What's Really Wrong With The Airline Industry - And Can It Be Fixed?

Anyone flying in today’s environment does not need the media or statistics to know that the industry has terrible customer service, packed and dirty aircrafts and the worst on-time performance since data has been recorded.

There is nothing simple about putting hundreds of lives into an aluminum tube using jet engines to propel it 35,000 feet above the ground, traveling close to the speed of sound, to eventually land safely on a stretch of concrete most anywhere in the World. US airline employees assume responsibility for the safe operation of over 20,000 flights each and every day which routinely deal with any type of weather and mechanical failure imaginable.

Make no mistake about it, flying is dangerous. It is made less dangerous by the dedicated men and women who always put the safety of their passengers as their number one priority. When an unexpected in-flight emergency occurs, there is no shoulder on the road to pull over and call 911 and wait for help. It won’t make the media headlines today, but like every day, some pilot will use his/her training and experience to deal with an in-flight emergency that will save hundreds of lives. Every day licensed mechanics use their experience to repair some part of an aircraft to prevent a future tragedy. Like every day, flight attendants will use their training, experience and on board medical safety equipment to keep passengers alive after a heart attack and deal with a multitude of other in-flight emergencies.

I’m not here to defend major airlines' employees, but I can tell you in addition to compensation and benefits, nearly all labor contracts have rules and limitations that often exceed FAA minimums which, is in large part, the reason we have the safest airline system in the world. Over the past 7 years, in order to make up for the tremendous increase in fuel expense and financial losses from 911, employee labor contracts have been under brutal and incessant attack.

Never before in the history of the airline industry have airline employees been under more pressure to have zero tolerance for issues from “in flight security” to “safety of flight”. Yet, these same dedicated airline employees have seen their wages and work rules conceded to the standards of the early 90s, or eliminated entirely due to labor reductions.

It’s common to hear about the success of the Southwest (LUV) business model as compared to the rest of the airline industry. There should be no argument that Southwest is a well organized airline with great customer service. It’s also true without fuel hedging, Southwest would be losing money no less than many other airlines. Importantly, if all airlines copied the Southwest model, there would be no way to fly a US airline across any mainland border. Southwest operates primarily from lower cost outlying airports, often with no same airport connections for international travel. A considerable portion of the more productive Southwest business model comes from flying one type of aircraft in one class (coach) service providing minimal in-flight and connecting amenities, all while avoiding the high cost of international operations.

The US airline industry has seemingly become a mass transit system, frequently offering airfares that cost less than driving your car between the same two airports. If airline customers want a return to the times when aircrafts were new and operated with more empty seats, well rested and happy friendly employees and great customer service, it can only come at some financial cost. Most airlines now compete simply to stay alive as they are forced to provide competing and unprofitable air fares offered by a continuous rotation of new entry low cost airlines that show a constant history of failure. Unfortunately, in order to survive, capturing low fare market share has become a higher priority for airlines than customer service and new modern aircraft.

Below are some startling statistics comparing year 2007 to year 2000 for the 7 largest US major airlines. [American (AMR), United (UAUA), Delta (DAL), Continental (CAL), Northwest (NWA), US Airways (LCC) and Southwest (LUV) control 71% of the US market share.]

• Total Operating Revenue was nearly the same at around $95 billion.
• Capacity as measured by Available Seat Miles [ASMs] decreased by 7% (Southwest capacity increased by 66%).
• In the past 7 years, the average one-way passenger fare has only increased by $18 (+11%) going from $153 to $171. (Note: This is the passenger revenue kept by the airlines and does not include large increases in taxes, fees security charges etc. that airlines are required to charge but do not keep.)
• Fuel Expense increased by $15.5 billion (+128%) going from $12.1 billion to $27.6 billion.
• Employee wage/salary expense decreased by $7.6 billion (-30%).
• Employee wage/benefit percentage of operating revenue decreased by 22% going from 35% to 27%.
• The labor cost of the average one-way passenger fare decreased by $25 (-41%) going from $60 to $35.
• The fuel cost of the average one-way passenger fare increased by $34 (+154%) going from $22 to $56.
• In the last 7 years over 162,000 jobs (-38%) have been eliminated from the largest 6 major airlines as they went from 430,000 to 268,000 employees. (Southwest had an increase of 5,000 employees ending 2007 with 34,378 employees).
• While fuel costs rapidly increased and labor costs and total employment rapidly decreased, the average passenger ratio to airline employee increased by 430 (+36%) going from 1,198 to 1,628. In other words, that reservation or ticket agent or flight attendant must now, on average, resolve issues and provide customer service to 36% more passengers than they did seven years ago.
• During this same time period the average revenue productivity per employee increased by an astounding $107,442 (+52%) going from $206,370 to $313,812.

