State of the Airlines

Friday, January 07, 2005

OPINION: Reduced Fares, Revenue Loss

Just a quick thought on, guessed it, the effect of reducing fares. Analyst keeping banging on the projected revenue losses that could be seen via Delta Airlines' new fare structure. The real question in my mind is what will the effect on profit be? Wouldn't it be odd if fares were cut, revenues went down but profits (or at maybe just losses) started improving. This is the test then. Are the costs cuts and re-tooling within the major airlines enough to allow them to compete with discount airline style fare structures? Because in the end I think this is what needs to happen. Major airlines needs to be able to operate in manner that allows them to make money while charging close to discount prices. I say "close to" because I still believe there is value in being big enough to offer flexibility to the flyer in the form flight frequency. People will pay extra if it means that they can go home tonight versus staying an extra day in a hotel.

I support Delta's move, they can't wait any longer to start down this path (and I think they will benefit from leading the charge). That being said, I think they still need more cost containment. Its going to be a bumpy ride.