Oil Prices a Drag on Airlines

Even when the economy is strong and fuel is cheap, the airline industry is, perhaps, the most difficult business in America. Now, with oil prices soaring, that tough business has become just about impossible.

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ROBERT SIEGEL, host:

From NPR News, this is ALL THINGS CONSIDERED. I'm Robert Siegel.

Today, another casualty of high oil prices. United Airlines said it's getting rid of 70 planes. United says it can't afford the fuel to fly them, and will also close down its low-cost service called Ted. Even in good times - with affordable fuel - managing an airline is challenging.

NPR's Frank Langffit explains why it's so tough to turn a profit in the airline industry.

FRANK LANGFITT: To appreciate the hazards of running an airline, come here to the Smithsonian Air and Space Museum in Washington, D.C. and just look up. I'm standing in a new exhibit, America by air, and hanging from the rafters is a graveyard of famous brands. There's an old male playing from TWA, a twin prop from Eastern and a model of the old PAN AM Flipper. What happen to these companies? In a word - competition. Thirty years ago, the government deregulated the airline business, opening it to all comers. Things have never been the same.

Bob van der Linden is a historian with the museum.

Mr. BOB VAN DER LINDEN (Historian, Smithsonian Air and Space Museum): Without that government protection, a lot of these airlines really didn't know what to do. And in many cases, they've been so used to operating in a regulated environment, they really didn't know how to compete in the real world.

LANGFITT: Since deregulation, carriers have lost more than $13 billion, according to the Air Transport Association. Yes, you heard that right. Over the last three decades, the industry hasn't made any money. It's lost a fortune. In fact, more than 200 companies have disappeared. And that includes some low-cost upstarts. Remember Peoples Express out of Newark, or Independence Air and Washington Dulles Airport?

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LANGFFIT: But after a year and a half, Independence Air shut down. In recent months, surging fuel cost have forced more companies to close, like Aloha Airlines; or go bankrupt, like Frontier.

Dan Petree is dean at Embry-Riddle Aeronautical University in Florida. He says airlines just aren't built for today's high fuel prices.

Mr. DAN PETREE (Dean, Embry-Riddle Aeronautical University): The current crisis really focuses on the problems associated with $130 a barrel oil, and that didn't figure into anyone's business model.

LANGFITT: Airlines struggle for a number of reasons. For one, their fortunes are closely tied to the larger economy. The Smithsonian's Bob van der Linden explains.

Mr. VAN DER LINDEN: The industry is very cyclical. We have, you know, the economy now is either in recession or approaching, depending on your definition. People won't fly as much. So that puts great economic pressures on the airlines.

LANGFITT: And when conditions change quickly, it's hard for airlines to do the same. Company's have long-term commitment, like multiyear union contracts. They also have other big expenses.

Bill Swelbar is an air transport researcher at MIT.

Mr. WILLIAM SWELBAR (Research Engineer, MIT): Every time an airline goes out to buy a narrow body airplane today, just one airplane, $40 million.

LANGFITT: Michael E. Levine says all these factors make it tough to plan ahead. Levine served as a senior executive with Northwest and Continental. So, I had to ask him…

Why would anyone get in the airline business these days?

(Soundbite of laughter)

Mr. MICHAEL E. LEVINE (Senior Executive, Northwest and Continental): It's a - first of all, it's a fascinating business, the way its - at the entertainment level is you have a high tolerance for pain, it's like playing three dimensional chess on a 30-second time clock.

LANGFITT: And there's another attraction, Levine calls it, the adolescent obsession factor.

Mr. LEVINE: I really like airplanes and, you know, I don't think that's irrelevant. I doubt that all that many people go into manufacturing pipes because they really like pipes.

(Soundbite of song, "Come Fly With Me")

Mr. FRANK SINATRA (Singer): (Singing) Come fly with me, let's fly, let's fly away

LANGFITT: In the 1950's and 1960's, flying was glamorous. Tickets were expensive and only people with really money could afford them. The Smithsonian's Bob van der Linden recalls that back then, getting on an a plane was an event.

Mr. VAN DER LINDEN: Since it was more a middle class, upper-middle class affair to fly, people dressed, say, your Sunday best.

LANGFITT: Deregulation changed all that. New competition forced airlines to cut ticket prices and made air travel available to the masses.

Mr. VAN DER LINDEN: It's been estimated about 80 percent of the U.S. population has flown now, if not more. And if you can scratch together $50 to $100, you can fly.

LANGFITT: But for how much longer? With jet fuel up more than 80 percent since last year, companies are cutting roots and charging for checked bags. Ticket prices are rising and could go even higher.

Frank Langfitt, NPR News, Washington.

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