• What's ticked?
• Accolades
• Contact us

c o l u m n s

• Cheap Charlie
• ChrisCrossings
• Err Travel
• Leocha
• Travel Notes
• Archives

Fly With Your Eyes Open
Charles Leocha · August 5, 2002

Here is my prognostication on the economic future of the airline industry. It takes no expert to say that changes are coming to how the majors deal with air travel. Just what those changes are going to be, and how are they going to take place is the big question.

Anyone who has read this column knows that I regularly skewer the majors for not following the lead of moneymaking airlines like Southwest. The truth is, they can't. With their bloated organizations, their investments in airport infrastructure, their heavy debt, their profit sapping unions and worst of all with their dependence on unions to approve almost every change regarding running the airlines their hands are cuffed.

Their only way out of the contracts and the debt and the accounts payable is bankruptcy. And, just like the rental car industry, that is just what they are going to do. I heard rumors that American Airlines has hired bankruptcy lawyers and United Airlines just admitted that they hired lawyers specializing in bankruptcy. We all know that US Airways has been tiptoeing along the bankruptcy tightrope for months. (It was before 9/11 as well.)

The airlines are going to go bankrupt one by one. Sooner than later, one of the major airlines will declare Chapter 11 bankruptcy. Whether it is United or USAirways with their massive losses or Northwest with its amazingly high debt levels or American Airlines which has perhaps the best overview of the airline economic world, makes no difference.

Even with the tens of billions of dollars that governments have sunk into keeping the airlines financially afloat and guaranteeing infrastructure, the airlines can't make it. Every time an airplane takes off, the companies lose money. That's a hell of a way to run a business.

Once one of the majors declares bankruptcy, the others will follow. In this case the airlines will call it "competitive bankruptcy." We have seen how like lemmings they "competitively" cut airfares one after the other until they are all bleeding red ink. All claim that they inflict these wounds upon themselves in order to remain competitive.

They will "compete" with the same zeal when it comes to going bankrupt.

It is the airlines' only way out of the impossible situation into which they have slowly but surely worked themselves. With one brilliant management decision after another, step by step, aircraft purchase after aircraft purchase, union contract after union contract, one after the other, in lockstep the major airlines have created a system that could not withstand a crack in their business fare revenue stream.

The airlines will still keep flying, but their debt payments will be delayed, their union contracts will be torn up, their municipal contracts with airports will all be part of a massive renegotiation and who knows what will happen with their frequent flyer liabilities.

Be prepared. Continue flying with your eyes wide open. There is one Definite - the playing field is going to change. Bankruptcy seems to have been the legal vehicle of choice for years.

There are a lot of people who feel I am wrong, but I'm afraid that I am going to be proved right.

Charlie Leocha is the Boston-based author of Travel Rights: Know the Rules of the Road and the Air Before You Go. Cheap Charlie appears every Monday on this site. E-mail him at leocha@aol.com or access his Web site.