Data is for mainline operations and does not include contracted affiliates. Source is SEC and BTS reports. (Some data may be estimated for 2007.)

While discussions address the question regarding what the problem is with the airline industry, itseems like a rather easy question to answer after you understand what has actually occurred.

Comments

[John Pseudonym]

The problem with the airlines is that they're not charging a high enough price.

The airlines need to stop selling their product for less than it costs.

Why they can't figure that out is beyond me.

[DWS]

Bravo. Finally someone hit the nail on the head. Now, if you could just get this on the cover of a major newspaper...

[Zam Man]

This is an excellent example of what the public DOES NOT know about airlines. As very well demonstrated by the author and statistics, great demands are placed on the airlines and employees and the public is still not paying for the full cost of the product. Everyone wants the full Monty treatment and wants it for free!

Please continue to write articles that share the truth. Thank you.

[az_au]

They are not that stupid. The first one that raises their prices to a "reasonable" level will be flying without passengers and soon will be out of business. Do you think ANY CEO, CFO will put their jub on the line like that? It is a cut throat business and will remain so until there are only 3 or 4 major airlines in this country, like the auto industry.

[Flyboybob]

Very well researched and written. I know, I am an airline employee that has been on the losing end of this debacle. Employees will not subsidize airline tickets any further, the passenger will now have to pay for what they get.

[User 200328]

Oh, I think airlines figured that out a long time ago. One problem, if you raise prices and the competition does not, business is lost to your competitor and you leave the gate with more empty seats. You still have to buy the jet fuel and pay landing fees, even though that empty seat brought in no money!

I would also like to point out that "the airlines" are separate companies that have to compete against each other while having to comply with federal, state, and local laws. At the same time, they must pay a multitude of taxes and fees levied at them from the federal to the local level.

Bankruptcy laws further complicate the picture, allowing inefficient companies to continue. The normal laws of "free enterprise" don't work because poorly run companies continue to drain business away from more efficient companies.

So, grouping airlines together and pointing a finger at the entire industry for problems beyond their control is an overly simplistic view that is unfortunately held by most of the public.

[Pilot Mike]

Airlines have been misoperated by their management and by their unions for decades. They are and have been ill prepared for any bubbles that interupt their normal services: fuel costs, weather, 9/11. Bubbles occur in many business' all the time but in the airlines case, a bubble disrupts cash flow and a bubble always bursts. The current bubble of fuel prices is not going away. Airlines are now in the dubious position that fare increases are the only option to correct the mess. The downside is for every $25 increase in fares, you will lose a family that was planning on taking flights. To make up for this loss, they increase the fares on business travelers. For each increase on business travel, regional flights start to lose passengers. It is a downward spiral. The only things an airline can do is to become more "user" friendly. User friendly unfortunately is an oxymoron in terms of the service a carrier gives. So there really is no exit to the downward spiral short of price protection provided on the backs of the US taxpayers similar to what occurs in foreign airlines.

The airlines are out of business and just dont realize it!

[airtrader]

Basically a fairly good review of the industry, however shows a very limited understanding of the structural issues that distinguish Southwest from the rest of the industry.

Also, nothing about the FAA which operates the airway system as well as the airline oversight. Ticket taxes have raised about $10 billion in the time frame mentioned with noine of it spent to impove the ATC system, and most gping to non-airline expenditures. That is what cuases these horrible delays that the press is too lazy to report correctly. No crew wants to have their passengers sitting on the runway

Southwest operates one aircraft type because that is the most cost effective method of operating an airline. That is their plan which can be copied by anypne. Southewest also operates in many airports that have inetrnational service. Examples are Baltimore, St Louis, Seattle, Washington, San Francsico, Los Angeles, Pittsburg, Orlando, Phoenix, Detroit etc. They are able to operate more cost effectively because they have the strong balance sheet that enables them to hedge fuel where most post bancruptcy major airlines cannot. Fuel cost IS the business. Their "Minimal" service is usually better than the major carriers. They undersell their service and the other guys oversell.

There was never a good reason for Delta or others to operate 7-10 different aircraft types. If they had used the Southwest philophy, they could have handles most domestic flights with one or two types and most international also with one or two types.

