Despite woes, U.S. airlines prove resilient

Failure of one carrier not likely to hurt industry

Void likely to be filled by rivals

Rapid growth, economic impact since deregulation

Katrina's Wake

September 11, 2005|By Meredith Cohn | Meredith Cohn,SUN STAFF

Four years after the Sept. 11 terrorist attacks that stunned the world - and aviation - the airline industry finds itself coping with spiking fuel prices exacerbated by Hurricane Katrina. Some airlines were struggling with labor and energy costs before the storm hit, and airlines are expected to lose $8 billion to $10 billion this year, the second- or third-worst year in their history.

But even as airline troubles have made headlines in recent years, experts say the industry has showed a remarkable ability to bounce back after 2001. That begs the question: When an airline folds, does it matter?

Obviously, the travails of Delta, Northwest and others have great consequence for their employees, investors and ticket-holding customers. And huge names have disappeared over the years - Pan Am, Eastern, Braniff - with hardly a trace. But after a generation of deregulation, the industry as a whole has proven resilient, analysts say. Passengers traveled at a record pace last year.

"People are going to have to move by air, and there is going to have to be some means of doing that," said Mark Gerchick, head of George Washington University's graduate program in aviation. "It doesn't mean any one carrier will have to continue doing it."

The industry has grown rapidly since deregulation in the late 1970s. Airlines collectively now contribute about 3 percent of the gross domestic product directly. When the spinoff from a half-million workers' paychecks is added, the contribution is closer to 8 percent. Its impact is similar to that of the energy and communications industries, experts say.

But the names have changed. Pan American World Airways, Eastern Airlines and Braniff International Airways shut down in the late 1980s and early 1990s, mostly unable to compete after deregulation. Several smaller airlines folded after the 2001 attacks caused people to stop flying for a time. Several major carriers, hurt by low-cost competitors that grew rapidly in recent years, have aggressively shed labor costs only to be faced with record jet fuel bills.

The downtrodden airlines reported a variety of clouds on the horizon last week alone:

U.S. airlines asked Congress and the White House on Friday for $600 million in tax relief, to offset spiking energy costs. Commercial airlines are seeking a year's reprieve from the 4.3-cents-per-gallon federal tax on jet fuel.

United Airlines said that its long-delayed exit from bankruptcy could come in February but warned that its shares will be worthless and creditors might not get as much as they'd like.

Delta Air Lines, seeking to avoid bankruptcy, plans to cut 1,000 jobs in Cincinnati, its second-largest hub, and sell 11 airplanes.

Northwest Airlines, also seeking to avoid bankruptcy, said it would resume talks with striking mechanics, who are challenging the carrier's need for $176 million in concessions and outsourcing or elimination of 2,000 jobs.

American Airlines said it would seek to save millions by renegotiating its lease to drop half its gates in St. Louis, which it largely had stopped using in 2003 when it scaled back its hub.

America West and US Airways' planned merger could face challenges from workers at America West who would have less seniority than workers at the other, older airline.

While there isn't consensus about how deep the pain would be if one or more of the troubled carriers dissolved, or lingered in financial disarray, few experts believe the upheaval would mean long-term consequences for the overall U.S. economy. Further, the problems are less likely to be felt by the traveling public as a whole than by individual investors, suppliers and employees, who to a large extent already have absorbed some of the blows.

Even with all of the grim news, experts say no airline is likely to liquidate soon because they all have cash coming in to keep them afloat. Even if some do scale back, other carriers would move in to take their places in many cities.

That's what has happened in the past.

Eastern flew from New York to Florida through a large hub in Atlanta before it liquidated in 1991. After it did, Delta quickly took over those routes. After Pan Am left John F. Kennedy International Airport in New York, several others filled in there. More recently, discount flier Southwest Airlines took over space abandoned in Pittsburgh by US Airways and in Philadelphia abandoned long ago by Eastern and others.

At Baltimore-Washington International Airport, Southwest's growth more than made up for losses at US Airways. And when ATA Airlines scaled back at Chicago Midway Airport, a bidding war ensued among low-cost carriers for the gates being abandoned.

That's not to say the industry's upheavals cause no pain.

Not all of the service that US Airways provided in Pittsburgh, for example, has been replaced, costing jobs, inconveniencing travelers and hurting business at the airport's restaurants and shops. And while Southwest is growing fast in Philadelphia, a wing of that airport remained empty for about a decade.

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