Difficult Times

This article from strategy+business outlines the problems for major airline carriers.

Consider these two paragraphs from the article:

While the major carriers face a future of red ink, low-cost carriers such as Southwest Airlines, JetBlue Airways, and Ryanair are prospering by exploiting a huge cost-of-operations advantage. Low-cost carriers spend seven to eight cents per seat mile to complete a 500- to 600-mile flight, according to our analysis. That’s less than half of what it costs the typical hub-and-spoke carrier to fly a flight of the same duration and distance.


That revenue outlook is likely to get worse. By our conservative estimates, low-cost carriers could potentially – and successfully – participate in more than 70 percent of the U.S. domestic market. Southwest Airlines typically prices 50 percent lower than large carriers in one- to two-hour nonstop markets. Even though traditional airlines have attracted a richer business mix than the low-cost carriers, they still stand to lose 25 to 35 percent price realization in those markets.

For an industry that lost $10 billion last year, the major airlines cannot afford to see continued erosion in their top line.

The article has great analysis of the problem and offers some possible solutions. Well worth the read.