[drizzleman]

I agree very well researched. I think airlines need to stop trying to be all things to all people and refocus on what they do best. The reason Southwest is so successful is that they keep it simple; no connections so no bags and people missing flights and they stay out of large airports so their schedule is less complex. Raising fares makes sense but will people be willing to pay, while they can fly cheaper on Southwest or Air Tran with better customer service? That is the question.

[JackEllis]

The traveling public is getting the service they asked for. So long as airline customers insist on getting the lowest possible price without regard to service, airlines are forced to keep prices low to survive.

One phenomenon the article does not discuss is the dramatic rise in private flying. It's pretty expensive compared with mass airline travel, but professionally flown private aircraft are taking a bigger and bigger bite out of the premium customers the airlines used to depend on for a lot of their revenue (and the majors are striking back by trying to increase the cost burden on these flights). Companies like Dayjet, FlightOptions and Berkshire Hathaway's Netjets offer point-to-point flights to many more airports without the hassles of long lines, surly fellow passengers, no food, and all the other unpleasant hassles of modern mass air transit.

We're going to see more capacity cuts and pretty soon, we're going to see sharp fare increases. As a consumer I'm happy to fly from California to Florida for less than I paid in 1978 but as a business person, know that's not sustainable at current fuel prices.

Traffic will fall but so long as profitability rises, investors should cheer. If profitability also leads to better service, the best customers will stick around, too.

[Gman5000]

Good article. A few misconceptions about Southwest though.

Contrary to conventional wisdom, they fly 2 aircraft types: 737-300/500 ("737 Classics") and 737-700 ("737 Next Gen"). Just because both types have "737" in the name doesn't mean they're the same type, any more than a 2008 Corvette shares anything other than name with a 1972 Corvette.

Southwest also is heavily unionized and has high labor costs, it's just that their management works WITH their unions to get the highest productivity out of their employees - and with a smile.

Southwest connects a lot more traffic than people think. Go sit at BWI any afternoon and watch how many pax are connecting. And while conventional wisdom is that Southwest is a "point-to-point&q... carrier, they have several stations that can be called hubs by anyone's definition of the word.

Southwest is a profitable fuel speculation company, that happens to also run a money-losing airline.

Still, a great article that is very well researched.

[User 200345]

As an Airline pilot for over 22 years I want to say thank you for shedding some light on what is going on in our industry. I have restarted my career after 15 years with a legacy carrier and it's not easy. We have had our pensions ripped from us by our companies and even our own government and when we start over it's at the bottom and we have to work our way back up the seniority list. I am lucky, I got to start over at a great new airline and am now back in the left seat but most aren't so fortunate. Many pilots have gotten pushed back into the right seat (huge pay cut) or let go altogether. The airline business has been brutal on our marriages and families. More and more experienced pilots leave the profession in their prime every day and that is truly a loss of safety as well.

[pushback]

It seems obvious that the only solution is to make entry into the airline business by a new competitor much more difficult. Perhaps with benchmarks, minimum compensations, more scrutiny into new-comers that haven't acquired a track record yet, or timelines that have to be dealt with. It seems that whenever a new entrant emerges, they have huge funding for about 2 years while they undercut everybody else with low fares and low wages, and then go bankrupt after the "investors" have abandoned ship with their profits. It's just too dang easy for venture capitalists to scoop up a bunch of planes and start an airline.

[Need-regulation]

It's simple - deregulation was an absolute disaster! The ATC system is too overloaded and there are too many choices and bankruptcies du jour. Ok - so we can get a ticket to Florida from NYC for $199 but at what cost to the other flying public? Too much capacity and Walmartisastion! It follows a very predictable cycle - airlines buy planes from Boeing/Airbus and deliveries occur at the worst of times and airlines go Chap 11. Now add historic fuel prices, poor consumer confidence economy etc. - this is going to get very ugly folks. The airline industry has too many moving parts and too many things that must go right so it can't be run like Walmart. All of the fat cats are now using Net Jets etc. adding even more traffic delays to the overloaded system. It's time to re-regulate this god awful industry to bring some control back to the system. For that matter bring some control back to the US in general everyone has too many choices! Let's get back to basics.

[Harvey]

The word "aircraft" is the plural use of "aircraft".
Not "aircrafts".
Was the writing of this article farmed out to Bangalore?

