Why the airline industry has failed and how to fix it
Posted by sanityinjection on August 13, 2008
I thought readers might be interested in my recent e-mail to a BusinessWeek contributor regarding the problems facing the airline industry:
Twenty-five years ago, the airline industry made a decision to cater everything to the business traveler. That decision made sense because business travelers were making up a greater and greater percentage of fliers. Thus, we were introduced to the NYC shuttles, cattle car seating, “no-frills” airlines, and the disastrous investment in seat-back “AirPhones”.
The problem is that the industry has stubbornly stuck to this model even as the demographics of air travel have changed. The advent of the Internet has destroyed business travel as the basis of a successful airline. No company wants to pay to send its employees anywhere if the same results can be achieved through cheap videoconferencing and remote PC support. The oil price hikes of the last seven years have disguised this trend by creating an aritfical dip in leisure travel, but the trend is inescapable.
Any first-year B-school student can tell you that if your business model is based on customer behavior “A”, but customers are actually behaving like “B”, your business will fail. And that’s what’s happening to most airlines.
Instead, the airlines need to re-engineer their whole approach to focus on vacation travel. Americans today, despite the current economic slowdown, have more disposable income and more leisure time than any people in history. The Internet has acted in opposite fashion for personal travel – by bringing the sights of the world to their PCs, it has whetted their appetite to see them in person.
A good example of an airline that has grasped this is JetBlue. Wider seats and personal TVs in coach are amenities that appeal to leisure travelers as well as business travelers. In addition to these changes, the next step for JetBlue’s competitors is to adjust their routes to meet demand. Instead of running 100 flights from New York to DC every day, an increased focus on vacation destinations will pay dividends in the long run. USAirways’ vacations division and focus on destinations like Las Vegas and the Caribbean has been a key factor in that airline’s ability to keep its head above water.
Even more fundamentally, though, new technology is needed to change the economics of operating a commercial airline flight. Even today’s newest commercial planes are essentially based on 1960s technology with a bit of window dressing. Somebody’s got to start investing in radically different airplane engines and designs that will cost less to operate. To take one small example, airplanes expend a great deal of energy to takeoff compared to what they use in-flight. If someone can figure out a way to boost planes into the air more efficiently, it will have a ripple effect on the entire industry. Any cost savings that are achieved through technology will allow airlines to make money without having to cram more and more seats on each plane. The result will be a more pleasant flying experience that will encourage more leisure air travel.