Southwest and the Airtravel Realities We’re Ignoring

Steve reminds us why we love our readers by penning a nice and cogent op-ed on why “the current low fares are going to run one or two of the legacy carriers into liquidation.”

Furthermore, “we all need to realize that we cannot expect that flight to Minneapolis is cheaper than the cost of driving.”

Preach it, brother, after the jump…

Southwest is clearly the model for both operating a profitable airline and providing appropriate customer service. Unfortunately, this model is only possible by starting from scratch and limiting the scope of service.

As a former “road warrior” (shiver), I would always choose Southwest whenever possible. While the frequent flyer program is great, the loyalty came from a working with a service provider that actually got me where I need to go on time most of the time with staff that seem to care [for] their customers. I could not take Southwest all the time and had to take a legacy carrier to get to places outside Southwest’s routes. Southwest will never fly to Fargo; it does not work within the model.

This is the problem, the legacy carriers are based on a model that does not allow for the level of price competition that is the signature of the current airline industry and is driven by the non-legacy carriers (SWA, JetBlue, AirTran, etc.). The legacy carriers have thousands of flights a day that simply do not pay for themselves. They somehow think they are going to get out of their financial problems by nickle and dimeing their customers, but the hole is too deep and they will only further alienate the frequent customers that may have actually cared if the airline survives.

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To finally get to my main point, an airline cannot be run at a loss. Prices need to rise on non-competitive routes and routes with non-legacy competition need to be run as break-even or cut. The current low fares are going to run one or two of the legacy carriers into liquidation, which is going to involve massive costs directed to taxpayers and the larger economy. People are going to have to change the mind set that air travel is almost always affordable to almost everywhere. We need not go back to a pre-deregulation mind set of airline travel being something special, but we all need to realize that we cannot expect that flight to Minneapolis is cheaper than the cost of driving.

Thanks for the chance to vent. This has been bothering me for years. By the way, the airlines will not change. One or two will disappear and prices will increase in the void.

Steve

Comments

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  1. B Borrman says:

    Steve,

    I couldn’t resist replying. You say that this has been bothering you for two years, but a lot has changed in two years. It’s not simply ticket prices that are determing profit right now — it’s the cost of oil.

    If you look at the numbers, Southwest would have lost money in 2005 if they didn’t have significant oil hedges. And now that the hedges are rolling off, what do they do? Introduce the biggest price increase in the airline’s history.

    Jetblue has been warning everyone that they will lose money this year, just as they lost money in the last quarter of 2005. And AirTran has flourished because Delta has essentially left them alone. Now that Delta’s on the edge of death, don’t expect Atlanta to be so friendly for AirTran much longer.

    Legacy carriers, love them or hate them, are necessary. It will never be financially feasible for someone to fly you from Boise to Brussels direct. You will need to go through a hub.

    Legacy carriers will start to make money the way British Airways has. Lavish services on those who will pay, and cut back services for those who won’t.

    One point you’re very right about — if we keep wanting to pay Greyhound prices, we should stop complaining about Greyhound-like service.

  2. Ben Popken says:

    Michael writes:

    Hi, I’m a regular reader and first time commenter (ding ding ding).
    Here’s my take.

    You are absolutely right except that liquidation is highly unlikely
    because the bankruptcy laws in the US are so protective and liberal that
    even carriers that are unlikely to return to profitability can survive
    by entering bankruptcy protection.

    It is entirely fitting that Southwest is raising fares now that their
    oil futures are rolling off. And, writing off the current state of the
    industry as an anomoly due to the high price of oil doesn’t cut it
    either – like it or not, the high price of oil is here to stay.

    The big losers unfortunately will be the tourists and the secondary
    market cities that, during the era of cheap oil, built their cities
    commercial model on the idea that they could not only attract carriers,
    but push them to provide service cheaper than they should have (i.e. at
    a fair profit point). The “invisible hand” of the free market economy
    will hurt them, because when carriers are forced to turn back to
    profitability WITH expensive oil, they will drop these markets or raise
    their prices substantially. And the city governments that rely on
    frequent, cheap air service in order to build their economies will have
    no alternative but to accept it and move on, perhaps finding alternative
    cargo and transportation options to keep their economies moving.

    As for the every day tourist, I think that expectations will need to be
    reset and that they will be the hardest hit air travel audience. Things
    we take for granted, like checking luggage, will become an expense to
    consider before flying.

    I still travel a lot on business, and while the service has been a bit
    bumpy, my employer pays biz class and I travel pretty well. But as a
    tourist, I’ve already seen cost increases that are making me consider
    whether flying the whole family (of five) out to Orlando from Chicago is
    the best way to get to Disneyworld, or if I should consider driving.
    Everyone else will have to make that painful choice too, I predict.

    Thanks.
    Michael Humphries-Dolnick
    http://famille.org

  3. B Borrman says:

    Please don’t mistake my mention of oil as an excuse for the indutry’s current state. I mention it only as the most pressing issue they face — and one that shows there is a problem with the industry as a whole, including Southwest.

    Again, if you look at the financial models most have released, with oil in the $50-$58 range, most carriers expect to dig out a small profit. United in fact says they are break-eve with oil at $66.

    As to the small towns, they won’t be abandoned. What will happen is what has already happened — mainline service will end and Express carriers will be used.

    There are several fundamental flaws that must be fixed for this industry to ever make sense in the US:

    1. Taxation: Airlines are taxed more than cigarette makers, alcohol producers or fire arms manufacturers for a few examples.

    2. Regulation: The industry was never fully deregulated. It is still one of the most directly influenced by the government, with more stringent government oversight than most. Whether you like the free market or not, looser restrictions on cross-boarder deals is what has allowed the European and Asian air travel markets to flourish in the last several years.

    3. Legacy costs: This is the most painful issue for every one involved. It’s exactly what’s hitting the auto industry as well. Decades of poor management/union relations and companies trying to buy peace by mortgaging the future have saddled airlines with costs that the business cannot support.

    The entire industry is flawed. And frankly, when times were good in the late 90s, airlines taught consumers to expect to get more than you pay for.

  4. AcidReign says:

    …..Consider me forced out of air travel options anywhere east of the Mississippi. I took one of the (likely) non-profitable direct flights United offered a year or so ago, from Birmingham to Chicago O’Hare. This was a 10:00 flight, but less than half of it was sold, and the plane got delayed because of mysterious mechnical difficulties. The delay was presented as 30 minutes by the helpful ticket clerk, and they revised this every hour. Instead of just having the balls to tell us the flight was cancelled, they kept us hanging around all day.

    …..Eventually, late in the afternoon, they combined us with another flight, to produce one nearly full plane. I’m sure it saved them money. And maybe they were trying to drum up business for the Airport food joints and bar….

    …..But, it should not take over 13 hours to fly from Birmingham to Chicago. At any price. One can drive that far in 11 hours doing less than the speed limit. And even at $3 a gallon on gasoline, driving is cheaper than one plane ticket at the current “deflated” prices. Plus, you see a lot more interesting things at ground level!