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Getting My Head Around The Airlines Mess. Posted on 08/13/2002.

A story in today's Chronicle focuses on United Airlines woes, as it burns through $1 million in cash every day, and many fear it's headed for bankruptcy.

As someone who attempts to understands problems so as to solve them, I'm utterly flabbergasted by what should be done to clean up the current airlines mess. As my calendar to the left suggests, I'm finding myself in the air a lot, and so I've actually found myself thinking about this.

US Airways is headed for bankruptcy, American Airlines is laying off people, and the loans the airlines got from the federal government after September 11 seem pretty much all used up.

And then you've got carriers like Southwest and the up-and-coming JetBlue, smaller, profitable, while still providing cheaper fares and, oftentimes, better service. And so, I want to say, "Well, United should just restructure itself to run like Southwest."

But that's too simple. Southwest serves a fairly narrow swath of the airline market, focusing on short hops, mostly in the (duh) southwestern part of the US. But, well, if I want to get to Tokyo, Southwest isn't going to help me.

A further wrinkle is the fact that United has an extremely high payroll to cover. Let me say right now that I'm pretty much as pro-union a guy you'll find -- management will, given the slightest opportunity, do what it can to dick over their employees, and so any structure the allows for collective bargaining and a stronger voice for the workers is a Good Thing. But, I wonder, are the unions only dicking themselves over, seeing only so far as the end of their nose, not realizing their walking right into the turbines of a jet engine?

Also, not only can United get me to Tokyo (non-stop!), it can get me to Washington D.C. non-stop, something Southwest can't do. (And lord knows I won't do the three-plane-hops that they offer to get across the country). So is that Big Airlines' competitive advantage? Well, maybe not. JetBlue gets me from Oakland to D.C. non-stop for $130, and they seem to be making money doing so. JetBlue's model is interesting because what they've got going on are coastal hubs that in turn service local areas. So they're economics are very much like Southwest's, in focusing on local markets with quick plane turnarounds, no-frills, and point-to-point travel, but with the one exception of getting people from one side of the country to the other.

How can Big Airlines compete? Can they? First, I think they've got to make their pricing make sense. With Southwest or JetBlue, you pay per leg, and you always know what it will cost. With Big Air, it's a notorious gamble, with ridiculous realities like round-trip flights costing less than one-way. I think "human-understandability" in fare structure would go some way to help earning trust.

I also wonder if United, American, etc., have to simply retool themselves as global airlines. To not be so US-centric, since flights within the US seem better served by smaller carriers, and instead utilize their size and operational capabilities to get people from country to country. Are there any true "global carriers"? Virgin Atlantic comes to mind (tho, yes, it focuses on the UK, but there are only two airports served in the country, and their route map displays a global vision.)

Many folks are calling for the dismantling of the hub-and-spoke model. Which, after reading LINKED, and thinking of the power of small-world networks, seems odd. Thanks to hub-and-spoke, I can get anywhere in two legs, and it's fairly efficient for the airline. The problem seems to be the massive amount of human resources necessary at the hubs, and the hideous crunch times that happen, because planes are all scheduled to arrive around the same time, so that people making connections can do so all around the same time. This means that when times aren't crunched, you've got a lot of personnel sitting around waiting.

And then there's James Fallows' notion in Free Flight, of utilizing more of a swarm mentality of lots of little planes that can get people from point-to-point, taking advantage of 2nd, 3rd, and 4th tier airports, which are cheaper to operate, and quicker to get in and out of.

But, see, really, all you've got here are lots of ideas. And no sense of which, really, will work. Clearly, there's a problem. It seems that Big Air simply cannot operate at a profit. The last thing I want the government to do is give them more money so they can continue to lose it. In other such situations, I'd just say, "Well, let Big Air die! They're sclerotic dinosaurs. Why should they get corporate welfare?" Except that I have both personal, professional, and societal reasons for wanting Big Air to stick around -- I want to be able to travel to Tokyo, I want American business to be able to operate with some fluidity, I fear that massive Big Air failure could have a detrimental impact on the American economy.

All this makes me even more frustrated with glib analysts who offer quick fixes that don't take into account the exceedingly and enmeshed reality at play.

That's enough of a ramble for now. Thoughts?

4 comments so far. Add a comment.

Previous entry: "Brief Book Review: Linked."
Next entry: "United Airlines Threatening Bankruptcy."


Today's WSJ has a story about restructuring hub designs, so that rather than have planes come in in tight formation at peak times with short layovers, you instead smooth out the interflight arrivals at the expense of longer connect times. 30 min connections turn into 90 minutes or more.

I just flew r/t Detroit->Oakland on Spirit Air -- cheap ($380 r/t), no frills, and relatively convenient for what I was aiming at.

Posted by Edward Vielmetti @ 08/13/2002 11:24 AM PST [link to this comment]

I'd hate to see American (my carrier of choice) restructure itself like Southwest. In fact, I'd probably stop flying it if it did. One of the problems with Big Air, as you call it, is the current economic downturns impact on business travel. This is the bread and butter for carriers like United and American and when businesses slash business travel expenses, the big carriers suffer. Few business travelers in their right mind would travel in the bargain planes like SW (and I speak from experience, having flown 3,000+ miles per week when I was a consultant).

Maybe government subsidization (is that a word?) of the airline market isn't necessarily a bad thing. The profit margins are so slim in the industry, even the slightest change in the marketplace (right now American travel is down 10%) disrupts the stability of the business. And yet we need airlines, and the lose of our airline industry could do huge damage to the economy. Business travelers don't have the time to get to Boston from San Francisco via Vegas, Salt Lake City, St. Louis, and Providence.

Actually, what I've always dreamed of was an all business-class airline. Pick the most popular business routes: LAX to JFK, SFO to JFK, LGA, etc. and fly non-stop with most options on Monday and Friday, few weekend options, and enough mid-week to cover the demand. Fill it with all business class seats, offer good service and perks, and charge slightly less than a full coach fare (which is what many business travelers buy because you can upgrade it, refund it, change with no penalty, etc.). How could you not make money doing that? My ticket on American every week from SFO to Chicago O'Hare was $1850. You bet I would have taken an alternative airline charging $1200 with all business travelers and nice comfy seats with power outlets.
Posted by Meg @ 08/13/2002 04:50 PM PST [link to this comment]

The hub-and-spoke design is great if everything goes to plan... yes, efficiency and simplicity are its hallmark... but so is vulnerability.

A hub can easily become a bottleneck which causes ripple effects throughout the network. Or a hub can become a critical point-of-failure [sometimes a single point of failure]. When severe thunderstorms roll through Houston, forget about flying Continental, likewise when O'Hare is snowed in so are you... even if you are awaiting a United connection in Miami!

Not only do we have to worry about the flight topology, we have the social network to deal with if you want to change who flys where and when. Plenty of money and power is invested in O'Hare[or any other major airport] being a hub and staying that way. You also have to look at the local social/business network that O'Hare is embedded in.

Hmmm... is JetBlue building 'short-cuts'[ala Small World Networks] into the aviation network?

Posted by Valdis Krebs @ 08/14/2002 11:22 AM PST [link to this comment]

Maybe the short-sightedness with the hob/spoke model comes in the commitment to a single hub. It would make sense to have two or even three smaller hubs around the country to offer robustness if one is snowed under.

What's the downside? More labor and infrastructure costs? But they wouldn't be as big.

More ideas and no solutions, I'm afraid.

Posted by Peter @ 08/15/2002 05:13 AM PST [link to this comment]

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