…but is it good for travelers? This morning’s news of 4 percent GDP growth in the USA during the last quarter caught my eye with thoughts of how that impacts us as travelers. Of course there are the givens (we hope) of increasing employment and incomes that should flow from increased economic growth. But what about its impact on us as flyers? Historically, airline fortunes have ebbed and flowed with GDP growth and contraction. Expansion in the good times, contraction and layoffs in the bad times. In general, substantial profits will likely continue to be a factor of increasing economic growth, but the industry has become more stable in many ways. Granted, some would say concentrated and oligopolistic, but I’ll leave that to economists and others to debate. Airline managers have developed capacity discipline – an ability to not flood the market with new seats because times are good, and are doing a much better job at managing airline finances in general. That is good news for flyers.
An airline that is consistently profitable can accomplish things that one living from payroll to payroll between fare sales cannot. The next generation of lie-flat premium seats, enhanced premium economy offerings, and entertainment options for all have to be paid for, and an airline that is solidly and reliably profitable is the one that can offer them. That profitable airline can also offer stable employment for its people who can then focus on service, not survival.
On the other hand, these profits I speak of would not exist without the arrival of “unbundling,” aka bag fees, etc, and a lot of customers do not like “fees.” I’ve always thought JetBlue had the best model, because I believe that one piece of luggage is an integral part of the travel experience, but it appears from recent news reports that even they may be catching on the idea of a fee for the first bag. Further, I think improved financial discipline at airlines makes it even more likely that the remainder of the industry makes the move to a revenue-based reward model for their loyalty programs. You know where I stand on that, but I’m not unsympathetic to the fact that a lot of people are going to be less-rewarded than they they were before.
In the end, I think that an improved economy and improved airline finances are a good thing for all of us. That said, it’s hard to ignore the changes in the airline industry and in their rewards programs in particular. Looking ahead, I think 2016 (not 2015) could be the most interesting year ever for flyers. The new moniker may be WWAAD? What Will AAdvantage Do?
-MJ, July 30, 2014
I agree wholeheartedly that for ffs the key will be WWAAD, and please keep Alaska Airlines flying. I am definitely transferring my paid flying from delta to American in 2015 and status matching. As the world’s largest airline (I believe), American could throw its weight around and avoid the temptation to jump on the revenue-based band wagon. That might be a great competitive advantage. It will get my business.
It will be interesting to see how airlines handle profitability. With the exception of Southwest, profits are something airlines have very little experience with. It takes a certain kind of discipline as it can be intoxicating when a business becomes profitable and the darling of Wall Street. Airlines may now start dancing to the tune of the Wall Street analysts and high-paid consultants. As you said, the airline business is cyclical. I think a good airline must have a business model that works in the bad times as well as the good times. It can be tempting to chase returns… Read more »
John,
I think you raise an excellent point. I’m a little afraid that airlines may be at risk for something I call “beginning to believe your own bullish*t.” However, I’m becoming less afraid over time. I’m hopeful that financial practices in the industry really have moved to a new paradigm. Only time will tell.