Delta and Northwest merger
Things are gunna change. The airline industry as we know it is due for a drastic overhaul. Ever since the Wright Brothers launched on their historic flight over 100 years ago, people have been losing money in aviation. Making a profit in aviation is one of the hardest ways to make a buck. In fact, you stand a much better chance of losing money than ever making any. The best way to blow a million dollars is to invest in aviation. You could fill a book with all the defunct airlines that have come and gone over the years. This year will see a lot of additions to that book (it already has). I think 2008 is going to be the year of Airline Darwinism. By the end of the year, only the strong are going to survive.
Using the word "strong" in referring to airlines might not be the wisest word to use. Airlines have been bleeding money since day 1. Southwest is the only exception to the rule. Even they could be in trouble with the price of oil over $100 a barrel. I know they have some fantastic fuel hedges, but I'm not quite sure when they run out. When that happens, watch out, airlines might actually start charging what the seat is actually worth. Therein lies the problem. Airlines have never charged enough for their product. Ever since de-regulation the airlines have been in competition with eachother. The continually use predatory pricing to drive out the small carriers in hopes of driving off the competition so they may then raise prices and make a profit. In doing this, they offer their seats at a discount. So much of a discount they take a loss on operating the flight. What the airlines don't seem to understand is that there is a never ending supply of idiots that want to start up low cost airlines to compete with the majors. They can never raise their prices enough to make operating profitable. Hence, airlines are not exactly financially strong.
Delta and Northwest merging is going to shake up the industry. I think that there may be more mergers on the horizon. There will be a reduction in capacity, rise in fares and I'm predicting massive layoffs. I hope I'm wrong, for my future and the future of every other airline employee out there, but it does not look good. Delta is claiming that there will be no layoffs and no base closures, I dont buy it. No merger has ever gone smooth, this will not be an exception.
Using the word "strong" in referring to airlines might not be the wisest word to use. Airlines have been bleeding money since day 1. Southwest is the only exception to the rule. Even they could be in trouble with the price of oil over $100 a barrel. I know they have some fantastic fuel hedges, but I'm not quite sure when they run out. When that happens, watch out, airlines might actually start charging what the seat is actually worth. Therein lies the problem. Airlines have never charged enough for their product. Ever since de-regulation the airlines have been in competition with eachother. The continually use predatory pricing to drive out the small carriers in hopes of driving off the competition so they may then raise prices and make a profit. In doing this, they offer their seats at a discount. So much of a discount they take a loss on operating the flight. What the airlines don't seem to understand is that there is a never ending supply of idiots that want to start up low cost airlines to compete with the majors. They can never raise their prices enough to make operating profitable. Hence, airlines are not exactly financially strong.
Delta and Northwest merging is going to shake up the industry. I think that there may be more mergers on the horizon. There will be a reduction in capacity, rise in fares and I'm predicting massive layoffs. I hope I'm wrong, for my future and the future of every other airline employee out there, but it does not look good. Delta is claiming that there will be no layoffs and no base closures, I dont buy it. No merger has ever gone smooth, this will not be an exception.
posted by Windsor at 9:41 PM
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