Advertisement
YOU ARE HERE: LAT HomeCollections

The Nation

Major Airlines Struggle in a Jet Stream of Change

Low-fare carriers and high fuel costs keep up the pressure three years into a post-attack slump.

September 11, 2004|James F. Peltz | Times Staff Writer

Three years after terrorists used jetliners as weapons and sent commercial aviation into its worst slump ever, the airline industry remains mired in red ink and is facing dramatic change.

With few exceptions, the major carriers are in critical shape. Most of the largest -- American, United, Delta, Northwest and US Airways -- are still losing money even though the summer is the airlines' busiest season.

They have been pummeled by several jarring events since 2001, including the 9/11 terrorist attacks and this year's surge in fuel prices. But beyond these shocks, many analysts and industry executives say, something even more fundamental is going on: The airlines' traditional way of doing business is failing.

Since the attacks, the carriers have lost a collective $27 billion.

The growth of smaller, discount airlines such as Southwest, JetBlue and AirTran is one big factor. Their rise has cut into the larger airlines' share of the market and has helped drive fares lower overall.

That has been good news for the nearly 650 million travelers who board domestic flights each year. But it has robbed the major carriers of their ability to raise prices to offset their enormous costs and stop the bleeding.

The result: The $77-billion airline industry -- a linchpin of the U.S. economy -- could be flying straight into its biggest shakeout in a decade, analysts say. It might start this fall and winter when passenger traffic declines and the airlines burn through what cash they have left.

The changes could mean a new round of bankruptcy filings, one or more airlines going out of business and further cost cutting. Additional job losses among the 570,000 people who still work for the domestic airlines -- 52,200 in California -- are widely expected.

For the public, the turmoil promises a reshuffling of which airlines serve which cities and how often. Flights to some smaller airports could be reduced or lost, at least for a time.

"Somebody is going to disappear, although at this point it's hard to say who," said Ron Kulhmann, an analyst at Unisys R2A Transportation Management Consultants in Oakland.

Delta Chief Executive Gerald Grinstein, announcing a huge overhaul of the Atlanta-based airline Wednesday, sounded even more downbeat: "What we're now seeing is something that is so fundamentally different, there is no comparison to the past.

"This marketplace is at a very rapid state of change," he added, and entering "a new era."

Several carriers already are racing to restructure their operations and cut costs, but questions abound as to whether it's too little, too late. Consider:

* United, the second-largest carrier behind American and the busiest airline at the Los Angeles and San Francisco airports, has been in Chapter 11 bankruptcy proceedings since late 2002. No one is sure when, or even if, it will emerge from its court- supervised reorganization. In the meantime, United has stopped contributing to its pension plans and indicated that more jobs cuts will be needed.

* US Airways, only 18 months out of Chapter 11 proceedings, is listing toward another bankruptcy filing and perhaps liquidation. Its next trip to U.S. Bankruptcy Court could come any day now, threatening its 11 daily departures from Los Angeles.

* Delta also is perilously close to filing for bankruptcy. The restructuring unveiled by the nation's third-largest airline includes slashing as many as 7,000 jobs, or 10% of its workforce, in the next 18 months to save $5 billion a year. Yet "there remains a material risk" that Delta may have to file for Chapter 11 protection, possibly as soon next month, analyst Daniel McKenzie of Smith Barney said in a note to clients Thursday.

* Northwest and Continental Airlines, the No. 4 and 5 carriers, respectively, are struggling to break even. Continental, too, has stopped contributing to its pension plans for this year and expects to cut an additional 425 jobs as "continued losses jeopardize our survival," Continental Chairman Gordon Bethune said last week.

* Alaska Airlines, saying the industry's upheaval has "forced us to put aside notions of how we've historically operated," said Thursday that it would close its Oakland maintenance base and other facilities, and contract out the work instead. Those moves, and a recent streamlining of its management, will eliminate about 900 of the airline's 11,000 jobs.

With so many major carriers under severe pressure, some experts wonder how long it will be before one or more is grounded forever.

"We expect the next 12 months will see more change in the industry than the past three years combined," said analyst William Greene of Morgan Stanley & Co.

All told, the struggling large airlines carry 1 in 2 domestic passengers, and the collapse of any single carrier probably would disrupt U.S. air travel, at least temporarily. When Pan American and Eastern disappeared in 1991, thousands of passengers were delayed even though other airlines agreed to honor their tickets.

Advertisement
Los Angeles Times Articles
|
|
|