No End To The Turbulence For Airlines
NEW YORK (Forbes.com) - Six months after we last explored the overall state of the airline industry, things have only gone from bad to worse. Most carriers are holding junk credit ratings, one has filed for bankruptcy protection and another may be unable to avoid it. The losses are getting narrower, but they''re still there. Analysts expect most carriers to report a loss for fiscal-year 2002 and 2003.
Was Warren Buffett right when he said that investors would have been better off if the Wright Brothers had crashed at Kitty Hawk? Maybe. But if there is any good that has come from the industry carnage of the past two years, it is that executives finally acknowledge that theirs is a fundamentally flawed business model and that they cannot continue as is. Judging from some of the steps being taken now, they won''t continue as is for much longer. Click below for our assessment of the carriers.
US Airways filed for bankruptcy protection in mid-August after failing to get its revenue stream in line with its high costs. Things seemed to turn up when the company was conditionally approved for a $900 million U.S. government loan guarantee--pending the company''s ability to substantially cut its costs. But on Aug. 29, its mechanics union rejected a proposed salary cut, which jeopardizes its ability to secure a full federal loan guarantee.
The Proposed Cure: Its back against the wall, the company is asking a bankruptcy court judge to nullify existing labor contracts. A hearing on this issue is scheduled for Sept. 26. Like most major airlines, US Airways is cutting corners wherever possible. For example, those flying on discounted tickets can no longer fly standby or catch a later flight if they miss their original one. Additionally, miles flown on nonrefundable tickets (usually the cheapest fares) do not earn mileage points.
US Airways In Two Years: The company is doing the right thing by downsizing its business and it will be a smaller airline with fewer routes and fewer planes. But its service cutbacks and extra charges could very well alienate its client base.
NEW YORK (Forbes.com) - Six months after we last explored the overall state of the airline industry, things have only gone from bad to worse. Most carriers are holding junk credit ratings, one has filed for bankruptcy protection and another may be unable to avoid it. The losses are getting narrower, but they''re still there. Analysts expect most carriers to report a loss for fiscal-year 2002 and 2003.
Was Warren Buffett right when he said that investors would have been better off if the Wright Brothers had crashed at Kitty Hawk? Maybe. But if there is any good that has come from the industry carnage of the past two years, it is that executives finally acknowledge that theirs is a fundamentally flawed business model and that they cannot continue as is. Judging from some of the steps being taken now, they won''t continue as is for much longer. Click below for our assessment of the carriers.
US Airways filed for bankruptcy protection in mid-August after failing to get its revenue stream in line with its high costs. Things seemed to turn up when the company was conditionally approved for a $900 million U.S. government loan guarantee--pending the company''s ability to substantially cut its costs. But on Aug. 29, its mechanics union rejected a proposed salary cut, which jeopardizes its ability to secure a full federal loan guarantee.
The Proposed Cure: Its back against the wall, the company is asking a bankruptcy court judge to nullify existing labor contracts. A hearing on this issue is scheduled for Sept. 26. Like most major airlines, US Airways is cutting corners wherever possible. For example, those flying on discounted tickets can no longer fly standby or catch a later flight if they miss their original one. Additionally, miles flown on nonrefundable tickets (usually the cheapest fares) do not earn mileage points.
US Airways In Two Years: The company is doing the right thing by downsizing its business and it will be a smaller airline with fewer routes and fewer planes. But its service cutbacks and extra charges could very well alienate its client base.
