Small Airlines Face Financial Turbulence
MICHELE NORRIS, host:
Now we're going to spend some time looking at one sector of the airline industry that's been experiencing some financial turbulence: low-cost airlines. ATA Airlines announced today that it's shutting down operations after losing a key government contract. It's the second carrier in a week to suspend operations. On Monday, Aloha Airlines said goodbye and permanently grounded its fleet.
David Field is the U.S editor of Airline Business Magazine. He joins us now.
Hello, Mr. Field.
Mr. DAVID FIELD (U.S. Editor, Airline Business Magazine): Hi.
NORRIS: Quite a week, huh?
Mr. FIELD: It's a week that will be remembered, a week that will go down in airline history as the week in which we learned something about the future direction of the U.S. industry. You know, just a few weeks ago, we were talking about the prospect of mergers, big mergers. And they would be the savior of the industry as fuel prices keep going up. I think the short-term future of U.S. airlines is that little guys, smaller players like Aloha, like Champion and other airliner - charter airliners - is going to shut down, are simply going to disappear, go out of business because they cannot pay for fuel, and they cannot compete.
NORRIS: Are you saying that other small, low-cost carriers are going to be heading in the same direction, toward bankruptcy?
Mr. FIELD: I think that there's a real possibility. If fuel keeps on going the way it is - and bear in mind that airlines pay more than you and I do for fuel. At the same time, the economy is staggering into a slowdown. People are traveling less. So-called discretionary travel is drawing up. People aren't flying to Orlando to see grandma.
NORRIS: Now, I was going to ask you if these two back-to-back bankruptcies at ATA and Aloha, if it was actually a coincidence or if they were actually connected. It sounds like you're saying they very much are connected.
Mr. FIELD: Oh, very much so. Each of these airlines had unique and really terrible problems. And they might have been able to deal with these problems had the cost of fuel not gone as crazy as it has, and had the cost of fuel not gone as crazy for as long as it has, and there's just no prospect of relief.
NORRIS: David, I want you to explain something to me because for a time, it seemed that the low-cost airlines had the winning formula for success in the industry, especially when compared with the big carriers like United, Delta and Northwest Airlines. Has that now changed with the rising price of fuel?
Mr. FIELD: No. The big guys don't have it, and the little guys are losing it. The entire industry is in trouble; mostly, it's oil. Labor is also an increasingly contentious issue, particularly with the big guys. The only people who are making money are the big guys, but they're making their money on international routes. United Airlines makes a lot of its money flying to Japan and China. Delta makes a lot of its money, almost all of its profits, flying from Atlanta and New York into Europe, particularly eastern Europe. They don't make money flying from Chicago to Houston to Des Moines to Salt Lake City.
NORRIS: So what does this mean for customers? Can the low-cost carriers continue to offer bargain fares? What does it mean for people who need to go to Des Moines or Salt Lake City to see grandma or Aunt Millie?
Mr. FIELD: Everyone in that situation is going to have to shop much more carefully and be prepared for fewer choices. Fewer flights, more crowded flights and higher fares. Every one of these airlines - big, little, small, in-between - is pulling down, abandoning routes that don't make money.
It used to be that the airlines would run a marginal route simply because of the network effect. You know, you get 32 passengers coming off the flight from Des Moines and they transfer in Chicago, and you make money on them. And that's not the case anymore. Every flight, every mile, every seat has to pay its way or it goes away. And part of that means that the kind of flights we saw last summer, where 90 percent of the seats were full, it's going to be that way for the rest of this winter - the usually slow season - and the rest of this summer. There will not be elbow room anywhere.
NORRIS: David Field, thanks so much for talking to us.
Mr. FIELD: It's my pleasure.
NORRIS: David Field is the U.S. editor of Airline Business Magazine.
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