Airline competition

The airline industry, floundering and failing in a down economy and against growing competition, seems to be looking at a new business model for its survival. For the most part, air travel has become a commodity differentiated only by the color of the flight attendant uniforms. Overlapping routes and time slots have forced airlines to compete against one another solely on price. Although many people seek to blame Southwest Airlines for this problem, the fault lies in the individual airlines inability to provide a unique experience for which customers are willing to pay.

The new approach will no longer be based on competition, but rather on control. In recent weeks, major airlines have swapped slots between airports. A slot essentially gives an airline the right to reserve a time for a plane to land and take off. By giving an airline a greater number of slots at a specific airport, the airline gains more control over a greater number of passenger seats at that destination. By owning the bulk of the landing slots at a specific airport, the airline can also exercise more control over price usurping the need to compete on price. The smaller airlines will still be able to compete on price, but won't grow sufficiently due to slot restrictions which will constrain the number of seats they can make available.

In this "free-market exercise", it appears the airline executives have agreed to slice up the country among themselves so that each can control a major section of the market. While the new model won't be called a a monopoly, it will certainly begin to behave like one. Expect fares to rise and for customer service to continue to erode. What should not be expected is a return to profitability. Even with control over the airport, technology has transformed how business is done and the need for face-to-face exchanges continues to decline. People just don't have the need to fly anymore.

It will be interesting to see in a decade whether this deregulated industry finds itself reregulated and looking a lot like Amtrack.