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Profitability and Air Travel
Recent history has been particularly unkind to the aviation industry. A sector uniquely vulnerable to the fluctuations, uncertainties and anxieties that seem to connect to particular moments in history, the air travel business has suffered greatly at the hands of a decade-long recession with various peaks and valleys; at the hands of series of wars in the Middle East punctuated by the 9/11 terror attacks and all their attendant paranoia; and at the hands of public health scares such as the SARS and avian flu panics. These events led to a dramatic reduction in elective air travel as members of the public within an inherent need to fly actively avoided doing so. Indeed, the financial hit on the industry as a consequence of 9/11 and the subsequent War on Terror would be a catastrophic one, underlining one of the core internal contradictions of the air travel business. Its peculiar relationship with public fear, paranoia and anxiety, combined with its high cost and its shortcomings as a customer service industry, make the air travel business uncommonly susceptible to sustained failure. This is the assertion at the root of the discussion hereafter, which attempts to illuminate the reasons for inherent difficulty of achieving profitability in the airline industry.
The text by Pilarski (2007) serves as a basis for the primary argument here. Namely, Pilarski provides grounding for the idea that the airline industry is not failing on the whole simply because of its vulnerability to such encompassing human events as recession and war. Instead, these are the events that help to expose the more gaping weaknesses in its core business model. That is, airlines have had difficulty achieving a balance between profitable price margins and the delivery of a positive service experience. Within this disconnect rests the central problem detaining the massive industry from achieving profitability. As Pilarski points out, even in the face of the critical challenges denoted here above, "airlines continued their flawed pricing and other policies which were among the major reasons for the precarious financial situation they were in. In ties of unprecedented trouble continuation of wrong strategies and tactics brought about even more disastrous consequences." (Pilarski, p. 3) This points to the central argument presented here, which is that many of the larger air carriers have done little to improve their customer service orientation even as more and more consumers openly avoid air travel wherever possible.
What is so remarkable about the airline industry is that it has continued to struggle as a business model even as the industry itself has appeared to grow. This denotes that in spite of its expansive scale and what Pilarski cites as a wide latitude for innovations and new entrants, the industries largest carries have suffered a particular difficulty in establishing brand loyalty. With some exceptions, such as more effectively branded low cost options like Southwest, this loyalty has been achieved. But by and large, customers are likely to seek out flights based on cost and convenience. Few airlines tend to present an experience that customers are eager to return to. As a result, low pricing seems more than any other feature to drive consumer desire. And with so many low cost carriers (LCC) taking advantage of a highly deregulated aviation market, it is unsurprising that customers tend to feel that the service experience associated with flying is less than stellar.
This, as much as any of the temporal factors cited above, is a determinant of the failed business model exhibited by the industry on the whole. As Pilarski points out, if we "look more deeply into the extent of the profits or the lack of in the airline industry in a relative context. . . we can see that airlines have not achieved a profit rate greater than the Value Line defined U.S. industry average for the whole time period covered. The profit rate even in the best years has been sub-par and additionally the industry has also suffered from serious losses during the time period displayed." (Pilarski, p. 24)
Some research external to the text by Pilarski helps to produce a better understanding of the way that certain factors particular to the traditional aviation business have failed to evolve with the sector's needs. According to Steffy, however,…[continue]
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