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Wed, Dec 31, 2003

ANN's 2003 Stories of the Year #3: Airline Turmoil

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 aviation.

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 wrote:

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 better.

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 worldwide."

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 Woes

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 carrier.

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 under.

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 President.

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.

FMI: Delta's Mullins Apologizes For Huge Perks; Is This Any Way To Run An Airline? Airlines: Finished?

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