It's amazing to me that the business community ever thought President Obama was against it. In his second year in office, profits and cash for Corporate America hit record levels, while high unemployment remained a valuable lever that businesses could use to keep workers' wages from growing. And prices of consumer goods from cotton to corn have hit record levels -- keeping the economic squeeze on Americans.

But of all the industries that have achieved record profits under the current administration, none have had a more remarkable rebound than the airline industry. For the first time in a decade, airlines are on a glide path to profitabilit, earning $5 billion in 2010 and forecast to make at least as much in 2011 and 2012, according to the Associated Press. And how is the industry doing this? By squeezing its customers.

The airline industry's primary tactics to drive up profits have included:

  • Cutting money-losing flights. This made it easier for airlines to raise fares for the smaller supply of seats after demand recovered. AP reports that airfares are up 14%.
  • Replacing gas-guzzling aircraft with more fuel-efficient planes. As a result, airline fuel use fell 11.4% to 11.39 billion gallons for the first nine months of 2010. Thus, although jet fuel prices spiked 20%, the net rise in industry fuel spending was a relatively modest 6%.
  • Adding new fees. Travelers now must pay for such once-free services as checking luggage (between $25 and $35 per bag) and rebooking on a different flight (about $150 for a domestic flight, more when flying overseas). Those highly profitable -- and highly annoying -- charges amounted to $4.3 billion for the first nine months of 2010, up 13.5% from the same period in 2009; The trend does have a small upside, however: As Danny King reported for DailyFinance, the airlines are looking to add some luxury services to their a la carte fee menus.
  • Merging the competition out of existence. Delta Air Lines (DAL) bought Northwest in 2008, and United (UAL) and Continental combined in 2010. That reduced the number of so-called network carriers -- major airlines that route their passengers primarily through hub airports -- from six to four.

To argue the industry's case, it's hard to see how carriers could survive if they keep losing money. And as the AP reported, the Air Transport Association calculates that the industry lost $60 billion between 2000 and 2009 -- making a profit only in 2000, 2006 and 2007 -- and it has cut 160,000 jobs.

A Microcosm of American Business

Reducing capacity has made a major difference for the industry: Profitability is up because flights have fewer empty seats. As I wrote in a DailyFinance article in December, the so-called load factor -- the measure of how full planes fly -- is at a record 82%. But the resulting lack of flexibility in the system is why I -- and thousands of others -- had to wait at least five days to get on new flights on Republic Air's (RJET) Frontier Airlines after a major snowstorm hit the Northeastern U.S. on Dec. 26, 2010, causing our original flights to be canceled. (We eventually decided to make a two-day drive from Milwaukee to Boston instead of waiting to fly. This boosted the cost of our trip by 66%.)

Not surprisingly, customer complaints have skyrocketed. According to the Boston Globe, passengers filed 30% more complaints with the Department of Transportation through November 2010 than they did during the first 11 months of 2009. The primary subjects were cancellations (up 22% since 2009), delays, missed connections, damaged bags and poor customer service.

But the airline industry is really just a microcosm of the American economy. Businesses make record profits by squeezing their employees and taking more money from customers' wallets even as the quality of service often declines. Fortunately for economic policymakers, consumer pain doesn't make it into the inflation measures -- food and energy prices are considered volatile, and are therefore excluded from consideration when they spike.

It's only when consumers demand and get higher wages that the Fed gets nervous about inflation. When it comes to competitiveness -- a major topic in President Obama's State of the Union address -- the (wrong) idea will be to cut taxes and regulations on businesses so even more of those record profits can go into executives' pockets.

Real competitiveness, as I described in my book, Value Leadership, is winning by having skilled and motivated employees provide customers with ever-improving quality for their money, while enhancing the communities in which the company operates. The American airline industry is flying away from that elusive ideal as fast as its wings can carry it.

