Major turbulence ahead for airlines

America's aviation system could be at risk of collapsing by the beginning of next year.

That warning from aviation experts has prompted some industry leaders to call for re-regulation, something considered almost heresy until now. Others are urging Washington to do more to rein in the oil speculators pushing up fuel costs.

But there is agreement among airline officials and analysts that Washington and the two presidential candidates need to recognize the severity of the crisis and take some action now to avert an economically crippling collapse in the near future.

"Unless something is done to move toward some kind of fix, we're going to see every one of our major airlines in bankruptcy," says Robert Crandall, former chairman of American Airlines. "If that isn't enough of a crisis to alert everybody, then I don't know what it will take."

As a result of the spike upward in oil prices, almost every major airline is now losing millions of dollars each quarter.

Unless the price of oil comes down, most are expected to run out of cash by the end of this year or the beginning of next. In a bid to stave off bankruptcy, they're already retrenching. They plan to lay off an estimated 25,000 employees, park hundreds of planes, and cut the number of flights they offer.

In addition, a recent study by the Business Travel Coalition, which represents corporate travel managers, estimates that 100 regional and 50 major airports nationwide will lose some of or all their air service by the end of the year.

"I've been trying to turn on the emergency sirens to raise awareness in Washington and back home," says Kevin Mitchell, chairman of the Business Travel Coalition in Radnor, Pa. "And I think people are finally beginning to [wake up]."

Airline officials visit Washington

Representatives of the major carriers were in Congress this week, urging action to discourage speculation in the oil markets. Some analysts blame that speculation for the almost doubling of the price of jet fuel in the past year.

Fuel costs used to be the airlines' second-largest operating expense behind personnel costs. Now it's their top expense, accounting for between 30 to 50 percent of airlines' operating budgets, according to the Air Transport Association, which represents the major carriers. The airlines are hindered by several things in hiking prices to offset fuel costs: First, they sell most of their tickets in advance, so most people flying this summer are using tickets that were bought before the recent jump in oil prices. So most of the time that planes take off this summer, the airlines will lose money even when the planes are packed. The major airlines are also constrained by stiff competition from low-cost carriers like Southwest, as well as by the fear that if prices go too high, people will simply stay home.

The solution, from the point of view of the major airlines, is to bring the cost of oil down.

"What we're looking for in the short term is for Congress to stop this speculation so we can get fuel prices down to a manageable level," says David Castelveter, spokesman for the Air Transport Association. "In the long term, we'd like to see the modernization of the air-traffic control system so we can continue to find ways to reduce our fuel burn."

1 | 2

Next