LONDON, 18 August — There are many ways to gauge the current ill-health of the US airline industry. You could count the number of bankruptcies in the past 12 months (three, including last week’s dramatic filing by US Airways). You could speculate about upcoming bankruptcies (full marks if you are thinking United Airlines). Or you could visit a small desert town in California.
Victorville is the place where they park retired aircraft, wing-tip to wing-tip, shimmering in the violent sun. It is the world’s most famous plane cemetery. Go there now, however, and you will see something unsettling. Many of the aircraft appear to be brand new. Aren’t those Boeing 747-400’s painted in the livery of United? Yes, they are. And there are 14 of them.
Huge overcapacity is the most obvious of the problems besetting the airline industry. A year ago, 2 percent of the US’s active fleet was rendered idle. Today, with no fewer than 500 planes taking up space at Victorville, that figure has swollen to 10 percent. Soon it will rise still higher.
We know this, because all the major carriers in the US are entering a period of painful readjustment not seen since deregulation in the 1970s. It has been on the cards almost since early 2000, when passenger traffic and revenues first began to dip. It became all the more clear after Sept. 11, when terror fears further discouraged the flying public. Only last week, however, did the depth of the crisis come into focus. The outlook is dire, with all the big operators searching everywhere for new solutions, including in Britain and Europe.
The announcement by US Airways, though not terribly surprising, came as a jolt. Next day, American Airlines, (which has been trying to forge an alliance with British Airways), announced its own radical restructuring plan to keep it aloft. No fewer than 7,000 staff will be laid off by March and the airline will cut capacity by 9 percent. No sooner had we drawn breath than United Airlines said it would file for bankruptcy in a month if it could not find new ways to slash bloated costs and land the $1.8 billion in loan guarantees it is seeking from a skeptical federal government. Stock in United, though it picked up slightly on the announcement, was diluted by about 50 percent in the week.
Nobody denies that Sept. 11 did not help. United and American were the carriers that lost planes and employees. US Airways was especially hard hit, as much of its traffic originates from Ronald Reagan National in Washington DC, which remained closed for weeks. Other terror-related changes, including the wildly inflated cost of anti-terror insurance and the burdens of much tighter security screening at airports, have made matters worse. But other factors are involved. Some the airlines can only blame themselves for; others were out of their control.
Hindsight argues that most of the majors grew complacent during the boom of the late nineties when traffic around the world was ballooning. Carriers, anxious to avoid labor strife, gave in to huge pay demands from their workforces. United may be especially guilty in this regard. And, throwing caution to the wind, they ordered far too many new aeroplanes.
But one external force is behind most of the damage: the softening of the economy. Number crunchers at businesses everywhere have been discouraging travel by executives — especially when tele-conferencing will do — or ordering them either to make do with seats in the economy sections or on alternative no-frills carriers. Since September, leisure travelers have fallen away too.
The majors have been skirmishing with discount carriers for years. Most famous has been the growth of the peanuts-and-smiles airline, Southwest.
But never before has the threat from these mosquitoes been more serious.
Among them now is JFK Airport-based JetBlue Airways which, with a rapidly growing fleet of Airbus 320s with leather seats and real-time digital television for every passenger, has managed to post profits over six straight quarters.
The discount carriers have many advantages, not least operating costs that run between 50 and 100 percent beneath those of the majors. They achieve this with cheaper union deals, fleets that typically include only one model of aircraft — making training and maintenance more efficient — and by flying point-to-point with 25-minute turnarounds that is not possible for their much larger rivals. American’s boss, Don Carty, admitted that the airline now faces low-cost competition on 75 percent of its domestic routes compared with 65 percent just one year ago. (The Independent)
