Deja Vu Skies

Recent airline troubles don't signal the end of the industry, just a return to its past. What to expect next in the cycle.
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Thirty years of plopping myself down in seat 2B has made me older, balder, and fatter, but I have gained a lot of perspective too. So take it from this weary, wizened road warrior: Despite all the announced service cutbacks, commercial air travel is merely changing. The sky isn't falling and "the system" itself isn't collapsing.

This period of oil-fired chaos actually looks a lot like the travel landscape after Iraq invaded Kuwait in 1990. Then as now, airlines weren't ready for the oil shock and they panicked, shedding routes, grounding aircraft, and slashing in-flight service. Then as now, business-travel demand pancaked, companies kept their people chained to their desks, and travel and entertainment expenditures plummeted.

I don't know exactly what's going to happen next. But past is prologue in the air-travel world, and I'm willing to make a few educated guesses about what we'll soon see.

Subsidized Air Travel
The nation's top travel destinations, Las Vegas and Orlando, depend on a high volume of relatively low-priced flights to keep the tourists and conventioneers coming. But both cities take a hit whenever the airlines cut back. This time around, US Airways is slicing its Vegas hub in half, and Delta Air Lines is dropping service to Orlando from more than a dozen cities.

The solution? Casino resorts and tourist attractions may subsidize airlines to keep flying passengers into town. Or they'll help fund startups whose sole mission is to fly into Las Vegas or Orlando. In the late 1990s, for instance, several Las Vegas casinos helped launch National Airlines. It flew for a few years, until the other carriers beefed up their Sin City service. And Disney has frequently toyed with the idea of launching its own airline or going into a branded partnership with an existing carrier. Don't be shocked if you see Air Disney shuttling fliers into Orlando in the years to come.

New Airlines With Old Names
The established airlines are shedding planes by the dozen, and some of the aircraft may be serviceable for fledgling carriers with lower costs. Surprising as it may seem, startup funding may be available too. "There's always a hotshot with a business plan and an investment banker who thinks he's smarter than the room," explains one investor I know who's made some money funding airline startups over the years.

One quick way to get attention for a new airline with no track record: Use a familiar name. Over the years, there have been three airlines named Braniff, three named National, and two called Midway. I've lost track of the number of times the Pan Am and Eastern names have been revived. Even blip-on-the-radar airlines sometimes have valuable brand names. Silverjet, which folded in May after just 16 months in the air, is attracting potential rescuers.

Vanity Flights
Decades ago, Kimberly-Clark executives were infuriated by the lack of flights to its hometown of Appleton, Wisconsin. It eventually launched its own air service, derisively called Air Kleenex, but it morphed into the highly regarded Midwest Airlines. (Kimberly-Clark has moved to Dallas; Midwest is now based in Milwaukee.) Companies all over the country are griping about lousy service in markets where their travelers need to go, so there's always a chance one of them will step up. And watch the U.S. skies for the ultimate vanity airline: Kingfisher, named after the well-known Indian lager. Vijay Mallya, the bombastic boss of India's United Breweries, plans to bring Kingfisher's lavish in-flight service and crimson-colored aircraft to the San Francisco-Bangalore route later this year.

The Return of Charter Airlines
Charter airlines have largely disappeared in the United States in the 30 years since deregulation, but they continue to be a potent force in many other developed nations. If oil prices stay in the triple digits, charters will make a comeback here too. That's because charter flights are perfect vehicles for vacation fliers. They run only when they are needed and are usually sold as part of a package that includes lodging and car rentals. Spared of the need to advertise and market heavily and fly on profitless days when traffic is light, charter operators can make money on routes where traditional scheduled carriers struggle.

Rallying Regionals
The bigger-is-better mentality of the nation's post-deregulation legacy carriers flies in the face of economic realities: There are very few economics of scale in the airline business. The legacy airlines have grown in the last 30 years by absorbing or merging with smaller, regional competitors. They often promptly begin to gush cash on the same routes where the regionals were neatly profitable.

So logic-the words logic and airlines rarely appear in the same sentence-dictates that city-specific and regional airlines make a comeback. As the legacy carriers contract, they'll vacate markets that could be profitable for smaller, more focused startup airlines. After all, old-timers still pine for Air Atlanta and New York Air, airlines that reflected the needs and sensibilities of their hometowns. Californians still carry the torch for the state's beloved AirCal and Pacific Southwest, both of which disappeared in mergers. And everyone misses Piedmont Airlines, a stylish midsize carrier that flew profitably until it was gobbled up by the company now known as US Airways.

One final thought: Some business travelers, especially those whose frequent flying is on relatively short routes, will never return to the sky. They'll outfit their cars with some of the comforts of home and office, grit their teeth at the price of gasoline, and drive wherever they need to go. It'll take longer, of course, but they'll travel on their own schedule and will feel virtuous for having abandoned the indignities of airlines, airports, and security-checkpoint shakedowns.

The Fine Print.
J.D. Power has released its 2008 airline ratings. Not surprisingly, JetBlue Airways fared best. Tied for worst: Northwest Airlines and United Airlines.

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