Are the Bankruptcy Dominos Falling?

[flaptrack]

airlineorphan,

Your point is well taken. Yet the airline industry has now been deregulated for 24 years. Many more recently deregulated industries like Banking (the S&L crisis ot the 80's), Energy (Enron and Aquila), Telecom (Worldcom and Sprint) and Trucking (Consolidated Freight) are still going through the turbulence. I guess what I am trying to say is that if some of these companies go out of business, some of the good people that work at these companies will start new ones where we, who have talent, can have a bright, yet slighty less well paid future.

P.S. When you hear the government say deregulation grab your wallet or purse and start stashing away money in your matress!

 

[Black Wind]

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[BLOCKQUOTE]
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[P][BR]On 9/21/2002 9:29:56 PM argentomaranello wrote:[BR][/P]
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[P][BR]A real threat exists out there, in industry after industry where failed business models are cutting a swath of devastation, that enterprises that are zombies of sorts (living dead) but refuse to liquidate, instead using Ch.11 to throw off debt and emerge able to wreck havoc on their former competitors.[BR][BR]Then consider what damage the bankrupt WorldCom is capable of inflicting on reeling, but still solvent telcos like AT&T, Verizon, SBC and Sprint when it emerges.[/P]
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[P]-----------------[BR][BR][STRONG]Remarkably similar to the damage a bankrupt US Air is capable of inflicting on reeling, but still solvent airlines like AMR, NWAC,CAL and the rest,wouldn't you agree?[/STRONG][BR][BR][BR][BR][BR][/P][/BLOCKQUOTE]

 

[argentomaranello]

BLACK WIND: You've got the point. Although USAir's potential for inflicting post-bankruptcy instability upon domestic civil aviation is probably not much greater than that of TWA (and maybe Continental) in the '90s. The WorkdCom analogy is most apt when considering UAL's impending bankruptcy. That is what might get the dominos really falling.

My point about this situation perhaps leading to a re-regulation of sorts was that, like Latin American or Asian countries engaged in competitive monetary devaluation, serial banktuptcies in the airline industry may become a vicious circle, leading to further bankruptcies as each new bankruptcy, in turn, neutralizes some of the advantage conferred by the prior one. Eventually, some new national policy could be crafted that would recognize the essential public utility function of airlines, acknowledge some of the failures of runaeay free-market theory applied to such functions, and meld the best of the current environment with some new ground rules designed to stop this insanity.

 

[Diesel8]

Reregulation would only serve the big carriers and prove detrimental to the smaller ones. Perhaps that is why this specter has once again been brought to topic by the larger carriers. There was a time, when PAA, TWA and EAL were the big boys, UAL, DAL and AMR were medium sized. How did that change? UAL, DAL and AMR aquired routes and assets from the big guys and the rest is history.

U is ch.11 and may gain an advantage, for a short time at least, untill someone decides to join them and as has been mentioned, the game goes on with the dominos falling. How do we prevent that, well, IMHO, the DOJ/DOT must make sure that, while CH.11 is used, it is not abused. U should not be allowed to start a fare war, perhaps on the routes where they face competition, they may match, but not offer lower fares. This would at least serve to protect the solvent carriers.

Would this work, I have no idea, but the DOJ/DOT should certainly take some kind of interest in preventing the domino efect from occuring!

 

[oldiebutgoody]

[blockquote]
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On 9/22/2002 10:54:52 AM Diesel8 wrote:

Reregulation would only serve the big carriers and prove detrimental to the smaller ones. Perhaps that is why this specter has once again been brought to topic by the larger carriers. There was a time, when PAA, TWA and EAL were the big boys, UAL, DAL and AMR were medium sized. How did that change? UAL, DAL and AMR aquired routes and assets from the big guys and the rest is history.

U is ch.11 and may gain an advantage, for a short time at least, untill someone decides to join them and as has been mentioned, the game goes on with the dominos falling. How do we prevent that, well, IMHO, the DOJ/DOT must make sure that, while CH.11 is used, it is not abused. U should not be allowed to start a fare war, perhaps on the routes where they face competition, they may match, but not offer lower fares. This would at least serve to protect the solvent carriers.

