A New Era for the Airline Industry?

April 18, 2013
The culmination of the US Airways / American Airlines deal marks an inflection point in the evolution of the airline industry.

The culmination of the US Airways / American Airlines deal marks an inflection point in the evolution of the airline industry.

For the first time in recent memory, there are serious discussions that airline stocks might actually be good “buys and holds.” And, even more startling, that the U.S. airline industry is finally positioned for a period of protracted stability; and -- hold you breath -- maybe even growth!

Certainly such predictions are not new and have repeatedly fallen flat on their face when something external to the airline business ruptures. New terror threats, economic downturns, or fuel price spikes each raised their ugly heads at one time or another and pushed the airline industry into massive losses and instability.  Still it seems that this time is unique; and things could be truly different. If this is the case, then the question begs “why” and “how”?

Interestingly, the soft landing of the airline industry is not being driven by globalization. While airliners crisscross the globe, moving billions of passengers and tons of cargo each year, the industry remains highly protectionist. National air routes and aircraft manufacturing are closely guarded by governments and designed to keep foreigners out.

Further, much of the soft landing is not attributable to advances in new technologies. While cutting-edge aircraft like Boeing’s 787 and Airbus’ A380 are touted as “the future”, the biggest aircraft orders continue to be for 737s and A320s, the old workhorses of the industry. Moreover, despite loud calls for an upgrade to a GPS-based Next Generation air traffic control system, it look likes the current 1950’s-desgined radar-based system will stay with us for years to come.

So what is it? What is making the soft landing possible?

More than anything else, it is because we have grown our dependency on air travel -- and therefore the airline industry -- over the past decades.

Through plain survival, propped up with huge amounts of taxpayer support when needed, the airline industry has become increasingly influential in the lives of more and more people, organizations, and their governments.

In other words, access to safe and affordable air travel has become something we couldn’t imagine living without, like running water, electricity, or a mobile phone. This rising indispensability finally reached critical mass sometime in the recent past and permitted the airlines to try new things when it comes to managing customer service, operations, and its employees -- things that simply weren’t possible twenty years ago. As a result, a new business model has emerged that gives every indication it will pave the way forward for a more stable industry.

The Flying Cheap Strategy provides the airlines with the kind of flexibility they need to better adjust and deal with those inevitable ruptures. From charging passengers for almost every imaginable service, to using bankruptcy protection to break the unions and pay much lower wages, to outsourcing significant portions of their operations, the Flying Cheap Strategy has made the airline industry much more efficient, and therefore, dynamic.

For passengers this means that the air travel experience will be increasingly dreadful, but one rooted in more realistic expectations. Anyone who hopes to be treated like a high-flier had better get a seat in business class. The rest of us in the back of the plane will increasingly recognize that the benefits of air travel are no longer in the means but purely in the ends. Knowing what you’re going to get- even if its lousy- makes life’s challenges easier to digest.           

At the 35,000-foot level, a more stable airline industry will ultimately benefit taxpayers, who underwrite so much of the cost of keeping the industry alive. In these days of constrained public budgets, a more predictable industry will enable governments to better plan and allocate where their scarce resources can be best targeted.  

As a critical component of our modern world, a more robust and resilient airline industry will play an increasingly important role in expanding human interaction and exchange, from which all innovation and progress stem.

It is has taken decades to arrive at this moment: when the majority of what shapes the airline industry comes from the inside, rather than out. As the soft landing takes hold, it will be up to the leaders of all the stakeholder groups -- airline CEOs, manufacturing executives, government officials, union chiefs, passenger advocates, and more -- to first recognize the opportunity brought about by the soft landing, and then work diligently to keep it in place. To squander it now would be a travesty.

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