Public Benefit Guarantee Corporation (ie: the federal gov’t “insurance” program for corporations incase they go belly-up…only pays out a fraction of what recipients should be getting paid)

3.) Airlines are constantly on “the edge” – very little revenue off seat sales. Airlines are attempting to identify ANY source of income they can find to “unbundle” their services.

4.) Long-haul/international routes are the only ones that make serious money for domestic carriers anymore. Continues to promulgate the “regional jet” strategy for all domestic flights (excluding hub-to-hub flying).

My saying on regional jets – “half the plane, twice the pain”

What caused all of this? Well, it’s a few things, but it’s a short sequence. Legacy carriers have a lot of extra things they have to pay for (health insurance/pensions for retirees, older plans that they have to pay for maintenance on). Low cost carriers don’t have them. In the early 2000’s when gas prices started to soar, Southwest Airlines had a lot of cash on hand, so bought a lot of fuel in advance (hedged fuel) at a low price. It kept the costs down to fly. The other airlines didn’t have that hedged fuel supply and had to charge more for their seats. Southwest had cheaper tickets, so their product was more competitive. Airlines, trying to match the fares, slashed service and reduced costs ( and went bankrupt in the process) trying to catch up w/ Southwest (and JetBlue, with new planes that required little maintenance and young crews that didn’t earn any retirement benefits). Conclusion: The “race” to the bottom has basically ‘crashed’ the airline industry as we know it. The majority of Americans who fly (aka: ‘Ma & Pa Kettle’) are price sensitive and care little about airline alliances and award programs. They will pick Carrier A over Carrier B because A’s ticket is $2 cheaper, even if they had historically flown with Carrier B.

So that brings us to today. Airlines on the ‘margin’, especially the carriers mentioned above, are going to feel the squeeze the most, and possibly “get squeezed” out of the market.

OxyChaz’ predictions? Here we go…

1.) Airline labor unions – especially the pilots – are the #1 stumbling block for industry consolidation. Domestic consolidation won’t happen because of this.

2.) Airlines, looking for any kind of new revenue to stay afloat, will spin-off and sell off anything they can. Watch for the major legacy carriers to “sell off” their milage programs. Once the first one goes, the rest will sell off within 12 months.

3.) Regional carriers (ie: Skywest, Mesa, Air Wisconsin, Comair) provide fixed costs to airlines operating domestically. Look for even more “regionalization” of domestic flights

4.) Watch “low-fare” carriers bring in some kind of “premium” service to their fleets. Southwest has already restructured to have a de-facto first class (without bigger seats) and JetBlue has reconfigured their planes so the front half of the plane with have more space between seats (and will sell them for a higher price).

5.) And the big drum roll……

Domestic First Class will be eliminated in the next 8 years.

This post is already too long, so I’ll end it here. Air travel has been constantly a source of pride for America, and now is falling to the same conditions as other sectors in our economy. We should all take note. 

Easy solution? Each airline should raise fares by $20 systemwide. Then we’d get decently paid flight attendants, people who speak decent English when we call the 1-800 numbers, and some freakin’ food on the airplanes!

Happy Saturday,

-OxyChaz