Congress To Airlines: You're On Your Own
Leaders from the nation's largest airlines went to Congress last Thursday with hats in hand, looking for help to stem their billion-dollar losses and rising fuel costs, and came away with zip. "Congress is not going to underwrite losing airline operations," said Rep. John L. Mica (R-Fla.), chairman of the House aviation subcommittee. (Not this time, anyway.) "Some of our airlines must either reduce their costs dramatically or they will not survive." Apparently the committee thought $20 billion in aid after 9/11 should have been enough, and if the airlines are still losing money, they need to find ways to cut costs and restructure on their own -- or quietly fly off into the sunset. (Eleven passenger airlines are rated "junk bonds" by Standard & Poor's.) But Gordon Bethune, CEO of Continental Airlines, said what the airlines need is not a handout but tax relief. Twenty-six percent of the average ticket goes to taxes and security fees, he said.
From 2001 through 2003, the U.S. airline industry reported net losses of $23.2 billion, and it already has lost $1.6 billion in the first quarter of 2004. This $24.8 billion shortfall exceeds the total profits earned over the entire six-year period from 1995 to 2000. Industry debt currently runs well over $100 billion -- much of it due in the next 24 months. The situation is being exacerbated by a sustained run-up in fuel prices. The General Accounting Office told the committee, "The airline industry is being transformed into two industries, profitable low-cost point-to-point airlines that continue to grow and extend their reach into ever more markets, and the major network legacy airlines that account for the vast majority of the industry's losses. Although legacy airlines still control two-thirds of all domestic traffic, possess profitable overseas routes, and have a valuable domestic route structure, until these airlines are able to bring their unit costs closer to those of low-cost airlines and align their services with fares that passengers are willing to pay ... they are unlikely to be able improve their financial condition."