Airlines In Turmoil
The year 2003 saw
commercial passenger aviation continue to ebb in the wake of the
9/11 attacks, war in Iraq and the SARS epidemic. In
August, we wrote:
US Airways is in Chapter 11 bankruptcy; United's stock is at
1950s prices, as it slides toward Chapter 11; AMR's saying it's
going to be many years before record losses are made up; Boeing
Credit is looking at $1.2 billion in UAL's debt, possibly about to
become "non-performing" -- Where will it end?
September 11 changed the world. For one thing, it reduced the
amount of air travel that people wanted to get themselves into. For
another, it changed the regulatory climate that surrounds
US Airways came out of Chapter 11, leaving United Airlines and
others still negotiating with courts and creditors. Air crews
suffered huge cuts in benefits and pay -- if they weren't laid off
altogether. And finding work... "fahged abouddit." In August, we
Pilot hiring levels
sank to the lowest level since 9/11/2001 in July as the airline
industry dealt with the soft travel market and economic
uncertainties. A total of 268 pilots were hired in July. AIR, Inc.
projects the industry will hire around 5,000 new pilots in 2003.
[In February, that projection was for 7075; by May, it had slipped
to, "up to 6000." 5845 pilots were hired in 2002, a year without
the Iraq "war" and SARS --ed.]
In July, 45 of the 194 total (23%) airlines/operators reporting
to AIR, Inc. hired pilots. The major airlines hired 24 pilots with
three of the 14 carriers expected to hire over the next several
months. In the national airlines, the most active segment, 6 of 32
hired a total of 89 new pilots. The jet operators hired 63; non-jet
companies hired 48. As of July 31, the total number of pilots on
furlough increased to 9,517 compared to 9,174 (9.41%) out of the
total of 94,571 U.S. airline pilots.
The summer travel season
could not save the domestic major airlines from their economic
slide downward. Though several of the carriers posted profits for
the second quarter, the bottom line on their profit sheets included
one-time payments, from the Transportation Security Administrations
cash payments granted under the 21003 Emergency Wartime
Supplemental Appropriations Act. Low-fare carriers performed much
The Department of Transportation insisted in June that there is
a runway at the end of this dark, steep glide path. Delivering the
keynote address to the IATA convention, Secretary Norman Mineta
issued the "Washington Proclamation."
Mineta (right) said, "In recent years, many of the world's long
standing and restrictive bilateral agreements have been replaced by
more liberal open skies agreements. This liberalization has been
successful because it produces public benefits that are simply not
possible under restrictive regulations. Liberalization provides
airlines with the opportunities and incentives to become more
efficient. It provides airlines with new business opportunities
while strengthen existing operations. This freedom to grow and
compete should be at the heart of every aviation agreement
But it's not clear if multilateralism will put passengers back
on planes. Clearly, the very landscape of the industry has changed.
For even as full fare airlines continue to struggle, trying to stem
the tide of red ink that washes over their books, budget carriers
are doing great business. That's led to a rash of new budget
airlines worldwide. The days of a gourmet meal at 35,000 feet are
clearly over. People wants buses in the sky.
Even those big-budget airlines are starting to offer low-fare
rides. United, for instance, announced its low-fare entry into the
market in November.
United's Low-Cost Carrier May Not Be The Answer To Airlines
Hello, Ted. Short for "United," the new airline launches this
week, as bankrupt UAL hopes to dig out from under the financial
rubble with an alternative to its higher-cost, traditional
But the question is, can Ted do the job?
Henry Harteveldt, an airline and travel analyst with Forrester
Research in San Francisco (CA) tells the French news agency AFP
travelers will want Ted to be "everything they expect from United
Airlines and then some." He suggests United would be better off
overhauling the existing airline to be more accommodating to
business travelers. Ted hasn't announced any fares yet.
Ted's initial fleet will consist of four Airbus A320s whose
156-seat cabins will have no first class. By the end of next year,
Ted plans to have 45 aircraft in the air. About half will be based
at the United hub in Denver (CO).
Airline CEOs also came under fire and some didn't survive.
American Airlines CEO Don Carty was among those shown the door. One
day after he pressured AMR unions into huge concessions, someone in
management let it slip out that there was a double-secret executive
retention bonus still on the books -- and bankrupt-proof fund that
would compensate American managers even if the airline went
As we reported in April, it was all too much for Carty.
The AMR Board of Directors accepted the resignation of CEO and
Chairman Don Carty (right) Thursday. The Board named Edward A.
Brennan as Executive Chairman and current President and COO Gerard
J. Arpey as the new Chief Executive Officer. Arpey continues as
Ed Brennan, on behalf of the AMR Board of Directors, thanked Don
Carty for his years of service and dedication to the company. They
were especially grateful for his stewardship during the most
difficult years in aviation history.
Delta's Leo Mullin,
under fire for his perk package, announced in November that he
would retire. Even so, Mullins' exit benefits stunned an
increasingly skeptical industry:
Mullin will receive a retirement benefit based on his
participation in Delta's broad based-pension plan and on his
agreement with the Board of Directors when he came to Delta in
1997. In addition to his actual Delta service, the agreement
included credit for 22 years of service, which reflected pension
benefits Mullin relinquished when he left his previous employer to
join Delta. His total earned retirement benefit is valued at
approximately $16 million, pre-tax, most of which was previously
funded and disclosed.