The business of airlines: Adapt or die

imageThose of you who know me well will find out eventually the three things that I know best. I only do one of them for my day job, so chances are you could guess one of them. But my three things I know best are:

  • Computers
  • Airplanes
  • Cooking

Oddly, a person I know quite well aligns in a very similar fashion: Jason Perlow. Jason is a great communicator, a frequent guest on the Veeam podcast with me, an excellent techie and WOW his food creations are amazing.

Anyways, Jason had two recent blog posts that caught my attention. The first was “Delta SkyClub: Hitting the bottom shelf” and “Delta, United engage in mileage shenanigans with American Express”.

I read all of Jason’s posts and see where he’s coming from. I disagree with his criticisms of both program changes. His accounts are right of the facts, loyalty programs and lounge access is effectively monetized.

I believe these actions by Delta and like programs are justified.

Let’s start with the club program. I’ve had access to the Delta Sky Club (formerly the Crown Room) since 2002 or so with my American Express credit card. I have noticed the new Luxury Bar service, and to an extent agree with Jason’s post. I would choose Blue Moon (I prefer unfiltered Belgian Wheat Ales) or Stella Artois as well, which are now part of the Luxury Bar service. I have purchased Stella Artois as it is served in the proper chalice. I only drink beer there; I’m not sure what my wife will do as she only drinks Bailey’s. She’ll probably settle for wine.

Regarding the spend requirement for loyalty programs, as it turns out; I am in good shape with that program with no changes. The Delta program shows you your performance, here’s mine below. The Medallion Qualification Dollars is estimated, I’m on-track for my status next year based on 2013 performance.

image

In both situations, this sounds oddly familiar to what we have to do in computers. We have to change the process, or the business model from time to time. This may be necessary to survive.

The last 13 years have been absolutely brutal on the airlines. The inventory management practices that have been delivered from all of the web booking engines (AKA business intelligence around the sales process) have really made it tough for the airline. I think in 2000, Delta was profiting around 6-10 Million US Dollars per day.

The change in the industry has been remarkable. Sure, we’ve lost food service on flights. Sure, it is now harder to get to talk to someone when things go wrong. Sure, we have limited flight options from what we had a number of years ago. Sure, we also now pay fees for many things: good seats, bag checks, some foods and drinks.

But the business changed. In fact, it had to. Air fares have gone down. Operational costs, in particular fuel, have gone up. Something had to give.

This is the classic case of an industry, and Delta has been atypical in its financial performance leading it to success. This is also an industry that deals in single digit profits and margins, etc. When the losses come in, they come in bad. I remember hearing about quarterly losses in the middle part of the last decade being 2 Billion US Dollard (per quarter!). The June 2013 quarterly report stated this:

Delta’s net profit for the June 2013 quarter was $844 million, or $0.98 per diluted share, excluding special items1. This result is a record June quarter profit excluding special items and is a $258 million improvement year-over-year.

This doesn’t happen without some change.

I respect you, Jason Perlow, but disagree because the business has to change.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: