Airlines lost at least $2.2 billion between July and September, making it the worst quarter in history, according to David Swierenga, chief economist for the Air Transport Association, the trade group for major airlines. “It has never been this bad,” he says. And it’s likely to get worse.
Swierenga predicts the airlines could lose $3 billion or more in the fourth quarter–and $9 billion or more for the year. “Obviously, the industry is in precarious health,” he says.
The major carriers blame a drop in air travel following the September 11 attacks, lingering economic woes and higher jet-fuel costs for their losses. Many have cut their workforce and flight schedules to compensate. But that has not been nearly enough to bring them back into the black. US Airways has already filed for Chapter 11. United Airlines is threatening to do the same, and other carriers–particularly the smaller airlines-are teetering on the brink.
What does that mean for air travelers? In the short run, cheap fares–and lots of them–as airlines struggle to keep customers and attract new ones. Swieranga says airline revenues are down about 25 percent from 2000. Airlines have slashed fares to try and boost volume. But lower prices mean less revenue for airlines, so many are also cutting routes and switching to smaller aircraft to cut costs.
On Thursday United Airlines announced it would stop service to four airports in Europe and Latin America and shift to smaller aircraft on several of its routes. Earlier this week, the carrier revealed plans to close three reservation centers and a maintenance center, reduce its flight schedule and lay off 1,250 employees. The airline lost $889 million in the third quarter, and the current quarter may be even worse. To avoid a bankruptcy filing, United has asked for a $1.8 billion loan guarantee from the Air Transportation Stabilization Board, which administers the $10 billion federal loan-guarantee program established by Congress after the September 11 terrorist attacks.
A couple days after Delta Air Lines reported a $326 million loss for the third quarter, chairman Leo Mullin sent a memo to employees warning that the carrier would be forced to cut up to 8,000 jobs. And, after its whopping $924 million loss last quarter, the nation’s largest carrier, American Airlines, said it would cut 7,000 jobs by next March and trim its flight capacity by about 10 percent. For travelers, that may mean fewer flights to choose from and higher fares as airlines will have fewer seats to fill.
But the airlines’ financial woes won’t likely have much effect on most Americans’ travel plans in the near future. “Even with Chapter 11, the idea is to keep the entity intact and put new management in place,” says Button. “Clearly they want to maintain their passenger base. The airlines are trying hard not to anger or antagonize customers.”
Steven Morrison, an economics professor at Northeastern University and co-author of “The Evolution of the Airline Industry,” does advise travelers to be cautious about booking on an airline that might go bankrupt. “Even if the airline doesn’t go under, they may well pare flights or routes,” he says.
That shouldn’t leave a traveler stranded necessarily, just inconvenienced. A one-stop flight might be rerouted through a different airport, for example, adding air-travel time. Most airlines and ticket agencies allow travelers to sign up for e-mails that alert consumers to possible changes in their itinerary, but it’s still a good idea to call the airline the day before the flight to double check.
Beyond cuts and changes in flight routes, many travelers have already seen a noticeable decline in service: in-flight snacks instead of meals in coach class, charges for using paper tickets instead of electronically-issued tickets, and per-ticket fees to cover new security measures. Carriers are even charging for some services that used to be free, like flying standby on a different flight.
But airlines can only cut so much before they lose their customers to competitors that are able to offer better service–and, sometimes, better fares as well. Upstarts like JetBlue, a low-cost carrier that provides personal TV screens and leather seats for every passenger, have benefited from the major carriers’ losses. JetBlue and Southwest have seen their market share increase as major airlines struggle to hold onto their customers.
Experts, though, aren’t ready to give up on the major airlines just yet. “I would expect that no more than a handful of large carriers would file Chapter 11–and I wouldn’t expect any of them to actually go under,” says Morrison. “I am convinced that the major airlines will return to profitability, but it might take several years.”
