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Bad Business Models and the Consequences of Union Labor

April 8, 2010 Leave a comment

Megan McArdle has an incisive post about the problems that have driven US Airways and United into each others’ arms:

The airline industry is not a particularly attractive market. You’re selling a perishable commodity–once the doors close, any unfilled seats are worthless–to an audience that stubbornly resists treating your product as much other than a commodity. Attempts by the airlines to resist this, with their byzantine pricing rules and frequent flier programs, have by and large not succeeded particularly well; business travelers tend to have multiple frequent flier accounts unless they live near a single airline’s home airport, and economy fliers don’t care. Meanwhile, software is steadily eroding their ability to thwart bargain-hunting consumers through pricing power.

Clearly, the airlines have plenty of reasons for their current parlous state. But it is interesting to consider that, given the blame intransigent labor unions have in this state of affairs, how few people make the connection between rigid labor rules and poorly managed companies. Companies with a history of rancor between labor and management–which describes most unionized workforces–spend a lot of time and energy managing that fractious relationship and so spend less time on operational goals such as product innovation and revenue growth. Compare and contrast Apple and Google with the airlines.

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