It has taken the airline industry just a few short years to wipe out all the profits made in aviation since the Wright brothers took off. With losses of $10 billion in the past three years alone, U.S. airlines have racked up a $2.5-billion deficit since the days of Kitty Hawk. It just shows what price wars can do for a business.
That popular marketing ploy will be the death of U.S. airlines . . . unless the government does them in first. While industry insiders were blaming year-end results on anyone but themselves (recession, recession), the Justice Department nailed them for price-fixing.
The industry saw an antitrust suit, filed in the waning days of 1992, as an aberration, not a revelation. "If we are monopolistic price-fixers, then we are laughably inept," commented American Airlines' general counsel Anne McNamara.
The suit accused eight major carriers of setting fares via a jointly owned computer system. United Airlines and USAir promptly agreed to stop proposing future increases over the system, But American, Delta, Northwest, Continental, TWA and Alaska Airlines have vowed to fight the allegations.
"I am so surprised at these accusations," said Tom Morris, managing director of advertising and marketing programs at American. "We look around at the extreme competition and that we are all losing money; we're beleaguered, and it doesn't make sense."
But despite stunning losses and the threat of government intervention, major U.S. carriers still favor pricing games over brand-building. Fare wars have reduced a once-glamorous service industry to a commodity with all the allure of a barrel of crude.
Copyright Adweek L.P. (1993)