Given the many airline Chapter 11 cases in this country, you might expect that there would be some room for innovation. You would be wrong.
Not long after the bankruptcy code was enacted in 1978, major airlines have filed for bankruptcy, beginning with classic cases like Eastern Airlines and Pan Am. Those two did not survive, giving Chapter 11 something of a bad name in its first decade or so.
But more recently, major airlines have followed one of two main paths in their reorganization cases. First, some sell themselves to another airline. TWA’s last Chapter 11 case, when it sold its assets under section 363 of the bankruptcy code to American, is a good example. Other arguable examples include Northwest and the second USAir case.
The other path is to reorganize as a stand-alone entity. Under this approach, the airline iposes some pain on shareholders, employees and creditors, but otherwise comes out the other side as essentially the same company as it was before bankruptcy.
Airlines never seem to use Chapter 11 to consider a new business model. Among the large domestic, full-service airlines, we have Delta, United, US Airways and American. I have flown most of them in the last few years, and what seems to distinguish American from the rest is the age of the planes.
Presumably that specific point will change as a result of the current American Airlines bankruptcy case.
Otherwise, they all offer cramped seating (especially in the back), marginal food for movie theater prices and service that all too often resembles that of the Post Office.
In short, all the major airlines compete on price. None really seems to compete on service, quality or design of the product. Airline travel is basically a ! commodity.
This is true to some degree with many industries, of course.
The key difference with domestic airlines is that they find themselves in bankruptcy so often - much like the railroads of an earlier age, they have high fixed costs and are highly sensitive to economic conditions. Yet despite this, they rarely seem to use Chapter 11 as an opportunity to try something new, even though a reorganization presents an ideal time to, well … reorganize.
The question remains whether Chapter 11 is unable to reinvent a business, or whether the parties to the case simply lack the will to take such a step.
