'Marketplace' Report: Trouble in the Skies

Silverjet, the business-class airline, suspended operations on Friday. United Airlines and U.S. Airways have suspended merger talks due to labor concerns. British Airways raised its fuel surcharge for the second time in a month. Marketplace's Amy Scott talks with host Alex Chadwick about turmoil in the airline industry and what it means for consumers.

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ALEX CHADWICK, host:

From NPR News, it's Day to Day. Well, it would have been the world's largest airline, but United Airlines and US Airways have thought better of joining forces. After two months of merger talks, they are going their separate ways. Marketplace's Amy Scott is here. Amy, how come this merger fell apart?

AMY SCOTT: Well, United Airlines has been looking for a merger partner for a long time. The idea being that joining forces with another big carrier could help the airline cut some costs and better compete with low-cost carriers and recently, you'll recall, Delta and Northwest agreed to merge adding a pressure on United. But merging costs a lot of money upfront that the airlines don't have right now and both United and US Airways have a lot of labor strife. One analyst I spoke to says put together two big airlines with problems and you'll get one huge airline with problems. He also said that there was some disagreement about who would run the new airline. So for now, a merger is off the table.

CHADWICK: Well, what is this going to mean for passengers?

SCOTT: Well, some analysts have said that a merger would have led to higher airfares, but everybody I talked to today says airfares are going to rise regardless, and the main reason is the cost of fuel. British Airways just announced is second fuel surcharge increase this month. One analyst I spoke to, Robert Mann, says consolidation could be good for consumers in that it could help keep these airlines flying.

Mr. ROBERT MANN (Airline Industry Analyst): The bad news is that fares have to rise anyway. The good news is that if consolidation occurs and the surviving companies become more stable, there will be a system around for customers to use at those higher prices.

SCOTT: Now, United is expected to keep looking for some kind of partner. It's reportedly trying to persuade Continental Airlines to at least form an alliance where they would share some operations but remain separate companies.

CHADWICK: OK, there's the United news. But there is another airline story today. This is an all business class airline that's shutting down.

SCOTT: That's right, what may be the last Silverjet flight left Dubai for London this morning. The all business model just doesn't seem to be working out. We saw MAXjet shut down last Christmas Eve, another one called Eos stopped flying last month. Silverjet was up against those high fuel costs and also, the credit crunch has made it difficult to get financing. The airline is still trying to work something out with investors but right now, it's not looking very good. I do have one bit of good news for air travelers, though, today. They'll no longer have to pay two dollars a bag for curb service on American Airlines. American dropped the fee to appease skycaps who said that their tips had dropped sharply when the fee was imposed. The airline also says it will lift a ban on tipping skycabs at Logan Airport in Boston.

CHADWICK: But they're keeping that 25 dollars-a-bag charge for anything that you...

SCOTT: That's right.

CHADWICK: Thank you, Amy. Amy Scott of Public Radio Daily Business Show at Marketplace.

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