Would this work, I have no idea, but the DOJ/DOT should certainly take some kind of interest in preventing the domino efect from occuring!
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[/blockquote]
The only reason I could see congress getting involved in this is if the capacity were not to be picked up by other carriers, and then only in extreme situations. The situation today is very similar to what occurred in the mid-to-late 1980s, with CO, EA, BI and others going bankrupt. If congress wouldn't step in to help the likes of Eastern and Pan Am, I doubt that they would show any interest in what is happening now. That could change, however, if rather than chapter 11 a large carrier like UAL were to go chapter 7 and liquidate. If the capacity was not absorbed (and I believe it would very quickly) then some original process may have to be legislated, but I doubt that it would be for the long term. With all the parked planes and furloughed employees even UAL's capacity could be absorbed rather quickly. Airlines which position themselves with lower cost structures (as U is attempting to do) will be well positioned to capture some of this, should it occur (I believe this to be a VERY unlikely scenario, as some sort of fragmentation would occur first, as the carrier involved would attempt to sell assets to remain viable). In short, I wouldn't count on congress to keep the airline industry from eating their young.

 

[Busdrvr]

[blockquote]
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On 9/22/2002 10:54:52 AM Diesel8 wrote:

There was a time, when PAA, TWA and EAL were the big boys, UAL, DAL and AMR were medium sized. How did that change? UAL, DAL and AMR aquired routes and assets from the big guys and the rest is history.

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[/blockquote]

When, exactly, was UAL a medium sized airline?

 

[Diesel8]

Well, there was a time when UAL was smaller than it is today and was mostly a domestic operation. PAA was the big international player, so although the purchase in the 1960's made UAL the worlds largest airline, on an international basis, it was still rather a small presence.

But I digress and in the interest of peace, let me rephrase that and say that upon a time, UAL was smaller than it is today.

AMR is of course, the worlds largest airline at present, with UAL a close second!

 

[Busdrvr]

[blockquote]
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On 9/22/2002 3:09:25 PM Diesel8 wrote:

Well, there was a time when UAL was smaller than it is today and was mostly a domestic operation. PAA was the big international player, so although the purchase in the 1960's made UAL the worlds largest airline, on an international basis, it was still rather a small presence.

But I digress and in the interest of peace, let me rephrase that and say that upon a time, UAL was smaller than it is today.

AMR is of course, the worlds largest airline at present, with UAL a close second!
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[/blockquote]

LOL, just messing with you. UAL's first real intl service in the PAC was SEA to NRT that we begged and pleaded and got authority for. then came the Pan Am Pac purchase, the Pan Am LHR purchase and then the Pan Am Latin structure. UAL was the biggest domestic carrier through most of that time, and UAL and SWA were the only two airlines pushing for Deregulation. AMR was approx half the size of UAL prior to Dereg. In 1985, UAL served ALL 50 states. we're unfortunately not even close now.

 

[DCAflyer]

Diesel said:

U should not be allowed to start a fare war, perhaps on the routes where they face competition, they may match, but not offer lower fares.


DCAflyer response:

Wouldn't this be, ahhhhhh, regulation?

 

[DLFlyer31]

I think the real factor in whether or now we get a BK domino effect are how much U and UAL (if it goes BK) reduce capacity? If they both pull down enough capacity during the process, then we might actually see yields begin climbing slowly. The rising yields might offset the damage done by the multiple BK filings.

Of course, U and UAL don't want to reduce capacity too much for fear of losing marketshare and pricing power. Also, if U unleashes a deluge of RJ's come this winter/spring, then all bets are off.

Low-fare carriers also play a critical role. If they continue to add capacity into the market while the majors keep cutting capacity, the yield situation will not improve.

Even the new lean and mean U with a 10 cent CASM will still lose money in this revenue environment...though the losses might not be so extreme.

 

[Diesel8]

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DCAflyer response:


Wouldn't this be, ahhhhhh, regulation?
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[/blockquote]

It is, in a round about way, indeed. Good catch!

But if we consider the Domino rhetoric to be valid, fit is about to hit the shan, in a major fashion. Once UAL goes, AMR and DAL will be in a very difficult situation and should they decide to go the same route as U, they will probably come out with an even lower cost structure. Instead of ILC, we will have HCC, Highest Concession Contracts. CAL spent quite a few years in Ch.11, if several majors are in the same predicatment, someone will try to stay Ch.11 as long as possible. We may even see them come out, only to declare again a few months or a year later, blaming the competition. Believe someone else mentioned that.

