Airlines, on the couch

To death and taxes, I would like to add a third certainty: When Travel Weekly writes about airlines, we get letters to the editor.

Thats because the relationship between airlines and some travel agents among our readership overflows with deep emotion and is forever colored by the airlines decision, more than 10 years ago, to cut, cap and subsequently eliminate base commissions for agents.

This residual resentment and anger is the one type of baggage that the airlines seem unable to lose. In fact, on those occasions when outrage appears to subside, airlines make an announcement that seems designed to rile agents. The $3.50-per-ticket underride charged to agencies that use nonpreferred reservations systems would be a good example.

Airlines seem to puzzle some of us in the industry as much as women puzzled Freud. Had Freud been a Wall Street analyst rather than a psychoanalyst, he would have undoubtedly asked: What do airlines want?

In a business newspaper like Travel Weekly, we report breaking airline news and activity as objectively as we can in the news pages. We additionally offer some subjective observations in our opinion pages.

But to wholly understand the motives, actions and goals of any business, one must first grasp its economic underpinnings. Its the equivalent of examining the subconscious to better understand the behavior patterns on the surface.

To that end, weve undertaken an ambitious venture in explanatory journalism, a seven-part special report on the economics of the industry called Travel + Money: How the Industry Really Works.

The first part is about the airline sector, and like the other reports to follow, it focuses on money (which is, of course, the answer to What do airlines want?).

In this issue, we look at what has to happen for carriers to see black ink, what they are compelled to spend and the various economic realities that drive their business and marketing plans.

In subsequent issues, appearing every other week, well also examine the business dynamics that drive travel agencies, hotels, tour operators, car rental companies, cruise lines and travel technology companies.

One economic reality for commercial carriers is not only unique in the travel industry, but perhaps unique to any mature private industry where demand has constantly risen for almost a century: As our report, beginning on Page 15, points out, from the time of the first commercial airline to the present, the aggregate profit of the industry is zero.

Reading that, it might be easy to conclude that any executive who chooses a career in an industry that, as a whole, consistently loses money, is irrational. And irrational people can be expected to make irrational business decisions, such as appearing to intentionally alienate its largest distribution channel.

But as you read this report by our aviation editor, Andrew Compart, youll begin to understand that while commercial aviation as a whole cant turn an aggregate profit, individual airlines can, and do.

And when youve finished reading it, youll understand what perhaps not even every airline CEO understands: what must happen for an airline to make money, and why carriers that go out of business fail. Its a fascinating dissection of a complicated industry, told in laymans language but with expert insight.

Of course, understanding why a company takes certain actions may be cold comfort if those activities affect your business in a negative way. But we cant help believing that when one segment of our very diverse industry understands the other sectors more fully, the odds improve that creative leaders in every sector will conceive business arrangements that result in improved benefits for all.

To contact Arnie Weissmann, send comments to[email protected].