Still Going Broke and Still Full
The airline sector is becoming more and more of a basket case every day. United, USAir, ATA and Hawaiian are in bankruptcy while American, Delta, and Northwest hover perilously close. And yet traffic levels have recovered fully from 9/11 and are on line to set records this summer. What gives? For starters, $55.00 fuel is not helping. From under $20 a barrel a year or so ago, these price increases have added millions of dollars of unplanned costs onto airlines.
So why don't the airlines just raise prices? They can't.
Airlines are suffering from a chronic overcapacity and inability to use mergers and acquisitions to rectify the problem. The announced merger of USAir and America West may solve some of this problem but the government largely exacerbates the problem by both propping up weak airlines and by making mergers very difficult.
And now the latest move by United and USAir to dump their pensions on the government may make the situation worse. Other airlines which have maintained their pension plans will now be at a competitive disadvantage as they have to make billions of dollars of payments to fund their pensions while United and USAir, both bankrupt, have dumped their obligations on the taxpayers.
So now the broke airlines without pension obligations and under court protection will bleed the remaining airlines. When will the sector get better? Anyone's guess but a few players will probably have to exit the scene before anything happens.