Airline woes still deepening
US Airways is industry's first major post-9/11 bankruptcy. Is United next?
America's major airlines are facing their toughest financial test in a decade, if not ever.Skip to next paragraph
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But for the flying public, the airlines' troubles may signal a new era in the skies that could be less complicated by modifying such things as the frustrating fare structure and the rules for Saturday-night stays. Yet it could also make smaller cities less accessible.
The nation's still-sputtering economy and fierce competition from upstart, low-cost carriers are prompting the changes. But so far, the much-anticipated summer travel season has failed to produce the big gains in passengers and revenues the major airlines had counted on to jump-start their recovery. Many of the big-spending business travelers they depend on for profits remain grounded.
As a result, the airlines are continuing to run heavily in the red, losing $5 billion in the first half of this year alone. Over the weekend, US Airways became the first major carrier to file for bankruptcy since Sept. 11. United Airlines, which is losing just under $1 million a day, could be next to face Chapter 11 proceedings despite the company's continued insistence that it will not opt for such protection from creditors. The situation is similar to the early 1990s, when major carriers Pan Am and Eastern Airlines went out of business. Others like Continental went into Chapter 11 but then emerged stronger.
"In the early 1990s, those that didn't go into bankruptcy escaped it by a hair," says David Swierenga of the Air Transport Association, the major carriers' lobbying arm. "We're already in similar, very tough times that threaten bankruptcy for many of the airlines."
Many analysts contend that a shakeout is long overdue for the major carriers, which let their costs skyrocket in the '90s. For instance, United, in a bid to win approval from its pilots for a proposed merger with US Airways, gave them a record-breaking, industry-leading wage hike in 2000. That set the bar for pilots at other airlines, who also negotiated big salary increases. When the Justice Department nixed the merger, United was left with increased labor costs.
Then the recession hit hard in 2001. Even before Sept. 11, the major airlines were struggling financially, because business passengers, who pay five times as much as leisure travelers, stayed away. After the terrorists struck, shutting down the nation's aviation system for the first time in history, that already bad situation deteriorated rapidly.
The airline's usual economic woes associated with recessions were compounded by terror fears that kept some passengers grounded, and by a new "hassle factor" due to the increased security. Congress stepped in with $5 billion in grants and another $10 billion in loan guarantees. Even so, the major carriers lost a record $7 billion dollars last year.
For the past several months, United, US Airways, and other carriers have been negotiating wage and benefit concessions from their employees, with some limited success. Last week, US Airways won $465 million in wage cuts from its pilots. Still, that wasn't enough to fend off the Chapter 11 filing.