Airlines slash more costs
By Brad Foss
Associated Press
The airlines are carrying lots of baggage these days; it's just the wrong kind.
Business travelers continue to spend less. Pension and security costs are on the rise. Debt is growing. And the perceived aggravation of flying is propelling many travelers to drive or take the train for shorter trips.
So, with a dismal third quarter behind them, and the immediate future looking grim, major carriers are shrinking operations again.
They are unloading employees, real estate and aircraft as part of an ongoing effort to stanch the billion-dollar losses that have dragged their stock prices to historic lows.
"To the extent that anyone thinks large network carriers have been waiting for passengers to return, the announcements and actions taken in the last week should dispel that completely," said David Treitel, chairman of New York-based airline consultancy SH&E Inc.
In the past week, Delta Air Lines said it would lay off up to 8,000 employees, American Airlines said it would delay delivery of 34 jets through 2005, and Northwest Airlines said it would close a maintenance center and several ticket reservation offices. American announced in August that it would cut its payroll by 7,000. Aloha and Hawaiian airlines are looking at their own payroll trimming.
Industry consultants expect that before the year is up there will be even more layoffs and that major carriers will be forced to further pare the number of short-distance flights, especially in smaller markets.
"Every carrier has seen traffic in the shorthauls just go away," said Robert Mann of R.W. Mann & Co., a Port Washington, N.Y.-based consultancy.
The latest wave of cost-cutting came as the nation's largest airlines racked up roughly $2.2 billion in third quarter losses, putting the industry on a pace to lose some $8 billion for the second year in a row. US Airways was forced into bankruptcy two months ago and other carriers are desperately trying to avoid the same fate.
"It's certainly more than a bit discouraging as an equity analyst when the most frequently asked question is 'What airline is going bankrupt next?' And when the follow up is, 'No, I meant after United?"' Samuel Buttrick, a UBS Warburg analyst, quipped in a recent report.
As for travel demand, the fourth quarter is traditionally weaker because fewer business trips are taken around Thanksgiving and Christmas. Concerns about diminishing revenue have been exacerbated by the threat of war in Iraq.
Even without a war, though, the major carriers have plenty to worry about.
The number of available flights in September shorter than 250 miles declined by 18 percent in the past two years, according to the Transportation Department. By comparison, flights 250 to 499 miles long declined by 10 percent and flights longer than 1,000 miles fell by 3 percent.
Even with these capacity reductions, average fares in September were 18 percent below 2000 levels, according to the Air Transport Association, an industry group.
A major contributing factor to the cheaper fares has been the increased competition from low-cost carriers, whose market share has increased by 19 percent over the same period of time, according to Transportation Department.
