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The airline disasters.
In the last 10 years, American Airlines took in $180 billion in revenues and managed to lose almost a billion dollars.
This is the airline that is widely admired for a number of marketing
innovations including the launch of the first frequent flyer program.
It’s not only American that has crashed financially. In the last 10 years, the five largest U.S. airlines (American, United, Delta, Northwest and Continental) rang up $657 billion in revenues and racked up $646 million in losses.
What’s wrong with the airline industry is also what’s wrong with many industries in America. Management makes decisions that are right in the short term and wrong in the long term. As a result, they lose focus.
Go back in history. Whenever an airline came to a fork in the sky, they took both forks. One of the first decisions that had to be made was, Should we carry passengers or cargo?
“Let’s take both forks,” was the almost unanimous reply. “We have extra space under the passenger compartments, so it’s a no-brainer.” So every major airline in America carries both passengers and cargo.
Not very much cargo, though. American Airlines’ cargo revenue last year was only $558 million, or three percent of revenues. In comparison, cargo revenue last year at FedEx was $24.7 billion. And they managed to make $838 million in profits instead of losing a billion like American did.
Both forks thinking is very pervasive, however. At one point in time, United Parcel Service had the dumb idea of putting seats on its planes on the weekends and flying charter passengers.
The next fork in the sky for the airline industry was passenger destinations. Should we fly to business or vacation destinations?
“Let’s take both forks,” was the almost unanimous reply. “Why should we limit ourselves to one type of destination? Houston or Hawaii? We can do both.”
The next fork in the sky was the scope of operations. Should we fly domestic or international?
“Let’s take both forks,” was the almost unanimous reply. So every major U.S. airline flies passengers to both domestic and international cities.
The next fork in the sky was the class of service. Should we offer first, business or coach service?
“Let’s take all three forks,” was the almost unanimous reply. So every major airline has multiple classes of service.
In retrospect, it’s easy to see the fallacy of an all-forks strategy. But in the short term, many of these marketing moves increased revenues and profits. It’s only in the long term, and in the presence of narrowly-focused competition, does an all-forks strategy fall apart.
Enter Southwest, the one-fork airline. Passengers only, no cargo. Business destinations only, no vacation locations. Coach class only, no first or business class service. Domestic flights only, no international service.
No forks on Southwest flights either. The airline serves no food. Won’t carry pets. Doesn’t allow advance seating reservations or inter-airline baggage exchange.
As a result of its one-fork strategy, Southwest Airlines can operate its system with only one type of aircraft, the Boeing 737. Delta, for example, operates six types of aircraft, not including aircraft operated by Delta Connection subsidiaries ComAir and Atlantic Southeast Airlines.)
A narrow focus can greatly improve operations. In Southwest’s case, scheduling and maintenance is much easier to manage. If your mechanics are servicing only one type of aircraft, they can do a better job. (In 31 years of operations, Southwest Airlines has never had a passenger fatality.)
A narrow focus can greatly improve profits. In the last 10 years, Southwest Airlines took in $44.3 billion in revenues and had net income after taxes of $3.6 billion, or an astounding net profit margin of 8.1 percent.
On the stock market, Southwest Airlines is currently worth $12.4 billion, or more than three times as much as American, United, Delta, Northwest and Continental . . . combined.
So what are America’s all-forks airlines doing to counter the Southwest threat? Do you suppose they are getting the message that the road to success is “narrowing the focus?”
Not at all. They are meeting the threat posed by Southwest (along with JetBlue and AirTran) with their usual strategy. When you reach a fork in the sky, take both forks.
Should we run a full-service airline or a no-frills airline?
“Let’s take both forks,” is their usual approach. So Delta Air Lines launches Song. And United Airlines launches Ted.
And what can you say about United’s idea of launching a premium service (p.s.) on its transcontinental flights? So now in addition to first, business and coach fares, United will have first p.s., business p.s. and coach p.s. fares.
In the years ahead, I predict more turbulence in the skies for America’s all-forks airlines.