Feature

Issue of the week: A turbulent time for airlines

The airline industry

The airline industry “is flying into an increasingly nasty storm,” said Christopher Hinton in Marketwatch.com. In the past two weeks, three U.S. airlines—ATA, Aloha Airlines, and Skybus—have suspended operations and filed for Chapter 11 bankruptcy protection. Rising oil prices have pushed the cost of jet fuel to three times what airlines were paying just five years ago. One major airline, Delta, says its fuel costs will jump by $2 billion this year alone. To cover their costs, airlines are raising fares, adding fuel surcharges, and charging travelers $25 or more for checking a second bag. The new levies couldn’t come at a worse time—even before the price hikes, business and leisure travelers had been cutting back on flying as the slowing economy bit into travel budgets. As a result, “new revenue hasn’t kept pace, and many airlines are starting to dip into their cash reserves.” For the time being, there’s plenty of cash on hand—the major carriers have total cash reserves of about $19 billion. But, said Calyon Securities analyst Ray Neidl, “if high fuel prices and a lackluster economy persist through 2009, cash reserves at many airlines might become a concern.”  

Passengers have new reasons to worry about air safety, too, said Dave Michaels in The Dallas Morning News. Top federal regulators admitted to Congress last week that they were unaware of “serious lapses” in safety inspections at Southwest Airlines, and there was evidence of major flaws in the regulatory structure. Two FAA inspectors told Congress that Southwest enjoyed preferential treatment from senior FAA officials in its headquarters city of Dallas. These officials reportedly looked the other way when Southwest failed to perform required maintenance. One of the inspectors, Douglas Peters, told Congress that his FAA supervisor once warned him that his career would be in jeopardy if he persisted in pressing Southwest on the inspections. Southwest Chairman Herb Kelleher insisted that passenger safety was never compromised. All the same, the FAA this week removed Thomas Stuckey from his position as the top flight-safety regulator in the Dallas office.

No wonder fliers are in a sour mood, said Molly McMillin in The Wichita Eagle. Customer complaints jumped 60 percent in 2007, according to the annual Airline Quality Survey, and for good reason. The number of misrouted bags and overbooked flights increased last year, while the number of on-time flights declined. And “performance isn’t expected to improve anytime soon.” The airlines blame the high oil prices, said Wichita State University marketing professor Dean Headley, co-author of the Airline Quality Survey. “Oil prices have forced them to say, ‘We can’t consider the customer as much as we’d really like because we have to stay in business,’” Headley said.  Fair enough, but do the flight attendants have to be so surly? 

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