Flying Smart
The tragic events of Sept. 11, along with an economic slowdown, competitive Internet ticket pricing, and uncertainty over the Iraq war, have forced big changes in old-style US airlines. Wary would-be passengers still aren't flying, and the higher cost of jet fuel hasn't helped. In 2002, US carriers collectively lost $10 billion. (They charged $4.1 billion of that for such security needs as bulletproof cockpit doors.)
But the news about the industry isn't all cloudy, and those sobering facts need some perspective.
Since the Wright brothers first flew, airlines in general have lost more money than they've made. Despite the end of government market regulation in the '70s, many big carriers were able to put off reducing huge labor costs or radically rethinking strategies to compete with new, low-cost airlines.
But with little chance of a big government bailout, they've had to use bankruptcy or the threat of bankruptcy to finally trim costs.
United declared bankruptcy last year; last week it announced an agreement with pilots that would cut more than $6 billion in costs over the next six years. US Airways emerged from bankruptcy earlier this week. That it did so in just eight months shows a willingness to do what it takes to stay airborne. The carrier cut its annual budget by $1.9 billion, much of that through wage and benefits concessions. It also emerges with a less expensive pilot pension plan. And it intends to deploy smaller jets that are cheaper to operate on short routes.
Also this week, American Airlines, the nation's largest carrier, may have avoided bankruptcy for now in reaching a tentative agreement with union negotiators. (In 2001, its pilots flew an average 39 hours a month compared with 62 hours for Southwest Airlines' pilots.) American's parent company, AMR, has been losing about $5 million a day since 9/11.
It's been a long learning curve for the big airlines, especially in dealing with their unions. Under the American accord, workers will take big wage cuts and be asked for higher productivity in return for stock options or a seat on the parent company's board. The company's CEO will take a 33 percent pay cut.
The industry's model remains Southwest, the only airline to turn a profit after 9/11. It has relied on high employee productivity, low overhead, flexible work rules, and use of underutilized airports.
The business of flying, which requires making big capital purchases in a supercompetitive environment, will be volatile for some time. Rapid restructuring has now become essential.
New union attitudes and a more cooperative management style should be the hallmarks of the best airlines.
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