[AirlineDude]

Anyone want to guess where most of the $10 bil in aviation taxes has gone? Anyone?

The fact your money has not been spent on upgrading our ATC from the Commodore 64 era is a major reason for many of the delays that pax and airline employees endure. Trust me, as a 15 year airline pilot, we detest delays more than the passenger does.

The problem with regulation is the bankruptcy laws. If a true free market is to prevail then the weak must be allowed to fail. But they are not. More than one "Legacy" carrier was allowed to operate in bankruptcy for more than 2 years. This negates the primary concept of the "free market".

Labor and fuel are the largest part of an airlines expense.
When fuel goes up 130% and labor cost go down 30%, but revenues over the same period remain the same, there is your explanation.

[Stephen Hartshorne]

Dear Mr Herbst,
We enjoyed your article and put a brief synopsis on our blog at
blog.parksleepfly.com/

Best wishes,

Stephen Hartshorne
[e-mail]

[toooldforthisshit]

" Every day licensed mechanics use their experience to repair some part of an aircraft to prevent a future tragedy." As a licensed a & p mechanic with 30 yrs in commercial aviation I will take exception to this statement. Most overhaul facilities in this country (the ones that are left) do not use licensed aircraft mechanics to perform the actual labor. Line maintenance generally requires a license but the 'experience factor' is disappearing quickly along with wages and benefits. That old wisened aircraft mechanic has left this industry long ago to seek greener pastures. Too bad for the flying public.

[intheloop]

Finally a well written and truthful article about the current debacle that is the airline industry.

Year after year, cities and states, banks and businesses hand over money and enticements to start-up airlines with no real business plans in hopes of obtaining "cheap fares."

Several months later these same companies are bankrupt. The "management" usual leaves in the middle of the night with money in their pocket stranding thousands of passengers in the process. So much for "cheap fares." Eventually someone is going to pay. Usually it's tax payers.

Doubly insulting is the fact that it's being paid for by employees of solvent companies who are being asked to take concessions to compete with the fly-by-night operations.

[english fan]

What the public wants, or is getting is immaterial. Raised prices = reduced demand = reduced flying. The problem for the airlines is that unlike other businesses, the airline must maintain trained personnel to meet anticipated demand. There is a lag time before the airline can attempt to adjust to the real vs. anticipated demand. During this lag time, the airline spends money.

Thus the downward spiral results as airline management chases its tail in a game it can't win without a booming economy. This industry needs a new economic model or genius entrepeneur with a new take on generation of profits. Otherwise, the "golden age" is over.

[frequentflyer69]

Finally!! An unbiased view from the media of where the real problems lie. Not just finger pointing and employee bashing. If more people understood that their cost to fly has not even come CLOSE to the cost the airlines pay to fly (or even inflation for that matter), then maybe they wouldn't be so upset.

[AirlineDude]

If oil stays this high, everyone will be riding on Southwest.

Because they will be the only airline left operating. And then they will charge what it costs them to provide the product, plus a decent profit. Remember those fuel hedges decrease significantly over time.


And I can promise you those tickets wil be much, much, much more expensive.

Be careful what you wish for, you just might get it

[bigpoppi]

To all of you that keep talking about low fare vs legacy carriers, let me just say this. In the US you have two different airline models. You have the low fare, Southwest, Air Tran, Jetblue, Frontier, etc. Then you have the big boys, American, United, Delta/Northwest, Continental, etc. Now let me ask one question. Out of all of the people that fly everyday in this country, how many can the low fare carriers take? Go ahead, think about it, I'll wait. ANSWER Combined,they can't carry everybody. They can't even fly half of the people. So why do we keep worrying about what they do? The big boys just need to price their product to cover costs and make a profit, bring back customer service, get rid of these BS fees and charges, free food, etc. Then watch what happens. You'll be surprised at how many people will be more than willing to pay more money for a better product. And I'm not talking about the dirty t-shirt, holy jeans & flip flop wearing, use a grocery bag as my carry on luggage people. Let the low fare guys have the Greyhound people. I'm telling you, people want good service and quality for their money and are willing to pay for it. You can't buy a Saturn and expect a Mercedes-Benz ride. Why can't these execs see this. I'll tell you why. Because they don't care. That's why, plain and simple. They have been shown the comments by the passengers and they keep listening to some idiot in a cubicle that hasn't heard what the passengers are saying or have a clue as to what goes on at airports. But yet the suits keep listening to this fool instead of their own employees who see and hear this everyday as part of their job. RAISE THE DAMN FARES.

