Demise of the Legacy Airlines Business Model and the Evolution of Convergent Practices

Prior to 9-11, the legacy carriers copied the Southwest model only by creating subsidiary operations patterned along the lines of South­west, while maintaining their primary business models that evolved during CAB regulation. During the years following September 11, four of the five largest legacy carriers8 entered Chapter 11 bankruptcy reorganization, and in November 2011, the last holdout, American Airlines, also sought Chapter 11 protection. American is now in the process of attempting to slim down its cost structure and secure the benefits that ear­lier came to its competitors as a result of bank­ruptcy. Under Chapter 11, these airlines secured approval to make substantive changes to their basic structure, including eliminating employee pension plans, securing reductions in wages, amending work rules, cutting capacity, and downsizing generally. These changes are dis­cussed in more detail in Chapter 35.

A comparison of relevant indicators, includ­ing cost per available seat mile (CASM), between these carrier groups will disclose that the margin between the two groups is narrowing. As the first full decade of the 21st century closed, the legacy airlines had adopted many of the “no frills” standards of the LCCs, sometimes even exceeding the austere approach of the LCCs. In some instances, legacy airlines are now charg­ing extra fees for services that have always been included in the stated airfare. There appears to be no limit to what services the airlines will charge for: checked bags, snacks, early boarding, seat selection, blankets and pillows, ticket change, unaccompanied minor, pets in the cabin, and water (Spirit Airlines). One short-lived idea was a fee for use of the on-board bathrooms (Ryanair).

The next transformative development in the air transportation industry will be the implemen­tation of the NextGen policy (discussed at length in Chapter 35) now in the planning and earlier implementation stages in the Department of Transportation. Simply put, this complete trans­formation of the Air Traffic Control system from one of land-based navaids to a satellite-based nav­igation system, requiring on-board performance avionics and navigation capabilities, will likely drive new point-to-point operational models.

Endnotes

1. Source Air Transport Association—2012.

2. Kahn, Alfred E., The State of Competition in the Airline Industry, Statement before the U. S. House of Representa­tives Commission on the Judiciary, June 14, 2000.

3. Wall Street Journal, December 29-30, 2012.

4. A full-time equivalent is equal to two part-time employees.

5. The first three waves are suggested by Robert W. Poole,

Jr. and Viggo Butler, “Airline Deregulation: The Unfinished Revolution," Reason Public Policy Institute.

6. Earlier in the decade, before the mergers of Delta and North­west and United and Continental, Southwest was number two in size, measured by the number of passengers carried.

7. Miles, Richard B., Testimony before the Aviation Subcom­mittee, Committee on Transportation and Infrastructure, U. S. House of Representatives, Competition in the U. S. Aircraft Manufacturing Industry, June 26, 2001.

8. United Airlines, Northwest Airlines, Delta Airlines, and US Airways.