Wednesday, October 06, 2004

Airline's problems

I am sure you heard that US Airways is crashing. The dig is in the "more than $700 million in federally backed loans it received during its last bankruptcy", which the airline could easily leave at the gate. There are many people caught in this mess.

"Pilots "screamed" at the Pennsylvania representatives and took pictures of them as they left a meeting room at the Key Bridge Marriott in Arlington, Va."

Apparently they are so mad, they are taking pictures of people. Damn. What has the world come to?

The airline industry has it's share of problems, most dealing with people not wanting to fly or not needing to. 9-11 is the cause of the first problem. The second problem is the cause of technology and an economic downturn. Emails, phones, and video conferencing are reducing the need to go see people face to face. The decrease in economic activity has resulted in cost cutting across the board. These problems where gracious enough to affect all airlines at the same time, not just US Airways, and to the credit of US Airways I have not heard them blame those to factors.

While it will hurt many people, I think US airways should be put in the hanger. I personally don't feel that the airline that industry is that complicated. Every airline has the same federal rules, same or similar hardware, and same price for jet fuel. The only things I see that could be different is negotiated differences. These could include any of the above, except federal rules, labor,and airport fees. The only concept that comes into play in the differences is economies of scale, a simple business concept. I am sure demand changes through out the year, but that is not overly complicated and probably can be predicted after couple years. Airlines are just really fast taxis. Their goals is simple and their business model should be as well.

Every airline is so similar to every other airline that there seems to be little room for error or gain. The only way the airline industry can grow better as a whole is to let the worse players exit the field. If there is a median level of efficiency, it will remain unchanged if the worst players stay in the game. It could even move downward. The worst will grow worse wiping out any gains the sector makes as a whole. For the median level of efficiency to move ever upward , the lowest ones must be removed.

US Airways has declared bankruptcy once before. If they do it again, they should be shut down.


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