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Three months ago, I was on Lufthansa flight 410 from Munich to JFK. I boarded the plane, loading my trolley up into the cabin and suddenly realized I left my
backpack, first I thought I left it at the executive lounge. Plane was already moving, the bridge detached from plane. I freaked out and urgently told the flight attendant I have to get my backpack not only very important document are inside, but also I may have a serious problem with the immigration, I have to get off the plane and get my back back.
I was told to see the pilot at cockpit, and was told I have to take the next flight, to New York, they have to unload my luggage. They had to retrieve the bridge, to cut it short, they bumped me out of the plane. I had to rebook my flight, left no choice, but take five hours later. The most annoying part was; I had to pay a re booking fee of Euro 250.00 just because I missed the
original flight. I was told by the supervisor, this was a punishment because I delayed the flight (30 minutes, big deal). I had to pay those charges, as Prof. Peter Cohan said: "highly profitable, highly annoying".
On top of this, I am a holder of "Lufthansa Gold Card", did I get a special service being a holder of one? I wish I did.
My point is; when flights are delayed for whatever reasons, do we as passengers get something?

Another question one might ask: "So why do you still fly with Lufthansa"?
The answer is simple, it is the most convenient non-stop flight from Munich to JFK, as least for me.

February 02 2011 at 9:37 PM Report abuse rate up rate down Reply

This guy who wrote this article is lazy first of all,how about reporting how the airlines has takin it in the backside for over 15 years and has been struggling desperatlety for the past 3 years. Why is it the feeling in this country that transport companys such as airlines trucking ect shouldnt make a decent profit. Does anyone want to fly on an aircraft that is 50 years old and in disrepair hardly the case. But boy if they actually make money what a crime,everyones safety is increased due to the fact that now they can actually afford to maintain there equipment properlty.if no one has figured it out it takes lots of cash to operate an aircraft and maintain it. lets just keep selling our souls for cheap everything. Im surprised walmart hasnt imported an airline from china so they can sell cheap seats give me a break Peter how about telling the real story for a change instead of trying to get everyone amped up because the airline industry is going to make a buck for a change,it will take them 10 years to recoup what they lost in the last 3.

January 27 2011 at 3:26 PM Report abuse +1 rate up rate down Reply

you can thank congress. they deregulated only the airfares...everything else in the airline industry is regulated. congress backed these responsible safe airlines into a corner and this is the only way they could get out.

January 27 2011 at 8:23 AM Report abuse +1 rate up rate down Reply

Tired of being treated like cattle on their way to market? Might I suggest an occasional charter flight or even Frax ownership if you and your staff find it necessary to fly. Imagine this. Depart on your schedule; fly direct to your destination; No lost bags, No TSA pat-downs; no disagreeable passengers; Enhanced security; return home the same day if not too long of a day. Great food, beverage of any kind and telephone use available.

January 26 2011 at 11:31 PM Report abuse rate up rate down Reply


January 26 2011 at 4:41 PM Report abuse rate up rate down Reply
1 reply to hntrfmhades's comment

Damn, I wish it would go back to the way it was in the 70's. Planes weren't packed to overflowing. The stewardess' treated you with respect and they looked nice, the person next to you didn't look like a homeless person and didn't smell like a zookeeper. It would be worth the extra money. Now the sterwardess' are about the same age as my mother and weigh as much as a sumo wrestler. And don't ask for a coke or water, they'll get to you when they're ready. I'll fly again when things change.

January 26 2011 at 3:20 PM Report abuse +1 rate up rate down Reply

Pete the ultra-liberal never misses an opportunity to sneak a "progressive" jab into any article he writes! This time he waits to the end to slyly mention that "cutting regulations and reducing taxes" (WRONG he says subtly) will only cause "more record profits to go into executive's pockets". Ever hear of stockholders, Pete? We'd like to get more profits too! Or should Obama's sneaky regulation increases by decree be allowed to multiply - who does that help - the unions that keep electing socialist trash like him? The unions that have caused our auto industries to "Flourish" (wrong)? I think Pete hates industry executives because he either envies their success or he is just another professorial liberal socialist who talks great but never produced a damn thing of value in his life.

January 25 2011 at 11:44 AM Report abuse -2 rate up rate down Reply