Is Bankruptcy Good for the Airlines?

[chipmunn]

[A href=http://www.nytimes.com/2002/10/20/weekinreview/20WONG.html?ex=1035777600&en=5ebf74d30eb60ef4&ei=5040&partner=MOREOVER]http://www.nytimes.com/2002/10/20/weekinreview/20WONG.html?ex=1035777600&en=5ebf74d30eb60ef4&ei=5040&partner=MOREOVER[/A]

 

[apofurlough]

The healthier carriers will pick up slack, said Clifford Winston, an economist at the Brookings Institution and author, with Professor Morrison and others, of The Evolution of the Airline Industry. They would just fill up more seats.


What I would like to know is - What carrier is healthy enough to pick up the slack right now?

 

[lumax]

I believe that is a double edge sword.
On one hand, the airline can keep operating (while in chapter 11) and therefore avoid the huge layoffs that would be necessary. This will keep people employed.
On the other hand, the airline is able to basically give away seats at very low fares because they don't have creditors nipping at their heals. These low fares put a strain on the competition (those that are not in chapter 11) to match their prices. If they can't, then there is another airline filing for bankruptcy protection. I believe this scenario is currently happening with the threat of UAL filing for chapter 11. AA says that if UAL files, they will probably follow.

 

[Blueskies/400 UpperDeck]

Doesn't Chapt.11 refer to reorganization? Which means there will be a time frame as to how long the company is expected to operate in Chapt.11 while being protected from creditors. Post Chapt.11 there is no assurance that a company will prosper outside of bankruptcy protection. Cont. has been the exception to the rule for airline bankruptcy survival. And their's was a special situation. Let's hope U will rewrite the history books and prosper after surviving Chapt.11 This article is frought with inuendo. Short on facts. This did not come from a person with any level of aviation experience, via reporting or otherwise. I am dismayed that it came from the NY TIMES.

 

[chipmunn]

The Continental Airlines second reorganization took three years for the company to emerge with Air Partners, the previous name of TPG, as the Equity Plan Sponsor.

Chip

 

[AOG-N-IT]

[blockquote]
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On 10/21/2002 12:17:03 AM Blueskies/400 UpperDeck wrote:

Doesn't Chapt.11 refer to reorganization? Which means there will be a time frame as to how long the company is expected to operate in Chapt.11 while being protected from creditors. Post Chapt.11 there is no assurance that a company will prosper outside of bankruptcy protection. Cont. has been the exception to the rule for airline bankruptcy survival. And their's was a special situation. Let's hope U will rewrite the history books and prosper after surviving Chapt.11 This article is frought with inuendo. Short on facts. This did not come from a person with any level of aviation experience, via reporting or otherwise. I am dismayed that it came from the NY TIMES.
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[/blockquote]
Blueskies/400, Chapter 11 is Re-organization...you are correct. Failure to re-organize effectively can force the judge to change the status to Chapter 7 (Liquidation). Midway Airlines that is a hopeful USAirways Express partner..is teetering on this delicate line right now. Thier filing Chapter 11 , did not prevent massive lay-offs , nor did it prevent ceasing operations...as the previous poster mentioned. U is also not in a position to be giving away tickets , just because some relief from our creditors has been allowed. This scenario , if it were true?...would be more of an act of Absolution...not re-organization as the way Chapter 11 is supposed to work. U as we know has already shrunk it's employee ranks, fleet size...and just about everything else imagineable to show the formation of a Sound Business Plan....that aspect has to be accomplished for not only satisfication of the Chapter 11 issues but the pending ATSB Loans...and continued DIP financing. U is not Absolved of much of anything in reality...we just have to prove our worth by showing the potential to turn a profit in both the short and long term aspect. Deeper cuts...and the potential for even greater sacrifice on everyones part looms heavily for us. BK is not a free ride.....ask anyone who's furloughed , even those of us that are still lucky enough to be here will tell you the same. Some will have a more direct knowledge of these issues than others. I deal with money and maintenance logistics issues....I see the fall-out from countless angles daily.

