I agree about the inability of the President or the PM to do much for/against the airlines in the short time, but for a slightly different reason. Granted, events are going to move swiftly (in the great scheme of things), but even if they were moving more slowly, too many people have a sadly mistaken view of the true power of the U.S. President and/or the British Prime Minister.
Both countries are democracies, not dictatorships. There is very little that either of those two officeholders can accomplish by fiat. Their strength lies more in their possession of the bully pulpit than in their Constitutional power to strongarm anyone--Congress and Parliament in particular. Beating the airlines or the oil companies or the oil producers into submission would be infinitely easier than getting a majority of either Legislature to concur in a course of action.
Invading Iraq is one thing. Invading Congress would mean that the President would lose his standing invitation to all the best Georgetown parties. It would be a definite social faux pas.
Back to your requested topic...
Let me preface my remarks by noting that it is hard to kill an airline. Not impossible, but definitely difficult. Just ponder how many years it took to put Pan Am out of its misery. Or Eastern. Or many of the others who have gone to glory. There always seems to be someone (a la Lorenzo or Icahn) with more money than sense who believes he can succeed where others have failed in the airline business. Their ideas rarely include treating the employees right and pricing the product fairly (a la WN), and their ideas rarely succeed in the long run.
I agree that events are moving rapidly. Who in their right mind would have predicted that jet fuel would double in price (for all practical purposes) in a year? None of the major U.S. airlines (with the exception of WN) can survive long-term without some relief from these backbreaking prices. I make that statement simply because I do not believe that any of them has the courage to price their product according to their costs, and let the chips fall where they may.
I think all the majors--AA, DL, NW, UA, LCC, CO (in no particular order)--are hoping that one or more of the others will go into bankruptcy or cease operation before they have to take action to truly address the cost issue. Though all are taking some steps to reduce capacity, I think it probably too little, too late. Last man standing may be a fun schoolyard game, but as a business tactic? Questionable, don't you think?
Let's look at AA, my airline, as an example of just how fast things are moving. On April 16th, AMR issued a financial advisory that they planned to cut domestic capacity 4.6% in the 4th quarter of 2008. On May 21st,
1 month and 5 days later, we announced that the domestic capacity cut would be 11-12%--over double in a month. That announcement occurred at a time when oil was slightly under $130/bbl. Oil closed today at almost $141/bbl, and went above $143/bbl for a short time today. Does anyone see a trend emerging?
The announcement on May 21st specified 40-45 MD80s and 6 A300s would be grounded. The number of A300s has already been increased to 10. Now, before anyone points out that some of those may be a/c that were already grounded for mechanical reasons...deciding not to repair the plane is the same as taking it out of service once repaired. I don't think that we have heard the last word on the number of MD80s, either--particularly if oil continues to skyrocket in price.
I use the term, skyrocket, advisedly. For those old enough to remember, there was a period in the 80's when oil stayed in the range of $15-$18/bbl for a number of years. I remember my boss at Texaco moaning that "if we could just get oil up to $20/bbl, we might survive." And, that was at a time when Texaco was the 3rd largest U.S. oil company with revenues of
only $34 billion/year and net profits of just a few billion/year.
Do I think AMR will survive? Yes, there is something to being the 2000-lb gorilla. Will I still have a job? Probably not. I am far enough down on the seniority list that being furloughed again is a real possibility at this point. If the situation gets desperate and Congress relaxes the foreign ownership restrictions, look for AMR to become the U.S. branch of BA.
This is not to say that a trip through the bankruptcy courts is out of the question for AMR. I don't think it will be over the pension plans, as many seem to think. As I posted in another thread today, I think it will take the nature of "Oh please Mr. Bankruptcy Court. Save us from the greedy and unreasonable unions who want to kill us. Smite their contracts. Allow us to institute pay cuts and work rule changes as
we see fit. By the way, before we adjourn for lunch, could you just sign that little piece of paper authorizing the executive golden parachutes. Thanks ever so."
Do I think all the others will survive? No. The DAL/NW merger is a canny move. They each bring routes to the table that the other would have to make major capital expenditures to gain.
CO, the best managed U.S. airline after WN, will survive, but I think even they are going to have to make more drastic cuts in the short term.
I think the survival of UA and/or LCC is questionable. Both have little leverage in the credit markets. Relaxation of foreign ownership requirements means UA becomes the U.S. branch of LH.
That being said, I don't think employees at AA or UA will be happy with the outcome. UA employees will come up against the cool Teutonic efficiency that will mean job cuts and working harder and more productively than most of us at U.S. airlines are used to. I hear through some of my other European sources that the BA unions are looking with glee at the possibility of doing to AA unions what those unions did to TWA employees. European unions are real hard core unions compared to U.S. unions.
LCC is the most likely to fail, in my opinion. Their front-line employees are some of the best. I have some close friends who work for LCC. One of them, a f/a, just said to me the other night that he wished it would just be over, and he could move on to something else. As it is, he has too many years invested (he was originally with Piedmont) to walk away now just in case a miracle occurs and they pull out of this nosedive.
I stand in awe of the repeated mistakes of LCC's upper management. That they can control the BOD and keep their jobs is astounding. The often contemptuous treatment of their frequent flyers--again, by management, not the frontline; their decisions to go the cattle car route with reducing F/C and F/C amenities in favor of more seats in the back; the failure to do repairs to parts of the a/c visible to customers--such as taking the door off an OH bin and putting masking tape over the opening rather than replacing the $5 latch; their insistence that they are a LCC when their pricing is in the stratosphere on some routes. Most of all, their complacency toward the labor strife created by a failure to merge the major unions after almost 3 years. Just read some of the threads on the US Airways forum about labor issues if you don't believe me. All of this does not make for a secure future.
I don't see anyone stepping up to the plate for LCC with rescue financing. Why would anyone in their right mind loan money to a company that has been in bankruptcy 3 times before--1 AWA, 2 US Airways pre-merger--and whose labor unions are at
each others throats instead of going after the company? You can give LCC management this...they seem to have successfully implemented a divide and conquer approach to their labor force.
I have seen other predictions on the boards that United will be back in Ch. 11 by 01DEC. In fact, one United employee disagreed. He seems to think that if bankruptcy occurs again, it will be Chapter 7. I don't agree. I think UA or AMR filing for bankruptcy would be sufficient impetus for Congress to relax foreign ownership restrictions in order to get the LH and BA financing that would be available. The squeaky wheel gets the grease. And, the bigger the wheel and the louder the squeak, the quicker the grease is applied.
Several of the regionals, like Frontier and Spirit, are in trouble. Will they survive? Depends on what they and their employees are willing to do. The demise of some of the regionals might well take some of the pressure off of the majors, but only in the short-term. Unless we get a break on fuel prices OR we are able to raise ticket prices accordingly, air travel will once again become a luxury as it once was, not a necessity because the laws of evolution--i.e., survival of the fittest--will be applied and there will be a drastic, unwanted reduction in domestic capacity.
Maybe, the various Federal and state agencies will finally get serious about high speed land transportation, such as the Japanese bullet trains or the TGVs in Europe. The problem with those is that the U.S. population is not dense enough in most places to support that kind of investment. You have to travel through a great deal of practically deserted territory to move a train from, say, Dallas to Los Angeles. It would be more of a "have-to" in order to move people around the country than something that makes real economic sense as in Europe and Japan.
