Bankrupt Industry, Bankrupt Business Model

The airline industry is, by and large, bankrupt.  Google "airlines in bankruptcy 2006" and you’ll see plenty of names: United, American, Delta, Northwest, Aloha, ATA, US Airways.  Since the beginning of commercial air travel, the cumulative profits of this country’s carriers–all airlines, all years–is negative.  That’s right, $14 billion of cumulative losses is the career total for this industry.  (Industry data link.)


Operating in a highly capital intensive industry is difficult.  (I devote a section of Businomics: How to Grow Profits Throughout the Economic Cycle to this challenge.)

However, utter lack of common sense has to enter into the industry’s problems.  I recently looked into flying my son home from college for the summer.  He goes to Worcester Polytechnic Institute in Massachusetts.  The cost of a round-trip ticket, Boston to Portland and back,  is about $321.  We weren’t sure of the return date for the fall term, so I looked at the cost of a one-way ticket:  $585.  So the airlines are begging us one-way travelers to buy a roundtrip ticket and then throw away the second half.  Then the airlines find plenty of no-shows, so they overbook their flights.  When they’re wrong about the number of no-shows, they buy off travelers to take a later flight, or they bump travelers.  Either way, the practice shows no respect for the customers.  No wonder they airlines are bankrupt.