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Southwest pioneered lower cost domestic travel under founder CEO Kelleher. It did not charge fees for checking in bags and seats were not assigned. This model is now being questioned as baggage fees are generating $1.3 billion at American, $1.2 billion at United and $1 billion at Delta Airlines. Even a smaller airline like Spirit generates $1 billion from baggage fees. Additional sources of income are passengers charged for seat selection. Southwest generates about $70 million from baggage fees and does not charge for seat selection. Southwest sees not charging for baggage as part of its culture and current management is not changing the status quo.

Other problems are that Boeing can deliver only a fourth of the plane Southwest ordered. As a result the airline is facing a crisis and Eliott Investment Management now owning 11% of the company is pushing for change including ouster of the CEO and the Board.

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Cockpit seat issues on a LATAM Chilean 787 flight. 

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A You.gov poll shows Europeans by 64% consider reclining seats fully "unacceptable" compared to 46% in the US. The seats squeezed into a tight space make it more difficult for passengers making airline decisions on seat arrangement an issue. Delta tried limiting reclining to 2 inches to improve passenger comfort on 20% of its planes in 2019, but has not moved ahead to do this with the rest of the planes.

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The U.S. Justice Department opens an investigation of the largest airlines, Delta, American, United Continental, and Southwest for collusion in limiting expansion. The major 4 airlines control 80% of the domestic airline seats in the U.S. The 3 major airlines have grown slowly compared to Southwest in recent years. JetBlue and Spirit are also growing faster. Southwest plans to expand by 7% in the 4th quarter. U.S. airline domestic seats show slow growth since 2010, with growth picking up in 2015 over the prior year to 3.5% in 2015, according to Innovata. For 2013 and 2014 <0.5% growth in seats, in 2012 decline of <1%, 2011 growth of less than 1%, and slight decline in 2010. During the crisis 2008-2009 airlines cut seat capacity. Price increases have averaged 5% increase from 2007 to 2014 to $391, adjusted for inflation for domestic seats. The U.S. Justice Department investigation will look at "possible unlawful coordination."

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Risks in AMR's financial situation include net debt of $12 billion and a market capitalization of $1.1 billion. The stock is down 60% so far in 2011 and is now at $3.13 on Sept 30, 2011. Analysts at J.P. Morgan Chase say AMR should have $3.5 billion in liquidity by the end of 2011, or 15% of annual revenue. About $1.8 billion of debt matures in 2012. The demand for airline debt is still healthy. The airline industry is also better able to handle another recession because of cuts in capacity, and the effect of the merger between United and Delta, keeping flights full and prices up. A recession would also cut fuel costs, with fuel taking up 35% of revenue dollars, according to analysts. The problem is low margins and high labor costs, as a result of not filing for bankruptcy and cutting legacy costs. Credit Sights estimates AMR's margin as 6% before interest, tax, depreciation, amortization, and aircraft leasing costs, with the estimate for Delta at 12% and United at 18%.

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Airlines are learning to price aggressively, and sophisticated pricing models are helping to improve revenues. Online buying and search habits of travellers aim at getting lower prices, even as the airlines are using pricing models to price aggressively by monitoring passenger buying throughout the day. Further consolidation, as for instance a merger of Delta with US Airways, would further shrink airline fleets and raise prices as seat capacity is filled up. Southwest Airways continues to expand its fleet and is moving in the opposite direction, but it is also expanding routes flown and is increasing its presence in the market visa vis the other airlines. Overall, with 80 to 100% of capacity filled, airlines are finally obtaining some of the pricing power to operate at a profit. Note that leisure fares and business fares are moving in the opposite direction. Leisure down 9% year over year, business up 20% year over year. After the seats fill up the unsold seat is discounted as a filled seat vs a unfilled seat, means at the margin pure profit for the filled seat even at highly discounted rates. It also raises the capacity filled per flight to a higher level....

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Scott McCartney retires from the WSJ after 29 years. Since 2001 he writes the Middle Seat column in the WSJ to give readers better ideas on how to travel. Looking back he says things have not become that much better these days, even a bit worse with crowded planes and costly flights.

International business class is one of the things that are better with lie flat seats. Planes are safer today. Trusted traveller has taken the tedious aspect of security checks and made it less burdensome. Some of the credit and our thanks for the positive changes, letting airlines and airports know when they needed to listen, that credit goes to Scott McCartney's column. 

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Air fares are rising, and airlines are charging separately for everything from bags, blankets, snacks, seats in front rows, and priority boarding, to other extra charges. Airline strategies to reduce routes and fill up seats are working. Delta Airlines filled 85% of seats in the second quarter of 2010, with revenue from passengers going up by 19%. Delta made the highest profit it has made in the last ten years- $467 million for the second quarter. The Air Transport Association figures show that passenger revenue increased for July 2010 by 20%,, compared to prior year. Price paid by one passenger for flying one mile was 14.95 cents in July 2010, according to ATA.