[erdriggs]

Most forms of public transportation in the world are government regulated and subsidized including rail and many airlines. In 1979 we chose to deregulate our airlines but we have not been able to fully accept the consequences of that decision. Most of us seem to think that our airlines operate in a deregulated free market, however, the airline industry faces an almost extreme level of government interference. Operationally the airline industry is far more regulated now than it was before “deregulation”. "Deregulation&quo... has evolved into “mis-regulation”. Do lawmakers view airline mergers, bankruptcies, safety, security, and employe training the same as in other industries? Ticket prices are affected through high taxes and excessive competition created by overreaching bankruptcy protection. We like to regulate the airlines in the name of safety, security, and service, but we want deregulated, free market prices. It seem that with air travel we want to have our cake and eat it too. Lawmakers are already complaining that mergers will raise prices and reduce service to small communities. If an airline can’t make money flying an airplane to your city, sorry, take a bus. Airlines are deregulated now so they serve their shareholders not the public.

Government controlled industries are regulated to serve the public. Industries exposed to free market capitalism serve their shareholders. We need to stop expecting the airlines to do both. The airline industry needs to be sensibly regulated, or, deregulated to allow airlines to operate in a free market.

[AirlineDude]

BigBoppi, I wish it were that easy.

The airline I work for raised the minimum fare on any ticket $12 dollars. These are the bargain basement fares, and forward bookings on those markets decreased by 12%. When you are already operating at a loss, as a business you cannot afford to lose that kind of numbers.

The travelling public is ultra price sensitive. The reason a'la carte pricing is coming into play is because this has worked for European carriers for quite some time and the public here somehow isn't quite as wary to this type of price increase as a straight fare increase.

[timjet]

Since Sep 11 the airlines have done an excellent job of cutting the fat and becoming more efficient. The only thing left to cut is employee wage and benefits. As an airline pilot I've seen my pay and benefits eroded to the point that my salary in real dollars is at 1985 levels. The airlines can no longer expect its employee's to subsidize rising gas costs, so the answer is reduce competition by merging and reduce capacity allowing ticket prices to rise. American started the trend by announcing a 10% reduction in capacity with employee furloughs to follow. Gordon Bethune the former CEO of continental wrote that in order for the airline industry to return to a healthy financial position, capacity nationwide must be cut 15%. To get an ideal of the scope of this cut, United airlines owns 15% of the domestic airline market. Perhaps for the health of the industry, one of the legacy carriers must go.
Ticket prices will rise and capacity will be cut. Perhaps customer satisfaction will then rise and will be a competitive issue in the future.
Timjet

[BioInvestor]

John Pseudonym: airlines are price takers. Simply raising fares doesn't mean increased revenues. Airfares have a very dramatic price elasticity of demand, so increasing fares, decreases the quantity demanded with a concomitant drop in revenues.

[BioInvestor]

pushback, the interesting thing about the barriers to entry in the industry is that they're highest when things are going well and lowest when things are going poorly--at least when it comes to securing equipment. Financing could be a separate issue.

[BioInvestor]

The set up to the article is a little melodramatic! It's easy to demonstrate that air travel is a safer mode of transportation than all others. Sure, there are people working diligently in the background that minimize and, basically, remove the chance of failure. That happens in all industries--many with a less than stellar result compared to flying.

The comment about Southwest and hedging is, by its very nature, speculative. No one can say definitively how Southwest would perform if it didn't hedge.

The industry has a number of structural issues; I just want to mention a few.

There are basically two marketing strategies: a company can compete on price or on some sort of differentiation. Companies that try to do both aren't successful. Southwest competes on price: to be successful with this strategy, the airline has to be the low cost producer--for many years there was no question that Southwest had dramatically lower costs than its rivals. It was and is successful in its niche with a clearly defined and relatively flawlessly executed strategy.

Look at all the legacies: on one hand they try to differentiate themselves with frequent flyer programs, elite status for frequent fliers and premium services in the business or first class cabin. At the same time, the carriers signal low price guarantees and all kinds of saver fares. The hotel industry has it right--or at least the message is clearer: it's pretty easy to differentiate, say, Motel 6 from Hilton based on how they advertise their respective products. Legacies send the same message as those carriers that compete on price, but they also signal differentiation. It's really no wonder that passengers complain more vocally about legacy carriers than, say, a Southwest Airline. At least look at the Department of Transportation website--the section that focuses on consumer complaints. Southwest promises nothing and delivers what it promises. Legacies, in my opinion, send confusing marketing messages and receive more complaints as a result.

The legacies also have two types of customers: those that shop on price and those that make a purchase determination on other criteria. This latter group is more important to the airlines in that if they can pretty much fill the front cabin and sell a few full fare coach seats, everything else is pure profit. (The next most important group is cargo then passengers who base a purchase decision on price!) The majority of people traveling in a given plane are flying at less than cost. It is a crazy industry.

However, the legacies are stuck: the low cost carriers too for that matter. As I stated elsewhere, they're stuck between a highly inelastic commodity, fuel that happens to be a major expense and the highly elastic behavior of airfares: raise the fares and consumers find a substitute. Raising fares is not a panacea to solve lack of profitability.

The industry is highly capital intensive--aircraft are expensive to own and operate--and, consequently, the industry has a high breakeven point. Once that breakeven point is reached, everything else is gravy. Like any capital intensive industry, competition on price ensues when profits start to vanish. It happens in the chemical, steel even the auto industry: big capital sinks must be kept humming. That situation won't change--unless some carrier can come up with a magic formula to attract all of its customers on something other than price.

[Robert Herbst]

Bio Investor-

While some of your comments can be argued you are wrong in your conclusion that SWA fuel hedging cannot be reconciled (due to speculation).

Each airline reports somewhat detailed fuel and derivative information via SEC filings.

Here is a quick summary of each airlines 1st qtr 2008 average fuel cost per gallon and gallons used: (gallons are in millions)

AA.. 680 gallons at $2.732/gallon.
UAL.. 556 gallons at $2.833/gallon.
DAL.. 500 gallons at $2.85/gallon.
CAL.. 375 gallons at $2.7965/gallon.
NWA.. 367 gallons at $2.7974/gallon.
JBLU.. 117 gallons at $2.65/gallon.

SWA.. 373 gallons at $2.01/gallon.

Without their aggressive and very successful fuel hedging, SWA would have paid at least .75 cents more per gallon (see other airlines fuel cost noted above);

Without fuel hedging, SWA would have increased 1st qtr fuel expense by at least ~$280 million.

That ~$280 million -fuel hedge savings- was considerably more than SWA's 1st qtr 2008 Operating Income of $88 million or the $34 million in net profit.

Regarding the "drama" of the industry; I'd like to point out there is virtually no industry I am aware of that by it's very operation has such potential for risk (I.e., hundreds of thousands of human beings being carried at high altitude at hundreds of miles per hour in a very complicated man-made machine completely under the control of just two individuals albeit they are well trained Captains and Co-Pilots.)

I can assure you on a daily basis there are a number of in flight emergencies that you will never hear about only because airline employees on those aircraft have used their experience and training to land that aircraft somewhere safely.

Regards,

Robert Herbst
AirlineFinancials.com

[rismoney]

How about subsidies to the airline industry courtesy of the oil profits?
If the proportion of profits increased at oil companies is relative to the losses at airlines, lets have government close this gap.
Problem solved.

[barnburner]

Why not re-regulate the industry including prices? The airlines show the Government what they need to operate and the Government puts a minimum price on tickets that will keep the carriers in business. The carriers can tout their on board snacks or drink specialties to attract customers but every carrier is able to stay in business and pay wages that keeps the best pilots, the best mechanics and a safe flight.

[BioInvestor]

Robert Herbst: Thanks for the response, but you appear to have missed the point I made.

I am not arguing that hedging doesn't have an effect on the profitability of Southwest Airlines, my thesis is that no one can make a definitive statement about the state that the industry might be in had Southwest not hedged. No can say for certain. To state that Southwest would may or may not be profitable is speculation--there's no way to know. That's the point. If Southwest didn’t hedge, it would seek to remain profitable in other ways, most likely through raising some or all fares. If Southwest were to do that, it’s unclear what the effect on the overall industry would be.

I think that everyone can accept that safety is a concern in the airline industry. There is a smaller margin for error and that catastrophic events can occur. The fact is that the industry has processes and procedures to mitigate the problems. The fact is that, based on objective criteria, airline travel is the safest mode of transportation. It's safer than using a toaster, a hedge clipper, even owning a dog. My comment isn't that there is no danger; it's that danger is successfully and predictably contained. Any danger associated with airline travel is basically a non issue for investors.