 

[Blueskies/400 UpperDeck]

Thanks AOG! This is just a dreadful scenario for the industry. The only other nightmare left for us is for the [STRONG]WHOLE[/STRONG] industry to fold!

 

[TomBascom]

[blockquote]
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On 10/21/2002 12:00:09 AM lumax wrote:
... On the other hand, the airline is able to basically give away seats at very low fares...
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[/blockquote]

Where are these seats that are being given away? My wallet is $720 lighter this week... And I flew a whole 290 miles.

 

[UAL777flyer]

Sadly, it's probably going to take a few more airline bankruptcies to fix what's wrong with this industry. Airlines, due to heavy unionization in general, allowed their costs to skyrocket during the booming economy of the mid to late 90's. Labor seemed to believe that there was an endless ceiling on revenue that would forever offset increasing labor costs. And Senior airline Mgmt didn't do much to change their minds. Fast forward to now, when we have a major shift in industry dynamics, bringing us down to a new fare/revenue environment, and you have a recipe for disaster. I'm generally opposed to more government bailout money. However, the feds should lower or cease their incessant taxation of the airlines. And the costs of security and subsidization of the moronic TSA should be the job of the government, not the airlines. Other than that, if an airline cannot sustain cash flow, then let them file for Ch.11 and reorganize.

As painful as it is to all involved, downsizing and cost lowering is desperately needed across the industry. Had both labor and senior mgmt of the traditional U.S. majors rectified this obvious problem years ago by working together, a less painful solution could have been found. Unfortunately, now we're seeing that bankruptcy or liquidation of a few airlines may be what is necessary to fix this industry.

 

[chipmunn]

[P]UAL777flyer, I agree with your last post.[/P]
[P]Chip[/P]

 

[whatkindoffreshhell]

Allan Sloan of NEWSWEEK took numbers assembled by the Air Transport Association over the past sixty-five years and calculated that the airline industry has collectively shown a total profit of $3 billion --- and you have to include the 911 federal handouts otherwise it would be a net loss!

Now we all know that you can bend statistics. But all that revenue went somewhere! Already the standard issue new industry excuse seems to blame it on all the taxes.
Nonsense. You've got a revenue problem that's not going to get better anytime soon. Do what you must.

 

[Blueskies/400 UpperDeck]

We could generate a list that could go on for days... There was a study done a few years ago on some program like the Discovery Channel that formulated that it took approx. 5000 people to eventually and SAFELY launch an international flight. From safety to catering. Now, I would like to know what other industry is taxed to death like the Airline industry. Does Amtrack have to spead Billions providing security for it's pax? In most civilized countries the government provides for such a basic perk. Onboard, I can understand. Just where is the rational for the US government to say with a straight face. OK, you are only allowed to charged for air service (look at your ticket next time). Taxes, security tax, departure tax, just for being alive tax! However, you must pay for the security of your paxs. BEFORE they leave the ground?

 

[UAL777flyer]

One BIG reason for those horrible numbers is the significant overcapacity of this industry. Look at all the airlines in the U.S. WAY too much capacity. Oh, but the consumer loves it. Cheap fares for everyone and a competitive environment. Well, you can't have it both ways.

 

[JS]

Re Cheap fares for everyone and a competitive environment. Well, you can't have it both ways.

No, you have to have it both ways (or neither). Less competition = higher fares. More competition = lower fares.


Airline ticket taxes do hurt the airlines. We've discusssed this before, but I'll repeat it here again: because the sensitivity of demand to price is higher for passengers than that of supply from the airlines, the airlines end up paying most of the tax. That is, if you reduce taxes (replace all of them with a flat 5%), market prices fall a little, and airline revenues increase. It's a win-win, except for the people paid to calculate ZP, XT, etc.