Ever heard the phrase "the last company left making buggy whips made a fortune"?  Don’t believe it.  Ask the person with such a claim to name the company.  Better yet, ask that person to name one company that made high profits by being the "last man standing" in their business – any business.

On Monday United announced it is laying off 12% of its pilots, 950.  Of course, pilots are the tip of the iceberg.  Every pilot drives many more flight attendants, mechanics, gate agents and other employees so we can expect a multiplier effect across other jobs as this action trickles down.  Simultaneously, Continental has announced job cots, Delta is whacking employees using early retirement deals and American has said it is finalizing details for its planned cutbacks (read article discussing these reductions here.)

United had to move fast, because if it doesn’t act quickly enough it’s cash reserves will fall, placing it in default on its debt – and triggering a Chapter 11 filing.  In other words, United is skating on the edge of extinction.  But an industry guru was quoted in the above article saying "There is an inherent demand out there…. as long as you can stay in the game you’ll be fine." 

This is ridiculous.  The largest participants in the America’s airline industry have built businesses that cannot be profitable.  In the best times, when demand was growing like crazy and fuel was cheap they could barely squeak out a profit.  They have never made enough money to recover their capital investment in aircraft.  Their hub-and-spoke system is simply too inefficient, ignores problems created by America’s constantly fickle weather and too costly.  It was a grand theory, but it was not profitable.  Couple that with bad workforce practices and total disdain for customers and you have a business model that was doomed before it began.  That it lasted this long is only a testament to tenacity and unwillingness to find alternatives. (Read more about how airlines themselves predict service will decline FURTHER in Chicago Tribune article "You are now free to take a flying leap" here.)

But in reality, the entire industry isn’t unprofitable.  Look at Southwest.  That carrier did nothing like United or American, flying point to point, no milage programs, no pre-assigned seating, etc., .  So Southwest has the highest domestic carrier customer satisfaction ratings and the highest profits.  It is possible to make money as an airline, you just have to use a different Success Formula.  The winner won’t be the "last man standing" as if some competitor simply outlasts all the others and is left with the spoils of war.  Rather, the winner will be the competitor that figures out how to provide the service in a manner that makes customers happy and turns a profit for investors.  And increasingly we can see the long-term winner won’t be one of the U.S. "majors."

Take a quick look at Virgin America.  After years of the "majors" using legal fights to stop this new airline from opening, it has made its debut.  And nothing like Southwest or the incumbents.  It flies point to point, and it focuses on profitable routes with lots of business service rather than just being big.  Although it prices low, not trying to be a "business class" airline with high fares.  And it has a global reach.  You can fly Virgin around the world whereas the big U.S. airlines depend on you flying one of their "partners" for some of the trip. 

Virgin Airlines started in England during a horrible flying downturn and when British Airways dominated the market.  No one gave it a chance because it did nothing like the traditional airlines.  And Cinderalla ended up the prettiest girl at the ball.  Now its leaders are doing the same as they enter the U.S. market.  They Disrupted traditional thinking about how to be an Ameican airline, and developed a unique approach.  Simultaneously, leadership has maintained a wary eye on how to make money while mitigating risks – this is no "race to be huge."  Of course, its leader is one of the more Disruptive leaders in modern times, Sir Richard Branson, who turned his former music mail order distribution company into a varied empire of multiple profitable business across industries and markets.  (Read more about the Virgin America launch in Time Magazine here.)

Of course, U.S. airline deregulation did not create a "free market."  You don’t see Air Canada, Lufthansa or Singapore Airlines fly between any U.S. cities.  As previously mentioned, the big U.S. airlines have fought from the 1970s to keep out these other competitors.  All of them make money, and are known for more reliable service and far higher customer satisfaction.  If we see United or American or Delta crumble into Chapter 11, can we expect regulators to continue protecting the local industry from offshore competitors?  Would that be in our best interest? Virgin’s launch is an indication that these regulators are as tired of bad service as fliers.  How will the remaining "majors" survive when they have to compete with airlines that have built profitable Success Formulas in other markets they can rapidly export to U.S. customes?

Business competition is not a game of "Last Man Standing."  There are all kinds of variations competitors can employ to avoid the bloody "fight-to-the-death" battle of foolish Goliaths.  As a result, multiple competitors displace the fallen gladiators, but do so more effectively and more profitably.  In the end, markets transition to new competition based on new services and products.  Don’t expect a protected American or Continental airline to be handed the U.S. market to exploit.  Instead, begin preparing for market upheaval as these behemoths falter and fail – and new competitors are allowed to enter, changing how we think about flying.  For most customers, it can’t happen fast enough.