Excerpts from an article**
By SCOTT MCCARTNEY, SUSAN CAREY and GREG HITT
Staff Reporters of THE WALL STREET JOURNAL Sept 17,2001
It is hard for many people outside the industry to understand how a temporary disruption in air travel could send a mature,
well-financed industry into a tailspin in a matter of days. Indeed, to some skeptics so much panic in such a short space of time
might seem like part of an orchestrated campaign to squeeze money out of a distraught Congress
But airlines are highly leveraged creatures, with U.S. carriers shouldering $26.1 billion in debt, according to Salomon Smith Barney. Along with paying for airplanes that cost between $50 million and $250 million each, airlines have huge fixed costs in labor, leases and debt service. In fact, their costs are so high that airlines typically have to fill more than 65% of their seats in order to break even. In the best years, only 75% to 80% of seats are full. That means the presence or absence of just a few
passengers on each flight means the difference between profits and losses.
And the industry doesn't have much of a financial cushion: The nine major U.S. airlines had $9.4 billion in cash and short-term investments on hand at the end of June. With the industry burning $210 million a day when airplanes are idle, all that cash would last less than 45 days
In the long run, even if travel rebounds, airlines probably won't be able to fly the same frenetic schedules of the past. New
security measures will not only slow passengers moving through terminals, but also airplanes moving at airports. The steps
mandated by the FederalAviation Administration require greater attention to baggage, for example, and careful security
screening of caterers, cleaners and flight crews.
At airline hubs, workers won't be able to turn a plane around in 45 minutes, as has been typical in the past. So airlines will have to build more time on the ground into schedules, and they won't be able to get
as many flights out of each plane each day. Adding 30 minutes at each stop means that a plane that used to fly six two-hour trips
a day could fly only five. That means workers won't be as productive, and unit costs will rise sharply.
The result: Big hub-and-spoke airlines will likely have to find new ways to be efficient and restrain costs. Robert L. Crandall, the
former chairman and chief executive of AMR and American who is often credited with perfecting the hub-and-spoke system,
built an airline with smaller planes and high-frequency service so business travelers could fly whenever they wanted.
Now, Mr. Crandall says, airline managers will need larger airplanes to serve big markets with fewer flights; they'll need to
develop new scheduling strategies. "It's hard to deal with a high-frequency,short-turn-time system and have good security,'' he says. "I was playing by one set of rules. Now the rules have changed.''
But the airlines' most immediate need is cash. By 3 p.m. Friday, a bipartisan consensus had emerged in the House: $2.5 billion in cash, $12.5 billion in loans or loan guarantees and authority for the president to delay, for as long as six months, airline payments to the government, which would ease airlines cash-flow woes.
in the day, objections from other lawmakers surfaced. New York legislators, returning from President Bush's tour of Manhattan,
feared the plan might divert resources from the relief of New York.Rep. Lloyd Doggett, a Texas Democrat, warned, "It sends a signal to others who will stand at the door of the Treasury for their subsidy."
So, House leaders backed off.
And this why John Q. Public needs to get involved. Because if the Airline fails it will affect us all. Don't be naïve people, we
need the airline flying until things can be fixed.
sprint
( see previous post)
