Why is the airline industry so unstable? How is and industry that has tons of customers so volatile? Unstable gas prices? That can't be it. Are the airlines undercutting that much? It seems like everyone has to deal with it, customers and employees.
While the true answer to this question will continue to elude even the most brilliant economists, allow me to offer my explanation:
First, you must understand that our highly evolved industrial economy relies VERY heavily on energy. But not just any energy... I'm talking about CHEAP energy. Believe it or not, the price of fossil fuels in the U.S. is still rather low relative to the price in other western countries. So, when the price of energy (oil) increases, economic activity slows. I will elaborate on this point.
When gasoline prices rise, consumers complain. So much in fact that most people miss the big picture. In reality, consumer spending on gasoline is a microcosm within the larger world of energy consumption in the U.S. You see, consumers can make short-term changes in their consumption habits. Businesses that rely on energy cannot do this as easily. Factories, electricity plants, transportation companys, and... yes, airlines are often faced with little choice but to pass additional energy costs to their customers. Sometimes they cannot successfully do this; in these cases the profit incentive ceases to exist and investment capital goes away (businesses close down and new ones do not take their place). Either way, a dominoe effect is activated that slows general economic activity.
Airlines receive this impact twice... one in the form of a depressed economy, and next in the form of higher fuel prices. The bottom line is squeezed from both sides (revenue and expense). (Not to say that airlines are the only businesses subject to this relationship... however air travel does appear to be historically more volatile to economic fluxuations than many other industies and airlines rely more heavily on low-cost energy more than many other industries). As a result, airlines (like any other business under similar circumstances) must choose to reduce production. That's when jobs are lost and pay is cut. If the profit incentive disappears altogether, businesses will close their doors.
The general question at hand asks about the "stablity" of the airline industry. If we assume that a 100% "stable" industry is always economically viable, is plentiful with jobs, and the profit incentive is ever-present, then perhaps this post will serve to explain one man's view as to why the airline business does not enjoy this level of "stability".
DISCLAIMER: I'm not saying this is good or bad. Also, notice that I am only addressing the question with the energy issue. Obviously air transportation is a complex business, and more variables contribute to it's economic viability (or lack of). However, I believe the most significant of these issue is, indeed, the price of energy.
