Major US airlines dramatically slashed prices last week. But a fare war, as the current woes in the industry show, does not a successful airline make.
How, for instance, can US Airways make a profit on a $118 round-trip ticket from Washington to Tampa? It's practically the same price as the bus! Some analysts think the fare reductions could cost the cash-poor airlines $2 billion to $3 billion in lost short-term revenue.
The industry needs more fundamental changes to stay aloft. To that end, Delta Airlines deserves a high-five for recently retooling its complex pricing structure. For one, it eliminated the bane of vacationers and business travelers alike - the irksome Saturday-night stayover, long required by big airlines if passengers wanted to secure a less expensive round-trip fare. Delta now has only eight prices for each flight; prior to the change, there were dozens.
Delta's main competitors (American, Continental, United, US Airways, and Northwest) have matched many of its fares, at least on competitive routes, although the Saturday-night stay requirement hasn't been dropped in all markets.
Let's hope this fare war finally forces traditional airlines to make the changes they should have made after airline deregulation in the late 1970s. Rather than fight off discount airlines like Southwest, they need to imitate their low-cost structure and less burdensome rules for customers.
The big airlines have too long held onto a business model that simply no longer works. Airlines remain saddled with high fuel prices, "legacy" costs (such as retirement pensions), union woes, high overhead, and an outmoded "hub and spoke" system that can wreak havoc on travelers. (Look no further than the Cincinnati airport, which felt the brunt of a computer malfunction that grounded flights and passengers in their tracks during the Christmas holiday.)
More than a few big carriers have faced bankruptcy (US Airways and United Airlines both now are operating under bankruptcy court protection), as passengers sought out cheaper and easier-to-understand pricing structures and routes offered by airlines such as JetBlue. Southwest just celebrated its 31st year of profitability, becoming the only airline of the top 10 in the US to turn a profit in 2001 and 2002.
Rather than spinning out their own Southwest-like competitive "add-ons" (United now has "Ted"; Delta has "Song"), the major airlines should be looking at overhauling their companies, the routes they fly, and how they operate. When they do that, both they and customers will benefit.