By DAVID MOON, Moon Capital Management
In June, United Airlines announced it would begin offering two-way e-mail
capability on its flights by the end of the year. German airline Lufthansa
and Sweden's Scandinavian Airlines followed suit, planning to let passengers
send e-mails, check stock prices and pursue their favorite art Web sites from
At least United Airlines leads the airline industry in something other than
begging the government for money. Too bad it doesn't concentrate on
running an airline.
Trying to emerge from bankruptcy, how does United try to turn around its
fortunes? Increase market share? Cut costs? Concentrate on
more profitable routes? Look for ways to cut fuel costs? Those are
boring ideas. United is turning to the Internet to try saving the
business. Apparently it missed the dot.com boom-and-bust memo.
United is also trying to save itself in the kitchen, not the skies. In
April, it began selling 'restaurant quality' meals on selected flights, in an
attempt to increase revenues. For $10, passengers can enjoy a grilled
turkey panini sandwich, fresh fruit and a chocolate cookie.
Although I am an accomplished eater, I have no idea what a panini is.
I'm sure not going to pay ten dollars to take the chance eating one, especially
if I'm nowhere neat my own bathroom.
And it's not just the airlines, either. Facing slumping sales and a
sagging stock price, McDonald's has determined the root of its problems: its
customers need wireless Internet service. The company erred when it
abandoned the food business to concentrate on kids' trinkets and playgrounds
years ago. Now McDonald's is targeting geeks and wireless gadget
guys. I am a gadget guy. I own ' or want to own ' every computer toy
known to man.
Wireless Web access will never attract me into a McDonald's. A really
good hamburger would.
Several years ago, Peter Lynch used the term 'the bladder years' to describe
a period in which many U.S companies bought unrelated businesses. Lynch's
compound metaphor loosely compared the act of emptying one's bladder with
pouring money down the toilet. During the 1960s, businesses were eager to
put money I all sorts of unrelated ventures, most of which diverted their
attention from their core competencies ' and turned out to be wasted energy,
effort and money.
The 9-11 attacks did not cause the airlines' problems. United was
already facing bankruptcy; the government bailout was just another example of
the federal government's 'fiscal bladder problem.'
The only large airline that consistently makes money is Southwest
Airlines. Southwest doesn't serve meals. It has the lowest costs in
the industry. Its entire fleet consists of the same aircraft, lowering
maintenance costs. There is no first-class, reserved seating, wireless
Internet service or in-flight massages. They simply fly people from place
Be skeptical when a company appears to forget its core
David Moon is president of Moon Capital Management, a
Knoxville-based investment management firm. This article
originally appeared in the News Sentinel (Knoxville, TN).