As Big A Crisis For Airlines As Post-9/11. Maybe Bigger.
Fuel Costs. Irrational Competition. Capital Shortage.
Plan On Lots of Changes - Soon.
Triple-Whammy time in the airline industry. Jet-A prices are going Tiffany. Fares in some regions, particularly the East Coast, are being decimated by whacko pricing wars. And finding fresh capital is like looking for a hooker in the Vatican.
Let's Start With Fuel
A year ago, what with major cost reductions from labor and other sources, the industry was in a clear recovery mode. Then fuel prices went into orbit and stayed there.
Unless the price of jet-A drops real fast, real soon, standing in the doorway of a bankruptcy court in the next several weeks could be hazardous to your health, what with phalanxes of lawyers charging in with airline Chapter 11 filings.
The fact is becoming obvious - fuel costs are going to be fundamentally higher, permanently. High enough to make traditional airline operational approaches completely un-economic. High enough to Hoover out airlines' cash hoards.
And this is not a legacy v LCC story. Every airline is facing this hard fact: higher fuel costs can only partially be offset by higher fares. The way the airline product is being produced is now uneconomic. At some level, that includes Southwest and every single LCC. Some are less exposed than others, but that's just the equivalent of having a stateroom on a higher deck of the Titanic.
But this time around, airlines may find that charging into the open cloak of Chapter 11 is only a short-term option. Most have squeezed labor, aircraft lessors, and other first-pass options close to dry, and bankruptcy doesn't do diddly to get fuel costs down. What has to happen is far more fundamental than delaying aircraft lease payments and playing good-cop bad-cop with labor unions. The whole production enchilada's got to get rebuilt from the bottom up.
Or, more correctly, from the door of the airplane back. To be sure, carriers can re-structure further - there's a lot of stuff that goes on in the airline production process that doesn't really contribute to getting tushies in seats. There are lots of other areas that can - and will - be addressed... for example:
GDS/CRS systems are in the bulls-eye. Regardless of the gooey statements to the contrary from airline sales departments, GDS systems are being marginalized by much cheaper direct internet channels.
Internal empires that tend to spring up like mushrooms in the dank halls of airline headquarters buildings. Heck, not too long ago, some airline was advertising to hire a "Manager - Beverage Audits." Maybe in a 'Vegas barroom, but at an airline? In any event, that particular carrier has a couple of great cost-saving opportunities. First, get rid of whoever was ultimately hired. Second, get rid of any subordinate staff that might be busy auditing the Pepsi invoice. Finally, get rid of whoever suggested such a ridiculous position in the first place.
Airports: you're fixin' to get squeezed. It is not beyond the realm of possibility that relatively high per-passenger costs could put a red-line through certain airports in coming schedule changes.
Catering - such as it is, can be brought in-house. What's it take to get some ice, bags of pretzels, and soda pop on an airplane? It sure doesn't need a catering facility, with scissors trucks and staff yanking tray carriers in and out of what was once a hot galley.
Any internal protestations that "but, gee, we've always done it that way" represents the source of another possible headcount reduction.
One problem: all this takes time. Some carriers may not have the cash to get through the process.
