Wednesday, June 08, 2005

Airline Economics II

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.

1 comment:

  1. Hi Rob,

    I am conducting some research into blogs that contain strong elements of a work-related nature. More to the point, by work I mean paid employment or paid self-employment.

    I found your blog by surfing the Internet and having read your blog very briefly, I feel that it meets this criteria, i.e. you comment on the work you do for a living in some shape or form. A much more in-depth definition of a work-related blog can be found by following the link below:

    However, if I am mistaken please ignore this email, or if possible please reply to my message to say that this is the case.

    To keep things short I've designed a quick questionnaire to help me find out more about the people who blog about their work. Currently there is no research been published on work-related blogging so please excuse the generality or simplistic nature of the questions.

    You can access the questionnaire via the link below. There are nine questions in total and all that I require of you is a sentence or two as an answer for each question. Please answer the questions in a style that makes you feel comfortable, as I am well aware of problems some employees have had with blogging about their work. My statement on privacy (at the end of the message) will hopefully further assure you on this matter. A final question asks whether you would be willing to partake in future research - this would be in the form of a friendly and informal interview, and by future I mean many months ahead. What is more, like with the questionnaire, anonymity and confidentiality would be protected at all times.

    For further information and ensure that you feel as safe as you could do in responding to an unsolicited request please consider following links at the end of this message for further information on myself, my blog, my institution, my research intentions, my research conditions, and my statement on privacy.

    Thank you very much for taking the time to read my message and I thank you in advance if you go on to help out with my research.

    Yours faithfully

    James Richards - my homepage - my blog - details of my institute - my research intentions - my research conditions and statement of privacy


I welcome feedback. If you have any comments, questions or requests for future topics, please feel free to comment. Comment moderation is on to reduce spam, but I'll post all legit comments.Thanks for stopping by and don't forget to visit my Facebook page!

Capt Rob