Ups and Downs in the US Airline Industry
The Wall Street Journal had an interesting article titled “In Hard Times, Some Firms ‘Go for the Jugular’”. It shows how bad the major US airlines are doing. All but one are losing cash this quarter. Who is the profitable airline? No surprise; it is Southwest. Southwest, which has always been known as a tightly run airline that is very low cost, is doing great this quarter thanks to being smart enough to set up fuel hedges last year. How lucky they are to pay last year’s gas prices this year.
Due to high fuel prices, the major airlines have been cutting back on flights to try to save money. Southwest is one of the few expanding. But another airline is also expanding.
In a move that seems contradictory to the current market conditions, Virgin America is trying to start a new low cost airline. They have complained to the federal government that these canceled flights have lead to the major airlines not using their assigned gates, a clear violation of a law passed in the 1980’s saying with airline gates that it is “use it or lose it”. The major carriers are looking to get some sort of waiver on this law until they can bring back their flights. The “use it or lose it” rule is to increase competition and create a more efficient marketplace. The major carriers will have a hard time making a case for special treatment on not using these valuable gates while the low cost airlines are doing so well.