Airline Industry Close to Flying into Bankruptcy

Submitted by Jen Jones on Fri, 07/10/2009 - 1:22pm

Airline Industry Close to Flying into Bankruptcy

The airline industry is scrambling to reduce summer travel rates as incentive to get people flying again. Many industry insiders believe the fare slashing is an attempt to boost revenue for fear of the industry flying straight into a mountain of bankruptcy proceedings.

The long-suffering airline companies may not qualify as "too big to fail" but there is little chance that a government bailout won't at least be discussed once profits are announced for the second quarter later this month. Many analysts are reporting that air travel is down significantly from last year, which in retrospect seemed like only the beginning of the recession's worst wave.

Keeping things positive for the likes of United and USAir is the fact that load numbers have increased. Load numbers quantify how full a plane is when it takes off. There is more to the increase in load factor, however. Since even before the recession, airlines have been gradually reducing the number of planes that are in the air, which is why carry-on room is at a premium and in-flight bathroom lines often extend beyond first class. Thus, more plans are full.

Another contributing factor to the industry's ability to deflect a wave of bankruptcies is the cost of oil. Since the gas price decline began last fall, airlines have been granted a reprieve. Should oil spike again, trouble may start soon.

Also looming over the tail fins of the major airlines are the upcoming slow seasons of fall and winter. Simply put, people fly less in those times, despite the holidays. An official for an industry analysis group stated, "If I had to make a choice, I'd say you won't see any bankruptcies before the fourth quarter of this year."

The mere mention of the possibility may send additional shudders in confidence throughout Wall Street when the earnings are made public. The only way to stave off another financial crash is to find a way to get people in the air. Or find a way to make more cuts. Since 2001, the airline industry has collectively reduced staff by 150,000 personnel and also drastically eliminated salary increases and benefits. While overall profits are much greater than they were in 2000 for the industry, employee pay and benefits have been decreased by an exponentially larger number.

People who have been in an airport recently did not have to look far to find evidence of the industry's actions. Longer check-in lines, vacant customer service kiosks and luggage late to the return centers are all signs of less people working.

Additionally, computerized check-in stations are popping up everywhere, a sure sign that an individual has been replaced by a machine. What value automated check-in kiosks may offer in convenience can be lost in customer service the moment a passenger has a question.

According to the run of television ads being seen across major networks lately, it appears the only route to rescue is by way of drastic fare reductions. Southwest Airlines is offering some one-way flights for as low as $30.00.

Still, experts foresee troubling times ahead for the industry. While more staff cuts and reduced ticket prices may help them limp along for the next couple of quarters, 2010 looks as if it may be a rough year for captains, flight attendants and luggage handlers. In turn, watch for challenges in the rental car business as well.

But let's focus on one economic tragedy at a time.

Raleigh bankruptcy. Durham bankruptcy. Fayetteville bankruptcy. Wilson bankruptcy. Sanford bankruptcy.

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