Is airline industry the worst of them all?

Anyone that follows business and markets more generally knows that the airline industry is among the worst performing of them all. Numerous times, some of the largest airlines had to go in to Chapter 11 bankruptcy protection and then governments gave them a hand because they did not want to see them close down. Even Warren Buffett, perhaps the most respected investor and business mind on the planet now avoids the airline industry like the plague.

However, Virgin America, an airline that shares the Richard Branson brand is planning on expanding their business to Toronto. They plan to offer two flights per day from to Toronto to Los Angeles and San Francisco. So why and how is an airline able to do this if the industry is so terrible to be in? Well, the CEO of Virgin America, David Cush answered those questions in a recent interview with the Toronto Star. In his rebuttal to Warren Buffett’s claim that the airline business is awful, David Cush said that the industry isn’t bad throughout the world only in North America. He mentioned Cathay Pacific and Qantas as two airlines that are not from North America and have been consistently profitable.

He also said the main reason that airlines on this continent are always in bad shape has less to do with the companies or industry and more to do with poor government policy. In his opinion, the governments should let these failing airlines go out of business and not save them from bankruptcy. This argument obviously makes a lot of sense and it means even more coming from a CEO of a North American- based airline. He certainly knows that if Virgin America ever ends up needing the government’s financial assistance, they may remind him of what he said about that in the past.

Although he makes good points about profitable airlines in other countries, it seems that government policy can not be the only reason for airlines not making money here. Airlines are known for upsetting customers by over booking flights and losing luggage, etc… One of the main complaints airlines receive are fluctuating prices for seats on the same flights. Many of them use convoluted systems that result in people sitting next to other passengers that paid hundreds less then they did for the same thing.

Other factors that cause airlines to lose money are fuel costs and security costs which are high and seem to only go up. However, even when these two expenses were lower, many airlines still didn’t earn a profit. Perhaps this industry still needs to evolve more until it finds a good balance of meeting the customers needs while making money at the same time. This simple concept can sometimes be very difficult to figure out, but it is also what makes doing business the most interesting form of work there is.