We spent *how much* on olives???

I just got back from long weekend trip in Cincinnati to celebrate my parents' 40th anniversary and to be astounded at the sheer tonnage of food my five year old nephew can consume and still be hungry. (On an unrelated note, one of the highlights of that trip was him asking me if he could look at my Wii controller, where he promptly dropped me out of the Batman game we were playing and replaced me with a computer player, then handed it back to me and told me he was done looking at it.)

On the way back to Denver, I got to the airport two hours early but there were only three people ahead of me in line at security. I brought a book, but figured I'd save it for the plane and spent some time thinking about the airport and the future of the airline industry.

Twenty years ago, according to a 2005 article in the International Herald Tribune, American Airlines made the industry's first attempt at cost cutting by taking one olive out of every salad. Since then, the increasingly competitive nature of the airline industry has divided into a barbell - hoping to snag the bargain shoppers with the cheapest seats on consolidation sites likes Cheap Tickets or Travelocity, and wooing the business/first class passengers with expanded offerings.

Airlines, like the rest of the transportation industry, hit their price ceiling in how much they could raise prices and still retain demand for their product. So when an industry has a highly variable cost structure, what's the best way to stay profitable both at the moment when the prices are the highest and a year later when prices may be significantly lower as they were between December, 2007 and December, 2008?

Before you can put together any strategy, I recommend considering three points 1) are your best customers those who will be the most profitable this month or for the next year in aggregate? 2) How are your competitors likely to capitalize on any decisions you make? 3) How can you drop your least profitable customers at the same time you attract new ones?

First, defining your customer base. The ideal plane would be full of last minute booked, refundable (maximum fare) business travelers with light luggage (minimum extra fuel usage), taking a flight that costs the least amount in fuel, crew capacity and doesn't require an overnight stay. What opportunities are available to pre-sell large mileage punch cards to be the exclusive carrier to companies whose employees travel en masse? If the dollar is weak, should you increase your marketing overseas to encourage travelers to come here? What about locking up future revenue by offering sweeteners?

Second, do you want to be the absolute lowest price in the game? Would you rather have one $400 passenger and one empty seat or 2 $200 seats filled? From a straight fuel charge, that answer seems obvious. What about 2 $225 seats? Where is the break even point? If corporate associates know the answer, do gate agents? If there are opportunities to fill seats last minute, would a bid model be appropriate? How empowered are your front line employees to either make or save the company money? Where do they see opportunities and waste?

Third, is it ever appropriate to move away from unprofitable customers? While certain federal guidelines (as well as general good PR) require universal availability, is there data broadly available about the true cost of service? Does a small child plus a stroller weigh less than a larger child, both paying the same fare? Is there an opportunity to market a grandparents' package for mothers with infants in arms who make multiple round trips to the same location in a year?

Lastly, what other factors go into airlines' process management? Is it time for a complete overhaul of the air traffic control system to see if we can save fuel by redirecting plane routes? What about additional services inside airports such as individual TVs (as they have on some airplanes) for a separate charge? Or the ability to log on to Internet only in-flight? (For the sanity of all passengers, I hope that the ability to make phone calls never becomes a reality!)

There is a tremendous opportunity for the airlines committed to streamlining to emerge from this financial crisis stronger and leaner with bigger market shares than ever before.