IMHO the Feds should never have gotten themselves into this mess, but since we are here and these are indeed somewhat uncharted waters, I believe, as hard as a pill it is to swallow, that the Feds must enforce some kind of restrictions on CH.11 fare wars.
I do not want them to set the fare level, nor restrict acces to routes and airports, which was the original concept of regulation. I just want them to ensure that Ch.11 carriers do not use this as a ploy to thin the herd. Ch.11 was not meant to give you a unfair competetive advantage, it was meant as a opportunity to restructure or die.
In this case, U should be allowed to match, but not lower fare. This would work in U's favor as well as the solvent cariers, if fares go up, U stands to gain. U lowering the fares would only hurt themselves, although under Ch.11 it works, since you do not have to pay your creditors, as well as force the solvent carriers to loose further income.

Just my 2 cents

 

[ChairPrefRes]

DL131 Dave is getting his mojo back and is going to focus on the next project at hand which is getting through the rest of CH11 and toasting some creditors along the way...The current attempt by many airlines to snuff out U will just harden the resolve of Employees and Management and even our FF's who step up to plate in our support quite often...Dave will no doubt return the favor in the future...

 

[DLFlyer31]

[blockquote]
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On 9/23/2002 1:36:43 PM Speedbird wrote:

DLFlyer31 stated:



While your statement is correct concerning yields, that is not the fault of the low-fare carriers. For many of them, these low yields still produce satisfactory results to their bottom lines and operating cash flows. Should they be handcuffed or penalized for that?

They are in effect throwing in their collective towels and saying that the hub-and-spoke/network carrier business model is irrevocably broken, and must now require government intervention to guarantee adequate service to all users of the system. I guess the airlines must now be considered a public utility.

All I can say is be careful what you ask for because you might just get it.
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[/blockquote]

I'm not saying that its the low-fare carriers fault nor do I believe they should be penalized. Obviously, if the low-fare carriers can make money at these levels....more power to them. However, I get the distinct feeling some low-fare carriers are starting to get a little worried.

And if you've ever read my other postings, I am no fan of gov't intervention. I firmly believe the gov't needs to stay out of this game.

The point I'm really making is that even after filing BK, the full-fare carriers might still find themselves losing money. Everyone is getting all excited about U's new cost structure, but it's still not nearly enough to make U competitive with the low-fare carriers. Every carrier from CAL (CASM 9.5 cents) to DAL (CASM 10.5 cents) to UAL (CASM 12 cents???) is losing money.

It's been very noticeable how Siegel never mentions how U intends to compete with the low-fare carriers. If his only solution to beating the low-fare carriers is to try and steal money from other majors (DAL,CAL,NW,etc), then Siegel and U are in a lot of trouble. There's simply not enough to steal...the pie is too small.

 

[Busdrvr]

[blockquote]
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On 9/23/2002 1:39:01 PM Diesel8 wrote:

IMHO the Feds should never have gotten themselves into this mess, but since we are here and these are indeed somewhat uncharted waters, I believe, as hard as a pill it is to swallow, that the Feds must enforce some kind of restrictions on CH.11 fare wars.
I do not want them to set the fare level, nor restrict acces to routes and airports, which was the original concept of regulation. I just want them to ensure that Ch.11 carriers do not use this as a ploy to "thin the herd". Ch.11 was not meant to give you a unfair competetive advantage, it was meant as a opportunity to restructure or die.
In this case, U should be allowed to match, but not lower fare.
Just my 2 cents
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[/blockquote]

A couple points.
you are correct, it is not fair for some of the beneficiaries of the law and the Gov to lower fares with the largess. One of the first things AWA did after loan approval was to lower business fares. I do think it is appropriate to prevent airlines from charging below LONG TERM costs for seats in an attempt to GAIN market share. U's filing is nothing more than an attempt to bring costs down to the level of some of the new entants to the market. The only reason U was paying such exorbinant rates for lease is they were actually around when interest rates were high. I think the smartest re-regulation would be to prevent new certificates from being issued. If you want to run an airline, buy one, and assume all the debt and no longer economical lease rates. Are all of Jetblu's savings in the form of lower wage rates? NO! As to the lower ticket prices by U, I'd submit that they HAVE to offer tickets at a lower price. If you buy a ticket on a chapt 11 airline, you are taking a risk that the carrier will not be around when the time comes to travel, so selling a cheaper ticket because of the risk premium is appropriate.

 

[JI Guy]

Will the bankruptcy judge dissolve US Air common stock? If so, it isnt a very good deal !