Why The Airlines Are Bankrupt (Infographic)

Like many of you, I often find the need to fly to see family, take vacation, or go on business trips. And each time I’m struck by how little I get on the flight and how much I end up paying for the pleasure. So when I saw that American Airlines was filing for bankruptcy, I was shocked. Turns out 20 airlines have filed for bankruptcy in the last 10 years, and the future doesn’t look any brighter for the remaining ones.

We put together this graphic looking at the airline industry and its struggles since deregulation in 1978. It may not be obvious to the average US domestic air traveler, but prices are A LOT better now than they were 30+ years ago. In 1974, a round-trip flight from New York to L.A. would have cost almost $1500 (adjusted for inflation). Today, that flight can cost under $300. Still, air service is worse in a lot of ways, with smaller seats, less in-flight food, and more delays and cancellations.

I hope you find this graphic as eye opening as I did. While it won’t make paying “baggage fees” any easier, it should help you understand exactly why airlines have decided to price gouge us – and what might happen if they didn’t.

Flight

Comments

  1. Usually your infographics really give me something to think about, and I come out on the other end with a whole new understanding. This time, I feel like I don’t understand anything any better than I did before, least of all the cause of everything. Time to go study deregulation.

  2. You forgot to mention “golden parachutes” for CEOs as a reason for airline bankruptcy.

    It’s hard to stay out of bankruptcy when you give your CEOs (who mostly stay for only a year – the requirement to get their severance package) million dollar bonuses when they leave whether or not they actually help your company stay/become profitable.

    • I think it is a popular thought to blame CEOs with excessive pay, but I don’t think you can attribute much of why the airlines are failing to this. Even if you distributed all the income the CEOs make to the airlines, they may very well still fail. CEO pay is dictated by the board of directors. Increase in CEO pay has been a trend that’s been going on for over 30 years. I do think CEOs are paid too much, but don’t get it twisted that it is the cause of the bankruptcy. It may be a very small contributing factor, but is not a major contributor.

  3. Did you know that every time you post an “infographic”, the entire thing shows up three times in Google Reader? I don’t suppose there’s any way you could change that?

  4. Airlines need to make up the money, so they now charge for everything. I am all about Southwest; because they don’t make big deals on the little things and are all about helping their customers.

  5. Awesome post, I love the way you’ve used infographics to illustrate this case, it makes it so much easier to digest than a block of text and more fun too!

  6. Jason, I have really appreciated the infographics you are doing. I am a photographer and very visual in my thought process so these charts are “right down my alley”. Thanks.

  7. I can’t be the only one who is over the endless infographic posts, can I? Every once in a while is fine and interesting, but really it’s practically every post now.

  8. Thanks for the awesome infographic.

    Unfortunately, I don’t think we will see regulation or profitability until airlines start killing more passengers. At some point, the lack of profits will start to enroach on flight safety. Until we see a few airplanes crash from mechanical failure, will we see political movement toward raising prices or regulation. This is becoming Made in China all over again.

  9. This is a perfect example of why regulation and government involvement is bad. Due to government regulation back in the 1970′s and earlier, the airlines could not compete based on price. As a result, the price of airline tickets were artificially higher than they would have otherwise been.

    The free market responded to this by increasing capacity. Afterall, the airlines were being protected by the government (by screwing consumers) with the high ticket prices, so they could afford to rapidly expand.

    Then, due to deregulation, some of the more efficient airlines came in to provide some price competition to give consumers a better value. All of a sudden the existing airlines now have trouble making a profit and find themselves with excess capacity.

    So what happens next?

    The market will eventually weed out all the artificial capacity that was created thanks to the government screwing up the free market. Eventually, as supply winds down, prices will start to rise to a point where we have market equilibrium.

    In short: Do your traveling now. Airfare is going to get a whole lot more expensive soon.

    • Very good analysis. I’ve always wondered about the airline industry. I really hate the extra baggage fees. HATE them. I’d rather pay more for a ticket. As the costs of travel have gone up, we’ve just cut back on travel. We have cut flying to visit our families (on the opposite coast) to once every two years. And we were on track to go on a “vacation” where we fly (for example: Hawaii) on the alternate years. But now we’re driving instead (obviously, not to Hawaii).

      I flew more pre-kid than I do now, simply because of the price and the hassle. When I DO fly, I am spoiled – I prefer the extra legroom seats and am willing to pay for them.

    • How long is it going to take before the effects of the previous regulation finally fade? Surely all the union contracts have been renegotiated at some point in the last 33 years; or, do they have to wait for all the employees that were working 33 years ago to die, to relieve the airlines of the pension obligations? Are there still planes out there being flown that are that old? Airports?

