Airlines Face Bankruptcy
(September 17, 2001)
Along with the calamitous drop in air travel
following last week’s terrorist attacks, the additional spending
needed to meet newly implemented airport security measures is
leading to catastrophic losses for the airline industry. Enough so
that more carriers may go out of business as did Midway Airlines
last week. All this signals bad news for the
traveler.
Airlines on the Edge
On Thursday
(September 13), the International Air Transport Association, which
counts 266 airlines as members, estimated the losses at about $10
billion this year. U.S. airlines are reacting quickly by cutting
onboard service and flights, and by furloughing personnel. The only
airline not reducing their schedule is Southwest.
America
West Airlines announced on Saturday (September 15) that it will no
longer serve meals in hopes of saving time and money caused by the
newly mandated airport security measures. Continental announced it
will layoff 12,000 employees and warned it could file
bankruptcy.
Continental CEO Gordon Bethune warned that as
many as 100,000 airline jobs could be lost after the terrorist
attacks. He adds, "If you want to have an air transportation system
in this country that can get the economic engine running again, then
you are going to have to do something." Bethune's remarks were
geared towards Washington's lawmakers to plead for
assistance.
Feds to the Rescue?
Late Friday
evening (on September 14) and into the hours of early Saturday
morning, the House of Representatives considered the bill HR
2891 to assist the airlines, which would include direct aid,
loans, and a bill that might limit their liability. The chairman of
a House aviation subcommittee, Rep. John Mica (R-Florida), stated
that the amount of aid being discussed is between $2.5 billion and
$12 billion, some of which would go to insurance companies.
Nevertheless, the House refused to allocate the funds at this
time.
House Democratic Leader Dick Gephardt of Missouri
promised to revisit the issue when congress returns to session next
week. Gephardt stated that the money is needed because the collapse
of the air travel industry could have a devastating ripple affect
through the U.S economy. In the meantime, airline executives will be
meeting with Transportation Secretary Norman Mineta on Monday
(September 17).
How Long Do They Have?
Without
government assistance, just how long can the major airlines operate?
According to recent statistics on PlaneBusiness.com, not long. A
recent chart
shows last week's "burn rates" of various airlines' cash reserves.
With an indefinite shutdown of the airline industry, it would take
the average airline approximately 38 days to deplete their cash
position.
So, how much did each airline lose per day when it
was shut down?
- Alaska: $5.55 million per day (cash reserves as of June
1: $371 million)
- America West: $6.27 million per day (cash reserves as
of June 1: $174 million)
- American: $62.02 million per day (cash reserves as of
June 1: $1.487 billion)
- Continental: $23.65 million per day (cash reserves as
of June 1: $1.008 billion)
- Delta: $38.04 million per day (cash reserves as of June
1: $1.510 billion)
- Northwest: $26.9 million per day (cash reserves as of
June 1: $1.350 billion)
- Southwest: $12.35 million per day (cash reserves as of
June 1: $968 million)
- United: $50.13 million per day (cash reserves as of
June 1: $1.280 billion)
- US Airways: $24.18 million per day (cash reserves as of
June 1: $1.250 billion)
According to Bethune, “If there’s
not an infusion of assistance by the government for the 10 airlines
I’m aware of, they won’t be around by the end of the
year.”
In the end, airline analysts warn that if multiple
airlines go bankrupt or out of business, consumers will be facing
fewer choices in air travel, which could inevitably lead to higher
fares.
Related Sites:
PlaneBusiness.com
Air Transport
Association
International Air Transport
Association
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