he bankruptcy filing of Midway
Airlines, coming in the midst of severe airline industry losses,
serves as a brutal reminder of how fragile this industry can be.
The U.S. airline industry began the decade of the 1990s with
five bad years that produced a cumulative net loss of $13 billion,
more than all the profits the industry had generated in the
previous 60 years.
Things turned around in 1995, the first of six consecutive
profitable years. During this era of record profits, the airlines
aggressively slashed their distribution costs, at the expense of
the nation's travel agents.
Much of what happens on airline bottom lines is the product of
leverage. A small fluctuation in the price of oil or a few
percentage points off the commission rate can mean a swing of
hundreds of millions of dollars. Likewise, a 5% drop in traffic can
mean a 50% drop in profit if the people who stop flying are
high-yield business travelers. But if fuel prices stay down and
business travel stays up, the airlines are in clover -- which is
where they've been for the past few years.
They've also been high on everybody's hate list for high fares,
bad service, flight delays and schedule-wrenching labor squabbles.
You couldn't swing a carry-on bag on Capitol Hill without hitting a
passenger rights advocate.
But now the airlines are down and out. The industry is expected
to lose about $1.5 billion this year, and the latest round of labor
contracts gave airline unions even more leverage than they already
Some experts say that the business travelers will never come
back until the airlines find a way to narrow the gap between their
highest fares for business travelers and their lowest fares for
discretionary travelers. That could be a radical move for many
We suspect some airline executives are asking themselves, "So
how can we get the travel agents to help us out of this jam?"
If they aren't asking that question, they should.