Economic Downturn Good for Airlines?

 

"A severe downturn could be just the opportunity the airline sector needs to clean up its act once and for all, said Robert Crandall, the former chief executive of AMR Corp.'s American Airlines and a veteran of the industry, on Tuesday."

 

That's the lede in a story from MarketWatch.

 

Crandall is quoted, "The events allowed for a needed capacity reductions that wouldn't have happened otherwise." The key word in all this is "opportunity." Now that the airlines have been forced to reduce capacity (number of available seats), will they resist the temptation to add more once economic recovery begins? This, you see, is the heart of the matter. Until very recently there was a huge supply of seats. This resulted in cheap fares—so cheap that the airlines really weren't making enough money to stay healthy.

 

Now that they've cut supply, they should be able to keep fares high. But if history is any guide, some airline will start doing so well that it will think, "Hey, if we add more seats we can make more money." Problem is, other airlines will follow: supply goes up; fares go down; airline bottom line suffers.

 

Read the rest of the MarketWatch story here.

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