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Enjoy the last few weeks of $150 flights

July 30, 2008

As Milwaukee’s Midwest Airlines lays off employees by the hundreds, as it plans to cut pay to poverty levels, as it plans to mothball a hangar full of large jets, as its lawyers prepare a Chapter 11 filing, as I write this sitting in an airport waiting for a Midwest flight delayed by hours, it is apparent that the American model for airline travel has broken down. Things are going to get bad - very bad - and most people, including government officials, haven’t picked up on how drastic the situation has gotten.

Let’s do the math.

Assuming a price of jet fuel at $4 a gallon, and a fuel consumption level of two gallons to the mile (the rate of Midwest’s Boeing 717s), and the 1,300-mile distance to Las Vegas, the airline has to spend more than $10,000 just to pay the fuel costs on a one-way flight to Nevada. Even if fares for leisure travel are hiked drastically and Midwest is able to charge $250 for a one-way flight, it would need to fill more than 40 seats just to pay the gas bill.

Midwest’s 717 jets seat about 110 passengers. Even with a sold-out flight, only 70 remaining passengers’ fares are left after the fuel is bought. Their fares have to pay the pilots, flight attendants, ground crew, airline rental, corporate staff and the massive debt service for the aircraft the company bought in the past several years. Don’t forget the tens of millions in debt the Texas private equity firm used to buy Midwest last year. Those 70 passengers, even at $250 a seat, are going to have a hard time paying for all of that. And there’s supposed to be some profit left over?

The only answer for Midwest is to charge dramatically higher fares than people are accustomed to paying, and to eliminate enough flights so the remaining seats can be sold to people who "have to" travel. A check of Midwest’s Web site shows fares for Las Vegas this fall and winter to be hundreds of dollars higher than the $325 roundtrip fares we’ve been used to paying.

Midwest is not alone. It is merely on the cutting edge of the coming airline meltdown. The company is on the precipice earlier than its competitors because of the costs associated with last year’s takeover. United, Delta, American and the rest aren’t going to be far behind. The era of cheap travel is over. Get used to paying at least twice what you’ve paid the last two decades. There will be fewer flights and higher fares, and it will be very hard to get to some cities. Many cite Southwest Airlines as the exception to the rule. It has for years hedged its fuel costs in the futures market. But those contracts are expiring, and even that no frills airline is likely to face enormous cost pressures.

If the price of oil drops radically, then jet fuel won’t cost $4 a gallon. Don’t count on it. While the current downturn has a long way to go and oil may be down to $85 a barrel, it is only a temporary respite. The long-term trend is up, way up. Developing nations are dramatically increasing their oil consumption and global production is flat. Within five years, gas and jet fuel may cost $6 a gallon. Maybe more.

What’s the solution? Other than nationalizing the airlines (like Amtrak), the government could subsidize the cost of jet fuel. The precedent has been established with the current idiotic subsidy of 50 cents per gallon of ethanol. If government subsidized jet fuel, it would provide at least some relief for airlines and their travelers. In the meantime, enjoy the last few weeks of $150 flights.

***

Maybe Ted Thompson is a visionary. If not, he is a rather amazing idiot. As I read sports sections in newspapers from around the country, all of them are begging their football teams to try to acquire the quarterback the Packers are determined to get rid of. Maybe they’re all nuts and Thompson’s a genius. Or maybe Thompson has allowed his ego to get in the way of managing his team’s business.

The Brett Favre situation isn’t about Brett Favre. Talented performers are often egomaniacs. (Some would argue I have some expertise on this.) Whether Favre is acting like a childish, petulant brat (or not), he is still a very good football player. Managers are hired for their ability to manage spoiled talent. The problem is that Thompson is even more of a diva than Favre. His desire to build a team - HIS team HIS way - has led him to drive Favre out of Green Bay. For a team that was an overtime away from a Super Bowl to dump the guy who finished second in the voting for Most Valuable Player in favor of a fragile guy who has played in parts of two games is an astonishing act of managerial lunacy. Thompson is making Favre look mature by comparison.

Or maybe Thompson sees what nobody else in football sees. Maybe the ONE GUY THAT DOESN’T WANT BRETT FAVRE has it right. Maybe Favre is washed up and Aaron Rodgers and Brian Brohm can take the Packers to a Super Bowl. If not, Thompson will rightly go down as one of the biggest boobs in the history of the NFL.

Here’s the thing: So long as Brett Favre was around, he got all the credit for the Packers’ success. Thompson wants that credit. If he’s right, he deserves it. He may not have considered the alternative.


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