Editorials
Let Failing Airlines Fail
Aviation Week & Space Technology
03/08/2004, page 70
United Airlines is back on a glidepath to oblivion (see p. 35). To emerge from Chapter 11 bankruptcy protection, it must secure approval of federal guarantees for $1.6 billion of the $2 billion in borrowing that the carrier has lined up. There are no assurances such approval will be forthcoming, of course, so the next few months will tell the tale. It all depends on how the Air Transportation Stabilization Board assesses the airline's reorganization plan; the board rejected the first one.
One can only hope that United's travails--as well as those of US Airways--will spark enlightened self-interest on the part of the other four operators who are among the six largest U.S. legacy airlines. Even before Sept. 11, 2001, all of them seem to have forgotten they were service companies--and as such obliged to strive for customer satisfaction, fair pricing and responsible capital spending. It's almost as though management thought a steady stream of slick ad slogans and alluring scenes of desirable travel destinations would serve as acceptable substitutes. The flying public, particularly business travelers, not only were taken for granted but exploited to the hilt. Even today, there is evidence that the same self-defeating attitude persists.
Fast forward to March 2004. The reality is that the future of all six major U.S. network carriers is questionable, and there's at least a 50-50 chance US Airways or United--or both-- won't survive to see the next cyclical downturn. Tragic as that would be for thousands of employees, the demise of one of the Big Six would be in the long-term interests of the U.S. airline industry. There are too many legacy hub-and-spoke carriers for the level of revenues they are generating, and the sooner the industry is allowed to consolidate the sooner the U.S. industry can get on solid footing once and for all.
Let there be no misunderstanding: the management of these airlines have no one but themselves to blame for their current predicament--their business model was broken long before terrorism changed the face of commercial air transportation. But the government must also shoulder much of the responsibility. In fact, Congress is guilty of perpetuating many of the industry's ills by continuing to provide a financial safety net. Such myopic, misguided policy-making is doing nothing to encourage mainline carriers to institute fundamental change in how they conduct their business.
While United has made considerable progress in reducing costs, basically it will be a slimmer version of its former self, as US Airways was when it exited last April--and now it's on the brink again.
Let failing airlines fail. It is the only way the industry will take the steps that are required to return to full health.
