Was Soda Killing US Airways?

Beginning on March 1, coffee, tea, water, juice, and soda will once again be free for US Airways (NYSE: LCC  ) coach passengers. Great news, right? Sure -- just don't ask management to be happy about it.

"US Airways was the only large network carrier to charge for drinks, and that put us at a disadvantage," said CEO Doug Parker. Soda wars meets airline wars.

This positioning is astounding. Charging $2 for a Coke, if I'm reading Parker correctly, was like passing along a fare increase. Passengers noticed and, consequently, chose to fly Delta (NYSE: DAL  ) , AMR's (NYSE: AMR  ) American, UAL's (Nasdaq: UAUA  ) United, or another carrier. Can you imagine?

Actually, I can. Bad press rained on US Airways after it announced that once-complimentary services -- including in-flight beverage service -- would be sold a la carte. As blogger Wayne Schultz described it, " US Airways introduces new free beverage service called bathroom sink."

Southwest Airlines (NYSE: LUV  ) subsequently piled on by poking fun at its price-gouging peers in a series of TV ads. Apparently, the strategy worked.

And that should scare the beejeezus out of hopeful airline investors.

Yes, I know some analysts are touting these stocks as potential winners over the next six to 18 months. They may very well be right. Oil has recently dropped under $40 a barrel. If prices were to remain below $50 a barrel for the bulk of 2009, cash-crunched carriers could see a windfall.

What won't change are the broader implications of Parker's statement. He won't say so, but tacitly he's admitting that U.S. Airways has zero competitive advantage -- that it has nothing to learn from innovators like Apple (Nasdaq: AAPL  ) . Its only viable strategy is to keep doing what everyone else does.

Yeah, that's comforting.

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Fool contributor Tim Beyers had stock and options positions in Apple at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. The Motley Fool is also on Twitter as @TheMotleyFool. The Fool's disclosure policy doesn't understand how an airplane taxis. Shouldn't a taxi taxi?


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 26, 2009, at 2:32 PM, kdeken wrote:

    Competitive advantage is in the eye of the beholder. Keep your free Coke and spend your money on your pilots who will keep me safe.

  • Report this Comment On February 27, 2009, at 4:13 AM, syknyt wrote:

    The last paragraph asserts that U.S. Airways has no competitive advantage. I agree that the bad publicity from charging for soft drinks may have encouraged passengers to fly on other carriers such as Southwest. However, I failed to find any directly supportive arguments of the main assertion. I frequently trade LCC and UAUA and I am genuinely interested in this point. If this assertion is true, I would like to find supporting arguments that may compare it with other legacy carriers. These might include categories such as innovative sales and marketing, business agreements with discount travel brokers like Travelocity, and their market share in more profitable fares such as international flights. This is an important point that may deserve more support and information.

  • Report this Comment On February 27, 2009, at 12:10 PM, TMFTheDoctor wrote:

    "Now the other great invention of the first half of the century was the airplane. In this period from 1919 to 1939, there were about two hundred companies. Imagine if you could have seen the future of the airline industry back there at Kitty Hawk. You would have seen a world undreamed of. But assume you had the insight, and you saw all of these people wishing to fly and to visit their relatives or run away from their relatives or whatever you do in an airplane, and you decided this was the place to be.

    "As of a couple of years ago, there had been zero money made from the aggregate of all stock investments in the airline industry in history.

    "So I submit to you: I really like to think that if I had been down there at Kitty Hawk, I would have been farsighted enough and public-spirited enough to have shot Orville down. I owed it to future capitalists."

    -- Warren Buffett, 1999

  • Report this Comment On February 27, 2009, at 4:38 PM, stevefilson wrote:

    Or, we could have kept it regulated. When it was, it made money. Thirty years of deregulation it lost money(as an aggregate industry). Is there a relationship here?

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