Q: Are traditional hub-and-spoke airlines doomed in the US?

A: No.  Several changes have recently occurred in the industry that indicate that it’s likely that the classic hub-and-spoke airlines will return to profitability or at least stop hemorrhaging cash:

  • Consolidation:  This past week, the airlines raised fairs as a group for domestic flights.  No one broke ranks to undercut the others.  In the past, this was impossible as there were more players than today.  Northwest, US Air, Airtran and Continental have all been swallowed by larger players.  We’re left with 5 majors: United, Delta, US Air, Southwest and American.  A decade ago, the FTC prevented mergers.  That’s changed.
  • Bankruptcy merry-go-round:  One by one, the majors have gone through bankruptcy to get their costs more in line with the discounters.  American was the last holdout to make the trip to Chapter 13.
  • Intelligent Management: When I came of age in the late 1990s in Silicon Valley’s second most recent boom period, no smart person was itching to go work for the airlines.  As the economy has receded, we see smarter actions coming out of the major airlines.  Dumb managers have been moved out through attrition.  At the same time, managers have learned about the perils of their capital intensive business.

Michael Girdley