Cheap Fares, Bumpy Ride

I flew to Florida on vacation recently, and would like to apologize to American Airlines for the boorish behavior of my fellow passengers. Most of them did a lot of complaining -- about the long lines at security, the scarcity of food and the inadequate onboard entertainment. None of these ingrates, as far as I could tell, paused to acknowledge the airline's generosity. It's a noble endeavor, this charitable airlift that flies millions of people across the country each year at a staggering cost to airline investors.

The airline industry as a whole seems to have gone nonprofit. The entire U.S. airline industry has posted a cumulative loss of roughly $15 billion since 1938, according to the Air Transport Assn.'s analysis of government data through 2003, and estimates for last year. The industry is expected to lose $5 billion more this year, and this in a strong economy.

No wonder Warren Buffett once quipped that if a capitalist had been present at Kitty Hawk, he would have done future investors a big favor by shooting down that first flight.

Airlines deserve plenty of the blame for their financial plight. There is something about boys and their shiny planes that gets in the way of managerial discipline. I know that when I was a kid banging out my own make-believe airline's timetable on a manual typewriter, I'd put 747s on such cool-sounding, exotic routes as Belo Horizonte-to-Liverpool, oblivious to the economics.

And remember People Express? The early 1980s phenomenon had a simple formula and low fares and costs, but it just couldn't help itself. Before you knew it, the airline was flying 747s to Brussels.

The one consistently successful airline over the last quarter of a century, Southwest, thrived in part because it never stopped thinking of itself as little more than a glorified bus company, and a new generation of carriers, such as JetBlue, are trying to emulate that success.

The airline industry's overly clever pricing schemes have also backfired spectacularly. Unlike a movie theater that will usually charge the same amount for a seat, airlines perfected "yield management" systems that amounted to a continuous auction of each seat on every flight. In the late-1990s boom, airlines could often auction off those last few coach seats on transcontinental flights for a couple thousand dollars.