Pundit

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    • Thu Jun 5th 13:50 PM | Rating: 0 0
      Commented on:
      Airlines Will Profit No Matter What
      This article is flat wrong on many points. Airlines have not been profitable, if viewed in the aggregate over the course of commercial aviation history.

      There is no evidence that "...many a company is scrambling to sell its Gulfstream jet." Quite the contrary, orders for so-called "general aviation" jet aircraft are at historic highs and order backlogs are long. The execrable state of the U.S. airlines are a primary reason for this, and that is why private aircraft operators are willing to suffer the high price of fuel.
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    • Mon Mar 17th 13:14 PM | Rating: 0 0
      Commented on:
      Fixing the Airlines: Reconfigure or Reregulate
      As your analysis indicates, the airlines are a poor financial bet. The reasons for this are inherent in a flawed business model and can be summed up as follows:

      1. Flawed pricing. The airlines are the only major industrial enterprise that consistently sells its product below cost. The airlines have been doing this since "deregulation&quo... in the erroneous belief that they could make up in volumn what they loose in lack of revenues net of costs.

      2. Cost. The cost structure of all airlines is high and part of the failure of the model is that they grow inexorably higher while unit revenues are flat. The airlines have vastly increase capacity and gross revenues, but as you pointed out, net profit, where there is any at all, is a very small percentage of revenue.

      3. Infrastructure. The Airline Deregulation Act did not fully deregulate the airlines, and a prime example is in access to airport infrastructure. The airlines covet and hoard prime airport space, some of the most expensive real estate in commerce. New entrants can't get access to the airports, except at exhorbitant cost, often paid directly to their competitors.

      4. Labor and seniority. The news on any given day chronicles the rancorous and never-ending relationships airlines have with their key labor groups. At the core of this problem is the historial and anachronistic veneration of seniority above all else in determining remuneration and benefits. For this reason alone, the airlines labor model is horribly inefficient, and the more so the higher up one looks on the labor hierarchy. An example is pilots, who are at the top of the economic scale in terms of labor cost. The goal of the pilot's collective bargaining is to work as little as possible for the highest possible gain in pay and benefits. Yet pilot collective bargaining agreements are merely totemic of an inflexible structure that doom the airlines to low- or no-profitability long term.

      5. Managerial Overhead. Few industrial enterprises have the bloated overhead typical of all airline companies. A huge and disproportional amount of cost resides in the executive and senior- to mid-managerial suites. Much of this inefficiency exists as the result of "empire building" and outmoded industry conventions, and some is there due to highly inefficient industry regulation, bt the dead wood is there, nonetheless.

      6. Dogma. Airline managements are not populated by great thinkers. Much of airline management theory is horribly out of date and out of touch with economic realities, and this is perhaps the biggest flaw in the airline business model today. Airline management is still fixated on quaint theories of customer "loyalty" and "customer service" and the notion that passenger cabin gimmickery will compel future purchasing decisions. As the airlines have proven, there is no "loyalty" beyond today's price point. Volumn can't make up for this. See item "1" above.

      7. Technology. Innovative companies use technology to increase efficiency and profit. Airline companies deploy technology to increase costs. While it cannot be disputed that certain technological advances have vastly increased the safety of air travel, much of the high technology in todays air and ground operations fails to deliver a return on investment. The eight- and nine-figure costs of todays aircraft are an example of this.

      As comments to your article indicate, there is no shortage of hidebound thinking in commercial aviation. All these chickens are now coming home to roost as energy costs no tip the airline model beyond the point of no return.
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