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“I describe the business model as a Ponzi scheme because it is predicated on growing 15% to 20% a year.”
— Scott Kirby, CEO of United Airlines, describing the competing ULCC business model.
“When you stop growing you start dying.”
— William S. Burroughs, Junky
The model of business is growth, and the airlines are certainly no exception. Since the airline industry was deregulated in the United States, airlines have been on a sometimes fast, sometimes slow growth trajectory — a constant interrupted only by bankruptcy filings or short-term industry crises.
Indeed, growth is important to the airlines. New equipment and staff help keep costs low, investors find desired returns, and passengers find new options at competitive prices. The airline industry is built to grow.
Related: Trouble is brewing in the global economy – just don’t tell the airlines
However, new headwinds have raised questions of exactly how the airlines can continue to grow amid skyrocketing costs and a pilot shortage. For the ultra-low-cost carrier segment of the industry, the renewed questions become even more poignant.
United Airlines chief executive Scott Kirby commented during the airline’s Q3 earnings that the ULCC airlines represent a “doomed” business model in this new cost environment TAC Analysis considers the implications of this pronouncement. Are the ultra-low-fare airlines destined for extinction, or are the legacy airlines, emboldened by a recent windfall of profits, once again underestimating no-frills travel?Subscribe to continue reading...
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