[BioInvestor]

barnburner, reregulation isn't on the cards. There would be ramifications for the government were it to try and reregulate the industry--the WTO for example.

[Gman5000]

Re-regulate!? How about trying deregulation.....compl... I'm unaware of anything taxed higher than airfare (higher than liquor, tobacco or any other "sin" tax), and not too much that is regulated any more than airlines currently are. The "deregulation&quo... legislation was a move toward deregulation; it wasn't deregulation by itself. And why re-regulate anyway? The ATC is regulated, and look at the debacle that has turned out to be over the past two administrations. They've been talking about the "next-gen" ATC system since 1996, and haven't done a thing toward actually implementing it. They're still talking about it!

[biggus]

One topic that hasn't been raised fully yet is how the US domestic market is off-limits to foreign airlines. If a foreign airline is able to operate more efficiently than the US legacy carriers or even the low cost carriers, they should be allowed to do so in the US. Currently, a reputable foreign airline cannot purchase a majority stake in a US-based carrier, nor can it operate routes between US airports. This is a restriction of free trade, and the result has been that we have propped up inferior companies, such as Delta Airlines, American and United, that are incapable of consistently producing a profit. If these US airlines were truly world-class, then right now their only problem would be fuel prices. Instead, we have poor customer service, maintenance problems, and massive delays, just to name a few problems facing the industry.

A little international competition might weed out the inefficient operators and actually help get US airlines back on their feet, assuming that such American companies are still able to compete. In the long run, it will lead to a more efficient domestic air travel market.

[rik717]

Bob is absolutely right. The real problems for the industry now are the government and oil industry. The government needs to protect our airlines and their employees while at the same time allowing for more drilling in the arctic, off shore platforms where the oil is and accelerating shale oil and liquification of coal and other sources as well as adding two to four more refineries, the N.I.M.BY.s (not in my back yard) be damned. the employees of the airline industry have given back too much and can no longer afford the luxury of working for peanuts. The travelling public has to pay what the safe transportation is worth.

[jetwrench757]

I really love it when passenger complain about service and they are buying the lowest price ticket on the internet. you get what you pay for. The problem can be fixed by Goverment reregulation where ticket prices are set by the GVMT at a rate that is profitable. the transportation system is so important to the country, no, the world infrastructure that we cannot allow safety to be compromised in the name of "cost cutting" I urge all people to contact our senators and congressman to push for regulation of routes and prices. The Airline CEO's don't want this, but it is needed for the viability of the industry to survive.

[jetwrench757]

I really love it when passenger complain about service and they are buying the lowest price ticket on the internet. you get what you pay for. The problem can be fixed by Goverment reregulation where ticket prices are set by the GVMT at a rate that is profitable. the transportation system is so important to the country, no, the world infrastructure that we cannot allow safety to be compromised in the name of "cost cutting" I urge all people to contact our senators and congressman to push for regulation of routes and prices. The Airline CEO's don't want this, but it is needed for the viability of the industry to survive.

[BioInvestor]

jetwrench757, what nonsense!

If the airline is offering a level or service and fails to deliver--regardless of price--the passenger has a right to complain.

Reregulation is, in my opinion, a dumb idea. There's too much capacity. Letting one of the big guys go under (I vote for NWA :) ) would help.

Safety isn't an issue--that argument is a canard.

[PL767]

I Agree more than 100%! It is more than strange (as in astonishing) to me that the flying public is so utterly unaware of what goes on when they show up at the airport and hop aboard a commercial jetliner.

It keeps within the greater part of our modern culture (unfortunately). I truly believe that we as a nation are standing at some very serious crossroads. We've been steadfastly heading in this direction.

So, the average American Joe, or Jane, is pretty much ignorant of the thousands of things which must go right for them to rush to a gate, and hop aboard XYZ Airlines seat, and safely be wisped from any city USA to any city USA. They are unconcerned.

They are equally as unconcerned with anything and everything that is not directly associated with their direct world, business, or lives. Not for a second do they take a moment to think of the simple element of FLIGHT in of itself. Moving a machine through such a dynamic, and harsh environment. The demands upon the very machine which they are so unconcerned to even bother to know it's type.

The machine upon which their very lives depend. The operators of those machines. The persons who are responsible for maintaining those machines, scheduling them, and cleaning them. All the passenger is concerned with is...."Are we going to be on time?" And, "the price of a ticket!"

