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Airlines Lose $1.6 Billion

I think I remember a bunch of articles about 6 months ago saying that the airlines were finally going to turn around their financial situations in 2004. Well, I sure as hell hope I wasn’t quoted in any of them because US carriers lost $1.6 billion in the first quarter of this year. This is an improvement over the $1.9 billion they lost in the same quarter last year. Only Southwest (perennially profitable) and America West (my nominee for best run airline that does not have “Blue” in its name) were profitable.

Speaking of America West, the USA Today airline blog recaps a Wall Street Journal article discussing the recent spate of low fares on transcontinental flights. If you’ve flown to California from the East Coast lately, you’ve probably noticed that it only costs about $200. You may have also noticed that there are flights from New York to Southern California approximately every 8 minutes. This incredible increase in the number of flights has driven down prices and hurt revenue; Continental said that its transcon revenue dropped 25-30% over last year. But I bring this up because America West’s CEO hit the ol’ nail on the head when he said (and I’m quoting from USA Today’s blog) If Wal-Mart builds a store opposite a Safeway, Safeway doesn’t build a second store at the same site, Parker reasoned. But when new airlines start flying routes, the bigger carriers quickly add flights in an effort to crowd out their new competitors. Interesting—competition on routes typically includes capacity dumping, where airlines add a bunch of flights to try to crowd out a competitor. In the case of transcon flights, nobody has been crowded out yet—the fares just keep getting lower. Good news for travelers, bad news for the airline industry. In Washington, Robert Hagar, NBC News.

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