For over 30 years, in spite of their best efforts, the financial health of the network airlines has continued south. Contrary to conventional wisdom, the fundamental problem pushing so many airlines towards the brink is not the hub schedule, weather, fuel costs, ATC/FAA, congestion, delays, nor even unit wage rates. These are just the visible symptoms of the real problem. The underlying cause of 80% of the airline industry's financial problems is production variance. Production variance within the daily operation, especially at the hub airports, represents the fundamental flaw within the current airline production process (over 35% of the customers delivered late) that, over time, will decimate airline after airline. Yet production variance, the inability to consistently deliver a quality product, is not measured, quantified, nor is it clearly understood. To first understand, and subsequently solve this problem, one must first forget it's an "airline" problem. Conversely, think production, think right part, right place, right time (smiling pax, bag/cargo, destination curb, on time). Think of this as a flow of materials problem. Think Henry Ford (current airline production process) versus Toyota (required airline production process). For example, by adopting industrial engineering principles outside the mainstream thought process - concepts promoted by Deming during the post WW II era of the 1950s post-war Japanese reconstruction, Toyota embraced lean production. Based on Deming's principal of "build the process that gives the right answer, first time, every time" (i.e., right part, right place, right time), Toyota leapfrogged Henry Ford's/Detroit's production processes from the 1970s right up to the early 1990s, when the Big Three belatedly woke up and smelled the coffee. Yet, the initial auto industry reaction to such outside the box ideas was quite predictable. Those who approached the big three in the 1970s and suggested "just-in-time" as a manufacturing philosophy, were quickly shown the door. Even now, although close to Toyota, Detroit is still lags behind. Toyota continues to make a higher quality car less expensively. The unfortunate outcome is that in 2007 Toyota is poised to overtake GM's 75 year dominance as the largest automobile manufacture in the world. What would automobile manufacturers give to go back 40 years and say yes to such radical ideas as JIT, Supply Chain, etc.? Will the business press say the same about the airline industry 10 to 20 years from now? It is clear that airlines need a new direction, or actually an old direction. We continue to go back to W. Edwards Deming, whose theory is that the only way to reduce costs is to improve quality. And one of the fastest ways to improve quality is to significantly reduce the large amount of production variance airlines now incorrectly accepted as "normal" within their operations (over 35% of your product delivered late is definitely not normal). In summary, it is not the network peaked schedule that drives up costs, decreases utilization and limits revenues through poor quality, but the network operation, which represents a relatively simple, and solvable logistics problem.
Baiada, R. M.
(2007). Network Airline Production Problem. 2007 International Symposium on Aviation Psychology, 19-24.