One of the defining characteristics of the airline industry is that, over its history, it hasn't made any money. Another is that it is prone to lemming-like behavior. I can't prove it, but I suspect the two are related.
The latest example is the rush to launch low-cost carriers on high-volume routes where the major airlines have been losing share to upstarts like Southwest Airlines. This might seem an obvious strategy, given that Southwest is the only major airline making money, with a market value greater than that of all the others combined. But don't be fooled -- this is complex stuff that must be meticulously researched and quantified and reduced to 278 PowerPoint slides by skilled consultants, like those at McKinsey & Co.
McKinsey, of course, has lots of experience with airlines. A few years back, it was McKinsey that convinced Swissair that the only way it could survive was to bulk up by buying minority shares in other national carriers. Overloaded with debt and unable to reap any benefit from its partnerships, Swissair crashed in bankruptcy, taking Sabena with it.
Now both Delta and United have signed up McKinsey at $1 million a month each to get essentially the same advice about how they should meet the competitive challenge.
"I regard McKinsey as bubonic plague for the airlines," quipped Michael Levine, an airline veteran and professor at Yale.
Levine and most of the airline experts I spoke with said the best strategy for the traditional carriers is to perfect their own games rather than trying to beat the other guys at theirs.
For starters, that would mean taking as much as 25 percent out of their existing labor costs -- not by forcing yet another round of employee-discouraging pay cuts, but by eliminating archaic work rules. These are rules that require coffeepots to be fixed by fully trained mechanics or allow pilots to routinely fly only 55 hours a month or set up elaborate bumping rights that wind up doubling the training budget. It's not how much these folks are paid that is particularly outrageous -- $30,000 for a flight attendant or $70,000 for an engine mechanic is hardly excessive -- but how inefficiently they are deployed. All the airlines are trying to make these changes to some degree, some as part of their new airlines and others while in bankruptcy reorganization. But this thinking needs to be at the heart, not the edges, of their strategy.
At the same time, the major airlines should move to bolster the competitive advantages from running hub-based route networks that allow them to attract large numbers of highly profitable business travelers and carry them over long distances in big, efficient planes. Over the years, the majors have frittered away these advantages by raising prices for business travel while allowing service to deteriorate.
The fact is, there is still a sizable and profitable business to be had providing full-fare travelers between Washington and Denver with a comfortable seat, a quiet waiting lounge, free newspapers and telephones, a good glass of wine, and the flexibility to change flights at the last minute. Such travelers would be willing to pay $750 for that kind of trip. But they sure as hell resent being squeezed for $1,500 for such service, which has been the airline's strategy up to now. You don't have to be a McKinsey consultant to understand why so many switched to discount fares and low-cost carriers.
Another idea: Charge slightly higher fares to travel at peak travel times when seats are in greatest demand by time-sensitive business travelers. That would give the financial leeway to offer lower fares at off-peak hours to more cost-conscious business travelers with stingier travel budgets.
This is not to say that full-service airlines can't still fill the back of their planes with price-sensitive leisure travelers holding discounted tickets.
But there is no reason they need to roil their workforces and confuse customers by launching an entirely new airline, with a new name and pay scale and corporate culture, in a vain attempt to hold on to low-profit traffic.
If Delta and United really want to invest in a discount airline, there's a better way: Buy some Southwest stock.
Contact Steven Pearlstein at firstname.lastname@example.org.