State of the Airlines

Thursday, March 10, 2005

OPINION: Airlines Give till it Hurts

Today's hero is Andres Martinez, who published a simply brilliant commentary piece in the Los Angeles Times. Its absolutely worth taking the time to register to read the article. I'll will steal this excerpt but I swear I was tempted to plagiarize the whole darn thing.

The airline industry's overly clever pricing schemes have also backfired spectacularly. Unlike a movie theater that will usually charge the same amount for a seat, airlines perfected "yield management" systems that amounted to a continuous auction of each seat on every flight. In the late-1990s boom, airlines could often auction off those last few coach seats on transcontinental flights for a couple thousand dollars.

I nearly wept openly...that is such a great statement.

The commentary got me the public ready to see what ticket prices should be in order for airlines to be self-sustaining and not constantly on the brink of bankruptcy. Because that day has to come but I get the sense that it will take longer than anyone anticipates. Fuel prices will continues to increase despite the assurances that "all is well" ...get it..."oil"..."well"...nevermind. Airlines are not going to be able to make back the increase in fuel costs via "fuel surcharges" because its going to get to the point where the surcharges will equal the cost of a ticket. Sooner or later Southwest Airlines is going to run out a fuel hedged at significantly lower prices and will raise their prices to cover costs. And the industry will follow.

My advice? Invest in telecommunication, voice over IP, teleconferencing hardware and anything else that enables users to collaborate in a virtual meeting. Its gonna be huge once airlines regularly charge what it really takes to make money on an airline seat.