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By Jeffrey Rothfeder  |  Posted 02-05-2005 Print Email
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It was an annoying incident that served as an apt metaphor for much of what's wrong with the airline industry: On Christmas Day, Comair Inc., a Cincinnati-based regional subsidiary of Delta Air Lines, grounded about 1,100 flights and shut down for four days, after a computer couldn't keep up with a large number of passenger scheduling changes caused by an ice storm that had hit the Midwest a few days before.

It was an expensive glitch—one that cost the carrier about $20 million in revenue and almost wiped out Comair's operating profit in the third quarter of 2004. In the wake of the episode, Comair's president, Randy Rademacher, a 20-year veteran of the company, resigned.

"Comair knew there was a chance there would be a problem," says John Kasarda, a professor of management at the University of North Carolina's Kenan-Flagler Business School, who specializes in airlines.

"They said they had planned on updating their computer system, but other cost pressures—such as meeting payroll—were too great. So they just hoped that their system, patched together, would work. It didn't. Now they're playing catch-up."

The same could be said of all the major airlines. Technology, at one time a source of pride for the biggest carriers, has become the bane of their existence: Old computer systems often become unhinged, or prove themselves unprepared to handle the needs of the big airlines, while innovation has become the purview of their younger, more inventive competitors.

Thanks primarily to this technology shortfall, the major airlines' costs of operations cannot be controlled in any meaningful way, exposing serious flaws in their once-pioneering business model. The combination of the two has produced the greatest amount of red ink, and simultaneous airline bankruptcies, in the history of the industry.

In just the past three years, the Big Three carriers—American Airlines, Delta Air Lines and United Airlines—posted combined operating losses of nearly $15 billion, while United and US Airways are still in bankruptcy.

Now, airline executives concede, nothing short of a radical overhaul of their business model, including the adoption of new technologies, can turn them into highfliers again.

"At this point, if we look at the way airlines typically operate as a model for how to fix our industry, we're setting the bar far too low," says Steve Jarvis, staff vice president of e-commerce and distribution at Alaska Airlines, the nation's ninth largest carrier.

Next Page: Did Sept. 11 cause the decline of the major carriers?



 

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