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Action United Airlines is taking after the episode of bumping passengers on a flight to Louisville caused public protest in media with live pictures, include offering more financial incentives to passengers to vacate seats on overbooked flights, and setting up new rules for handling such situations. Upto $10,000 will be offered to passengers in travel vouchers. Only safety and security would be considerations once passengers are already on the plane. Other airlines are also taking these steps- Delta has set $9950 as the amount maximum to be offered to passengers as vouchers. Other steps United is taking are special call center for overbooking, and reducing number of overbooked flights, offering $1500 no questions asked for lost baggage. United's Board has also acted by not promoting Mr Munoz, the CEO to chairman, and by making it essential that executives show meaningful improvements in customer experience to get incentive compensation. These steps are a result of the report that looked into the failure at United in bumping passengers who were already seated made by the airline. ...

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Southwest hedged against oil price increases and has hedges through 2009 at $51 a crude oil barrel. This has proved to be a smart move as it has provided Southwest with a hedge worth over $2 billion with most of the hedges value being realized over the next 2 years. Airline fuel costs are substantial and evey dollar increase in the price of crude translates intoa $80 million increase in the fuel bill for American Airlines. The hedges for the first 9 months of 2007 cost Southwest about $42 million, so its surprising that other airlines, United, Delta, American, Jet Blue and Northwest did not hedge against rising prices. Maybe they thought that at prices of $52 at the beginning of this year why hedge if prices go down to $40. Or they were too distracted by looking for merger options, or pricing options or other things. What will happen now if oil prices keep climbing? Can airlines raise fares. Yes but revenue per mile is'nt going up significantly as the mix of seats changes with price increases, more of the lower priced seats are sold than the higher priced ones and revenue per seat has not improved. For example even in an environment where 6 industry fare increases ocurred in the 3rd quarter Southwest average ticket price for that period was $105.37 only 62 cents higher than the previous year. Southwest now hopes to gain in this cycle as the other airlines may scrap some routes or ground some planes and Southwest can expand in those areas. ...

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Australia's Qantas airline and its low cost carrier Jetstar is facing new competition on international routes from Malaysian airline Air Asia X. Air Asia X has new promotional one way fares of 60 Australian dollars for its Kuala Lumpur-Sydney route starting in April 2012. Scoot run by Singapore Airlines is also another competitor with 400 seats from Sydney to Australia each day. Virgin Australia is offering 30% lower fares on business class fares for domestic routes covering Melbourne, Brisbane and Sydney. Jetstar has provided 26% of Qantas earnings in the year ending June 30. So far Qantas has been the main beneficiary from the 50% increase in Australians going overseas in the last 5 years.

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India's airlines together will lose $1 billion to $2 billion in 2008, twice what they lost in 2007, according to aviation analysts. The airlines face a glut of domestic overcapacity. Until recently therre were 50 flights between Bombay and Delhi with 4 seats chasing each passenger according to Keskar, Boeing vice president in charge of sales in India. Boeing and Airbus are advising airlines in India to delay deliveries of planes so that the overcapacity does no lasting damage and the industry can recover from this as they see India as a boom market in the future. Boeing expects India will need 1001 aircraft till 2027. Reasons for the airline losses are that in the 12 months ending April 2008 passenger traffic increased by only 7%, and in the 12 months before that by 31%, and in the 12 months prior by 59%. Air India is cutting its domestic flights by 15% returning 14 leased jets to their owners as the leases expire and freezing the size of its fleet. Worldwide the airline industry could lose $6.1 billion in 2008 with a third of the losses in the USA. Passenger volumes fell in China for the second straight month in June but China's airlines appear stable because of milder competition and government support....

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A striking change is coming over US airlines as they turn their focus from operating costs to taking out unprofitable routes, reducing the size of their plane fleets, and increase the number of seats filled on a flight. The numbers bear this out. According to ATA the airlines reduced fleets from 3469 aircraft to 2747 aircraft from 2000 to 2005. American Airlines is typical in discontinuing 27 MD-80 aircraft which are older and gas guzzling. Delta and Northwest used the bankruptcy period to to get court approval to return many planes to leaseholders by breaking the leases- before breaking the lease parking the planes was more expensive than flying them at a loss. As a result according to ATA US airlines filled an average of 77.6% up from 75.4% in 2004. With this strategy airlines recovered some of their pricing power. US Dept of Transportation statistics show prices are higher than at any time since Sept 11, 2001 and the Air Travel Price Index, increased by 9.1% in 4th quarter 2005 over 4th quarter 2004. And airlines are being more restrained in getting into new routes just because some other airline has eliminated that route. Airlines however have to be careful to increase prices just enough but not too much that demand starts falling, and this is possible with fewer seats on more popular routes. Other methods the airlines are using are sophisticated O&D origin and destination revenue management systems which reduce the number of inexpensive, and unprofitable seats available on the internet. Larger airlines have tried to get back corporate customers by reducing the extremely high fares they used to charge and instead raising last minute fares because corporate customers see this as a price burden they are willing to shoulder. Larger airlines are doing better in relation to the price discounters like Southwest and JetBlue. With Southwest's hedging strategy against fuel price increases not as useful as in prior years it too faces need to raise fares....

