More Turbulence Ahead for Airlines Major air carriers are looking high and low to cut costs, but fuel prices put profits out of reach. Dave Bond, senior transportation editor for Aviation Week and Space Technology, outlines the air industry's challenges.
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More Turbulence Ahead for Airlines

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More Turbulence Ahead for Airlines

More Turbulence Ahead for Airlines

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JOHN YDSTIE, host:

Northwest Airlines is just one of the big six airlines facing labor and financial troubles. United Airlines is currently operating under bankruptcy; so is US Airways. Meanwhile, Delta and Northwest are teetering on the brink of Chapter 11. To find out why the industry is in so much trouble, we turn to David Bond, senior transportation editor for Aviation Week & Space Technology.

Welcome to the program.

Mr. DAVID BOND (Senior Transportation Editor, Aviation Week & Space Technology): Thank you.

YDSTIE: First of all, how do you see this strike playing out? Is it likely to drive Northwest into bankruptcy?

Mr. BOND: I don't know that the strike will per se. Northwest has said for a couple of months now that in order to avoid bankruptcy or the risk of bankruptcy, they need concessions from all of their unions, not just the mechanics, totaling about $1.1 billion, and they also need some legislative relief. There are bills in Congress now to make it easier to convert a defined benefit pension of the type they have to a defined contribution pension like a 401(k), and they need help on that as well.

YDSTIE: Can an airline like Northwest really hope to safely run its full schedule of flights with replacement mechanics?

Mr. BOND: Yes, they can. Number one, they have other people at the airline who know how to maintain airplanes who are not part of the union. Number two, they've brought in people from outside, and as one of them said a couple of weeks ago, there are any number of mechanics around who don't have jobs right now because of what's been happening in the industry over the past several years. So logistically it's feasible for them to do it. And they'll also be watched like hawks by the FAA in terms of keeping everything safe.

YDSTIE: Beyond high labor costs, what are the other factors affecting the industry? Certainly fuel costs have got to be one of them.

Mr. BOND: Fuel is what has got them over a barrel now. No pun intended. The big six airlines, apart from the four you mentioned, also American and Continental, by and large, they've done a very good job over the past few years of reducing their costs. They had a lot of things to do and they've done a lot of them including some very big concessions from labor everywhere except Northwest at this point. What they can't handle now are the fuel costs. And the fuel costs have sort of offset all the benefits they've gotten from their cost reductions. So that if it weren't for the fuel prices, if fuel were priced as it were, say, a year ago, they would have made money collectively during the second quarter; as it is, a couple did anyway.

YDSTIE: So are they focusing on labor costs because it's really all they can control right now?

Mr. BOND: No, not at all. They've really looked high and low for ways to cut money. What they have to do now is increase their fares, and they are no longer in a position to control their fares. The low-cost airlines, which have low fares, they are now in so many markets, they have so much of market share that by and large, they control prices.

YDSTIE: Beyond filing for bankruptcy, what other options do these big six airlines have?

Mr. BOND: Not a lot if they get to the point where they can't sustain themselves. What they've been doing since 9/11, the big six have been--well, the ones who are not yet in Chapter 11 have been borrowing to the hilt. They've borrowed on just about everything that they can in terms of collateral, and they're borrowing money to cover their losses and stay in business because nobody really wants to go into Chapter 11. It gives you a lot of advantages, and it gives you a really good chance to reorganize, but it costs enormous amounts of money. There's a lawyer for every operating executive practically and you can't do anything substantial without a court telling you that it's OK. And none of them want that.

YDSTIE: Dave Bond is the senior transportation editor for Aviation Week & Space Technology.

Thanks for coming in to talk to us today.

Mr. BOND: You're welcome.

YDSTIE: You're listening to ALL THINGS CONSIDERED from NPR News.

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