April 19, 2005


How long can the big airlines survive?: Competition from low-cost carriers and high oil prices threaten as summer travel nears (Alexandra Marks, 4/20/05, The Christian Science Monitor)

Air travel has been undergoing a steady metamorphosis since 9/11, with carriers shrinking legroom, pulling free meals, and even eliminating complimentary pillows. And thanks to high oil prices and intense competition from upstarts like Jet Blue and Southwest, the process is only accelerating.

That's put the so-called legacy carriers in a position that some analysts say just isn't sustainable. A few, like US Airways or United, may go under in the next few months. Others could suffer a slow, steady decline, while the most successful of the former giants in the sky may simply morph into bigger versions of their low-cost nemeses.

"It's good news for the airlines that they've been able to accomplish what they have in terms of cost-cutting," says Kevin Mitchell, president of the Business Travel Coalition, which represents corporate travel executives. "But the long-term trend is still declining yields, so it's not a pretty picture." [...]

JetBlue and Southwest fly primarily point to point, in other words, direct from one destination to another. As soon as their planes land, they clean them and fill them back up again. The legacy carriers operate in what's called the hub-and-spoke system. They bring in as many planes from different locations as possible into a central hub location and give them an hour or more to unload so people can make connections. That's good for the consumer who doesn't have to wait around too long to catch a connecting flight, and it gives the airlines a much bigger network and geographic reach. But the downside is that it's inefficient: The planes sit on the tarmac unused, and crews have longer waits between flights.

The legacy carriers premised their hub-and-spoke systems on the notion that business passengers would pay a premium for the convenience of more connecting flights. Some, like Delta, are now scheduling their flights to use their aircraft and personnel more efficiently.

Especially in the Communications Age, business travel makes no sense.

Posted by Orrin Judd at April 19, 2005 8:52 PM

Combine the savvy and service of JetBlue and Southwest and you have the future of air travel. Business Class as a profit center is dead.

Posted by: John J. Coupal at April 20, 2005 12:06 AM

I flew to NY on Sunday and back on Monday. I had tickets both ways on American Airlines. Both AA flights were cancelled due to "mechanical problems."

Bankruptcy is too good for them.

Posted by: Robert Schwartz at April 20, 2005 1:02 AM

As long as there are businessmen who want to get away from their families and employers who are willing to subsidize that desire, there will always be business travel.

Posted by: Vince at April 20, 2005 1:34 AM

As long as the US wants air travel that serves more than 25% of the country, there will be hub and spoke systems.

You aren't going to take either Jet Blue or Southwest from Rochester, NY, to Milwaukee, WI.

Posted by: Jeff Guinn at April 20, 2005 7:17 AM

I would also add that leisure travel is steadily increasing, to the point where airport capacity is soon to become the limiting factor.

When that happens, airines can no longer add predatory capacity, thereby regaining pricing power.

The airline's current travails are a classic "Tragedy of the Commons" problem, although it is nearly never portrayed as such.

Posted by: Jeff Guinn at April 20, 2005 7:21 AM

It is simply unnatural for people to work together for years on end without meeting face-to-face. In fact, it's hard to imagine the misanthropic xenophobic losers who would do such a thing.

Posted by: David Cohen at April 20, 2005 7:50 AM

You could always move to Hanover...

Posted by: oj at April 20, 2005 8:31 AM

I agree mostly with OJ. I remember when I first started working my boss at the time would fly to NYC every 2 weeks for a 2 hour meeting. After a while I started going to these meetings for her and found that I spent more time flying (from Boston) than actually attending the meeting. In contrast the other day I spent 2 hours in a web meeting/conference call that was much more productive.

To David's point however there will always be some business travel due to salesperson activities, extended site visits, and so forth.

Posted by: AWW at April 20, 2005 9:21 AM

The airlines based their hub and spoke system on the premise to monopolize specific airports and squeeze out rivals.

Posted by: Chris Durnell at April 20, 2005 11:51 AM

Jeff: actually there are a number of writers who've identified airport capacity as a commons problem, Lynne Kiesling for one:

Airport Landing Slots are Scarce, Yet Not Priced

Posted by: joe shropshire at April 20, 2005 12:28 PM

By the way, why fly? Because oj's not going to let us drive, of course.

Posted by: joe shropshire at April 20, 2005 12:37 PM


Posted by: oj at April 20, 2005 12:44 PM


Posted by: joe shropshire at April 20, 2005 1:24 PM

Social Capitalism.

Posted by: oj at April 20, 2005 1:28 PM


Posted by: joe shropshire at April 20, 2005 1:30 PM


Thanks for the reference--absent my surmise, I had never heard the situation portrayed that way.

Likewise, I am mystified by the term Social Capitalism. Unless, of course, it is the latest manifestation of the kind of collectivist thinking that deeply desires to extend government dominion.


That is one aspect of the hub and spoke system, however, it isn't the primary one.

Interestingly, the internet, highways, hub-and-spoke, and your circulatory system all share a characteristic with fractals (they may, in fact, be fractal, but I'm a little out of my depth here): they are self similar regardless of scale.

Densely interconnected networks, the only alternative, are extremely inefficient.

Which is why the hub-and-spoke system is the only reason roughly 75% of the US has air travel at all.

Which applies equally well to rail travel, by the way. Unfortunately, OJ doesn't seem particularly inclined to analyze the amount of real estate that would require flattening in order to implement such a thing--orders of magnitude greater than all the airports combined.

Posted by: Jeff Guinn at April 20, 2005 2:01 PM

Can't recommend Lynne Kiesling highly enough. Her weblog is here, RPPI bio here.

Posted by: joe shropshire at April 20, 2005 2:46 PM

"Especially in the Communications Age, business travel makes no sense."

I'm sorry but you are mistaken, eapecially in the case of overseas/inter-cultural business cooperation. You will never seal business with the Chinese, Taiwanese, or Japanese, for example, without spending time getting to know and trust each other, and acting on your hunches regarding and reassurances to one another. Business travel is what makes business possible. You have to shake the other guy's hand, break bread with him and maybe even get drunk together. It's, in fact, one of the few truly meaningful aspects of the entire idea.

Posted by: george at April 21, 2005 10:53 AM

Gotta meet the customers, prospects.

I've got one word for you oj, AMTRAK.

Posted by: Tom C., Stamford,Ct. at April 21, 2005 12:54 PM