So many times I have observed people as they sit in a boarding gate area, stood in the line in the loading bridge, and even sat in their seats. I listen to the small talk...It's appalling for the most part.

"I think that Southwest is better then XZY..." "Can't believe they don't even feed us anymore!" "I'll NEVER fly XYZ Airlines again, they ALWAYS lose my bags!" It goes on and on, like incessant babble with no thought, no reason.

Passengers seemingly fail to realize that in almost any and every way, even with the overloaded planes, weather delays, lost bags, and the occasional mechanical delay, that they are getting a better deal than the deal that whatever industry, job, or service that they themselves are providing.

When was the last time that a Medical Doctor worked for you at a price where his or her bill did not cover the expense of his practice? Even more so with an Attorney...When did your attorney "GUARANTEE" that he would win your case? Convict a bad guy, resolve a conflict, or do anything other than generating a bill with his hours, and looms of paper? When was the last time that you purchased an item...any item, a car, computer, cellular phone, printer, or anything in which the sales person passed on their commission to you the customer, so that you received a good deal?

Ever call for warranty service for any product? How many times were you satisfied with the customer service, or the manufacturer solidly standing behind the product that was sold to you? That is a long gone concept these days. These are the people, the salespersons, attorneys, doctors, managers, distributors, and so forth who are climbing aboard, and complaining about the airlines. Do they ever stop to think; "what sort of product am I producing?" What sort of service am I providing?

At least in the airlines industry, I know that for the past 20 years I have safely gotten each and every one of my passengers from their point of departure, to their destination. Day, night, bad weather, wind, snow, low visibility, etc. Each and every single time. They are unaware of life threatening emergencies. A calm PA announcement from me explaining to them why we had to turn around and go back to the airport has been made three times in 20 years. And, of those three times, nothing worse than a short delay to correct the problem, and have them on their way.

Been back and forth to the Hawaiian islands no less than 1440 times in the past 10 years. One thousand four hundred forty transpacific crossings, with takeoff's equaling landings. That's 3,268,800 nautical miles (3,759,120 "statue" miles - as in car driving miles) and 360,000 human soles I have been personally been responsible for. They are all alive ( or were when entrusted to me at the time of their flight).

That's a pretty typical record. Can you say that about your field? Is there a technical rep out there who has satisfactorily resolved 100% of the calls about Windows XP crashing? Or, an attorney who's had a 100% satisfaction of whatever their clients retained them and paid them for? I would love to hear from them.

We are a very critical times here in this great nation of ours. We are living during times of record greed, and the lowest amount of ethics. The founding fathers would be spinning in their graves if they ever knew of what is going on, and practiced as savvy business. False advertising, bait and switch, and down right fraud are the tools implemented today.

We fail to teach our children even how to behave, much less the math and science skills required to continue to lead the world as we once did. We produce little of nothing, importing nearly everything from China, and other Asian Country's. We ship all (or as many as we possibly can) jobs overseas, leaving American employees out of jobs.

Greed? "Greed is Good" as stated by Gordon Gecko, in the movie Wall Street. I think that the basics of Capitalism works as intended by the founding fathers. However, we were intended to produce. To stand behind what we produced. Pride was had in the craftsmanship.

Unfortunately, I see this only as the beginning. On our present course and heading, it's going to hurt a lot more than it is today.

The Airlines as bad a condition as they are today, will get worse. Quite possibly we will see what happened to the Steam Ship Industry here in America. No more large ships are built, operated, or registered here. We may very well lose the entire Airline Industry to overseas carriers.

At very least, I am able to sleep (well) at night (for the time being)...I am employed with the responsibility of the safe carriage of human beings, to and fro across thousands of miles, at nearly the speed of sound. My promise is to get you there, alive well, and in one piece. That's my guarantee and promise to you.

I did it for twice what I am paid today. Even with a 50% cut in pay, and total loss of pension, I still give you the same exact service. Just as much Safety! I don't just do half of an emergency checklist due to the fact that I am receiving half as much pay.

America truly needs to wake up. We need to THINK again. We need to smell the coffee before it's too late, if it already isn't too late to turn this nation around.

I certainly do not wish to ridicule or put down any profession, job or position, but, I do wish to be provocative of THOUGHT!

[BioInvestor]

PL767--the argument you make is irrelevant. Why do you want people to understand the inner workings of running an airline? That's nonsensical.

The vast majority of people don't understand how a cell phone works; they don't know how cars operate; people are clueless about how electricity reaches th