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With a unanimous vote of the company's board on Nov. 28, 2011, American Airlines filed for bankruptcy. Gerard Arpey, CEO since 2003, is known to have resisted the move. Arpey decided to retire and will be replaced as CEO and chairman by Thomas Horton, the president of American Airlines. Analysts and management say the move is a proactive effort to take action before AMR's financial posiiton deteriorates further. AMR has about $4.1 billion in cash and short term investments. One airline analyst described it as an offensive bankruptcy to reduce labor costs and leasing costs in a proactive manner. American Airlines management has said in the past that its costs are $800 million higher than other airlines, because its pilots fly shorter hours and have more liberal work rules. Cost per available seat mile, an industry metric including labor and operating costs, is about 10% higher for American compared to Delta Airlines. American is also hit by higher fuel costs especially because about a third of its fleet uses older McDonnell Douglas MD-80's, and its regional carrier American Eagle flies 50 seat jets that are less efficient. American has total losses of $11.4 billion for the period 2001-2010. Additional loss was incurred for $982 million in the three quarters of 2011. Efforts to increase fuel effiicency of its fleet which is on average 15 years old, are underway. A $38 billion order for 460 new single aisle planes from Airbus and Boeing, with $13 billion in financing from the aircraft companies, was placed in July 2011. AMR says it will keep the order as planned. The end result is likely to be a smaller airline with fewer employees, fewer planes, fewer routes, and cuts at AMR's smaller hubs in Los Angeles and Chicago, says one aviation specialist....

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For passengers air travel nowadays is travelling on planes that are often totally booked. This is because airlines are cutting flights. And with fewer passengers after the economic crisis hit, airlines are having a difficult time cutting flights enough to meet the continuing drop in the number of passengers. Before the crisis business and international travel was a good source of revenue, now this is fading as there is more competition on transatlantic routes with about 50 airlines offering flights between US cities and European cities. The liberalization of air travel between the two continents with the 2007 "open skies" agreement is keeping downward pressure on prices. The International Air Transport Association says the number of passengers travelling on business and first class tickets between N. America and Europe was down 18.4% in April 2009, compared with same month in 2008. Traffic between N. America and Asia was down 26%, for the same period. This is hitting Lufthansa ansd KLM-Air France hard, but is helping Easyjet, Ryanair, and Air Berlin. As demand drops airlines will continue to cut capacity, and this will be done by cutting the number of flights on a route and using smaller planes. After all this capacity cutting takes place by September, OAG Aviation estimates that the seats on domestic flights will drop to 66.5 million from a peak of 84 million in 2001, a drop of 21%. Some airlines which rely less on corporate travellers will not see as steep a drop. These airlines are Southwest, JetBlue and AirTran. Airlines that may not survive the effects of the economic crisis, with tight credit and drop in air travel, and volatile oil prices, are United Airlines and US Airways. United relied heavily on corporate and trans-Pacific fliers before the economic crisis. Fitrch Ratings cites this in reducing the credit rating for United to junk status, as well as the heavy debt maturities in 2009 and 2010. In June 2009 United raised $175 million by issuing new debt, but at an interest rate of 17%. At US Airways the combined airline with America West after a$1.5 billion merger is struggling. It has the thinnest cash position of any airline according to a Morningstar research analyst, and may need further borrowing to meet debt payments. With all assets already mortgaged US Airways may have little borrowing capability left....

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Stevenson and Gough describe the remarkable success of AirAsia under Tony Fernandes, who turned it into Asia's largest budget carrier with 43 million passengers in 2013. Fernandes acquired the airline for 1 Malaysia ringgit or 29 cents in Sept. 2001 from a Malaysian conglomerate. He is an accountant educated in Britain, originally from Goa, India, who worked as a Warner Music executive in Southeast Asia. Fernandes says he was encouraged by the founder of British budget carrier EasyJet, and hired executives from Ryanair. Expanding in Asia was accomplished with acquisitions and partial ownership in local airlines located in Indonesia, Thailand, Philippines, India, Japan and other countries. Using the Ryanair model AirAsia has maintained a low cost structure, while increasing revenues with prices for addon options such as seat selection and checkin. It has revenues of $1.1 billion and is profitable. The airline uses relatively new Airbus 320 planes that are also used by other successful budget carriers. Fernandes has a hands on style of management reflected in this account of his handling of an AirAsia accident in Indonesia in Jan. 2015....