    • Tommy Z’s spot-on analysis is what this infographic is missing. When I first read the infographic, the message I took away was, “the airline industry needs to go back to federal regulation. Ticket prices will go up, but the industry will be profitable again.” Which is a horrible message.

      I know it was not the point of the infographic to give any kind of analysis, just to deliver “facts”. But a hand-picked set of facts by themselves can be dangerous, because they never paint a complete picture, and people will draw wild conclusions. When someone undertakes to tell a story this way (especially in a visually compelling medium) It is their responsibility to consider possible implications, even if unintended. That’s one reason I’m not a huge fan of infographics like this. They are cute. They are also often misleading. At best they raise more questions than they answer.

      I wholeheartedly agree that federal regulation (even decades ago) is the root cause of many of the industry’s problems. There is also a mindset within these big airlines that is decades old. A mindset that has “big government” and the way large companies behave within a heavily regulated industry written all over it.

      Let’s all hope and watch for innovation in the industry. Sadly, I think the old airlines need to die and some young, customer-focused, free-market savvy businesses need to rise up and show ‘em how it should be done!

  10. This gave me so much insight on the airline industry. Can anyone tell me why all these airlines stick with it even though they are losing money? That baffles me.

    • Speaking as a former airline employee who is still in the aviation business, now as a federal regulator… it’s the same reason anybody stays with a job they love. It’s in your blood. It obviously doesn’t hold true for every airline employee in every capacity, of course, but for many of us, we do it because we love it. The responsibilities, the people, the perks — there’s nothing like it in any other industry in the world.

      Despite public perception, most of us love our jobs. We don’t see it as a sinking ship so much as one that’s in need of repairs (and we’re learning to fix it as we go along). Just giving it up because it’s been hard… nah. That’s not us. For that matter, it’s not the American way. There’ll probably be more failures before things really start looking up for airlines in general, but that day’ll come.

  11. Great infographic. As a flight attendant for one of the smaller legacy carriers, I wish we could distribute these to every passenger in order to help them understand the situation better. There are lots of complainers, but most people simply don’t understand the industry.

    Just one thing of note regarding expensive labor contracts: Southwest Airlines is one of the most heavily unionized carriers in the business, and their flight attendants are the highest paid in the industry here in the U.S. (by a significant margin). Mind you, they also fly very productively, but are one of only two U.S. carriers that can only schedule their flight attendants up to a 10.5 hour duty day versus 12-14 hour days at every other domestic carrier. Despite this, they have consistently turned a profit for decades proving that expensive labor contracts don’t necessarily make for an unprofitable carrier.

  12. It seems quite rare that an entire industry is making a ton of money in this case hundreds of millions and only 1-2% of that becomes profit. It is actually quite startling. When comparing an airline stock with another industrial like for example railroads as you have pointed out we can see a huge difference in price. Like American Airlines listed practically as a penny stock and Union Pacific over $100 a share! One might say Union Pacific is more expensive and American Airlines is a bargain. But as you have highlighted, American Airlines does not make the money, Union Pacific does. You pay more but you get more for your investment. Thus the airline stocks are cheap for a reason. Very fascinating infographic. Thanks for sharing.

  13. I disagree that returning to heavy federal regulation is the answer. Naturally, it sounds good to anyone working in the airline industry who wants to return to “status quo” and see ticket prices skyrocket again.

    The real problem is executives and management of old airlines who still want to run the company like it’s 1969. Time moves on. The free market is not evil. The free market does demand, however, that companies give customers what they truly need. It demands that companies adapt and innovate. It also means companies who fail to do so will crash and burn, and take their investors, stockholders, and employees down with them.

    I’m tired of hearing people using “safety” as a lever of fear. There are still plenty of federal regulations regarding the safety of airline operations. Those are good. Gov’t regulations regarding how business is conducted are another matter. No need to confuse the two issues.

  14. As the wife of an airline pilot, I get to hear his perspective on the industry. It will be interesting to see what happens in the next ten years, when the industry is forecasting unprecedented labor shortages – there aren’t enough pilots in the pipeline to replace the pilots who will begin to retire in 2012. Also, you get what you pay for. There are distinct dangers in the airline price wars – namely that they try to “stretch” maintenance, hire the cheapest (read – most inexperienced) pilots and take shortcuts with continued training. The safety of the people who fly would be better served with more price regulation.

  15. Bankruptcy likely has much more to do with unrealistic expectations regarding profits (huge profit over reasonable profit), huge CEO payments. labor union demands, etc… It has to be. People fly more now than ever before so the airline companies should be rolling in the dough. This means the problems have to be internal, not external. They need to renegotiate their labor agreements, cut CEO and executive pay down closer to that of the workers, and treat customers with respect. People don’t have any loyalty to any particular airline – they are merely looking for the lowest prices. But if an airline goes above and beyond expectations on a regular basis they can develop customer loyalty.

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