Today’s NY Times had grim news for folks in the airline business. The story cited the 30 airlines that have gone out of business over the past 18 months and said that diminishing first-class passengers and freight are what is keeping the industry from being profitable.
The world’s biggest airlines are hanging on but they’ve piled up debt to the tune of $170 billion, which equals about a third of their revenues. But the two-headed Hydra of declining premium seats and cargo is what’s really killing airlines. The perplexing thing about it all is that experts claim that filling a plane full of economy passengers doesn’t generate enough revenue to pay for the flight!
So airlines continue to try to increase their first class market share, by building new lounges, spiffier first-class cabins and introducing flat beds in business class. In some markets this has helped bring more of these travelers. But the article states that it’s much harder stimulating the cargo business, which is usually only done by cutting prices. A new effort called the e-freight program will computerize the bills of lading and is expected to shave 24 hours from transport times with improved coordination between airlines, airports and brokers.
One factor that might need to be addressed if these solutions don’t work is to have governments lift the restrictions against cross-continental mergers. Some day Lufthansa may want to merge with Delta–and now, that wouldn’t be possible, but it just might have to be.
