Congress To Airlines: You're On Your Own

[jettypeguy]

Could this mean Bad news for United and their loan Approval? you decide...

http://www.avweb.com/eletter/archives/avflash/245-full.html#187430

[font=arial,helvetica,geneva]Congress To Airlines: You're On Your Own[/font]

Leaders from the nation's largest airlines went to Congress last Thursday with hats in hand, looking for help to stem their billion-dollar losses and rising fuel costs, and came away with zip. "Congress is not going to underwrite losing airline operations," said Rep. John L. Mica (R-Fla.), chairman of the House aviation subcommittee. (Not this time, anyway.) "Some of our airlines must either reduce their costs dramatically or they will not survive." Apparently the committee thought $20 billion in aid after 9/11 should have been enough, and if the airlines are still losing money, they need to find ways to cut costs and restructure on their own -- or quietly fly off into the sunset. (Eleven passenger airlines are rated "junk bonds" by Standard & Poor's.) But Gordon Bethune, CEO of Continental Airlines, said what the airlines need is not a handout but tax relief. Twenty-six percent of the average ticket goes to taxes and security fees, he said.

From 2001 through 2003, the U.S. airline industry reported net losses of $23.2 billion, and it already has lost $1.6 billion in the first quarter of 2004. This $24.8 billion shortfall exceeds the total profits earned over the entire six-year period from 1995 to 2000. Industry debt currently runs well over $100 billion -- much of it due in the next 24 months. The situation is being exacerbated by a sustained run-up in fuel prices. The General Accounting Office told the committee, "The airline industry is being transformed into two industries, profitable low-cost point-to-point airlines that continue to grow and extend their reach into ever more markets, and the major network legacy airlines that account for the vast majority of the industry's losses. Although legacy airlines still control two-thirds of all domestic traffic, possess profitable overseas routes, and have a valuable domestic route structure, until these airlines are able to bring their unit costs closer to those of low-cost airlines and align their services with fares that passengers are willing to pay ... they are unlikely to be able improve their financial condition."
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[UpNDownGuy]

The answer is: nope

This has nothing to do with the ATSB approval of the UAL application. Congress isn't even involved in that process, except for arm-twisting. I think that the UAL application is already a done deal. I expect an announcement to that effect in the next month or so.

 

[On Your Six]

You think the UAL is a done deal - which way - positive or negative?

 

[jettypeguy]

UpNDownGuy,
not trying to start an anti-UAL thread, nor am I a UAL "hater", just saw the article and thought it was interesting, I honestly didn't know that Congress didn't have a say in the ATSB decision, but thinking and fact are 2 different things, what have you seen or read that shows this ATSB deal to be done? the best I could find was this article http://www.canada.com/businesscentre/story.html?id=D0983923-667A-4B73-98BD-3888400B833C which just looks like more feet dragging, I know the loads have been good at United (May was released today), but it seems like the fate of UAL is hanging on this loan, just curious to know your sources?

 

[Extra300S]

Rumor is that UAL is working on a private sector loan in case the ATSB says "no" and UAL has asked the BK Judge to push back Chap 11 exit at least three months, closer to Election time.

 

[balls deep340]

UP and Down you are in a state of Denial. Good or bad politics and congress will affect the boards decision.

 

[b737drivr]

Mica says the well is dry



June 4, 2004 -- Rep. John Mica (R-FL), Chairman of the House Aviation Subcommittee, told airline executives Thursday they "must be prepared to fend for themselves." The announcement could spell big trouble for financially troubled carriers -- perhaps none more than United Airlines.

Still smarting from the 9/11 attacks and now plagued by sky-high fuel costs, commercial US airlines say they expect to lose another $3 billion this year. Already, Washington has spent more than $20 billion in cash grants and loan guarantees to the airline industry. But Mica seemed clear that this is where Congress draws the line.

"Congress is not going to underwrite losing airline operations," he said.

Relief from the high costs of increased security is also not on the horizon according to Homeland Security Undersecretary Asa Hutchinson who told Reuters Thursday that while the government can provide direction on security matters, it's up to the industry to pay for them.

"Security is the lifeblood of the airline industry and that cannot be diminished," Hutchinson said. "I do expect them to be a persistent voice for sharing the burden of that security, and that will be an ongoing debate."

 

[UpNDownGuy]

Let me rephrase:

I should have been more clear. I think the ATSB has already decided to give UAL the loan.



UP and Down you are in a state of Denial. Good or bad politics and congress will affect the boards decision.


I couldn't agree more. That's what I meant by "arm-twisting." Officially, Congress is not part of the loan guarantee program. There was an article posted here on another thread about this subject. I can't find the thread, but here's the article:

http://biz.yahoo.com/rf/040527/airlines_united_loan_1.html


I think the merits of UAL's application are irrelevant. The only factor to consider is politics, and that says United gets the loan. Case closed. There is simply no way a company the size of United will be allowed to fail in an election year. Anything else is immaterial. So there is no point in debating the virtues of United's application. That's what I meant by "done deal."

 

[General Lee]

I was told by a UA 777 Capt that Airbus was willing to come in a float them a loan, and also replace their older 737-300s and 737-500s with new airbuses. I bet Airbus does not want to have a glut of A320s out there--even though some LCCs might pick them up......

Bye Bye--General Lee

 

[doh]

Mica says they aren't going to help. We don't need their help, what we need is for them to stop taxing us to death! We are taxed at a higher rate than cigarettes! Maybe that son of a biatch could just stop using us for his personal piggy bank! That would be a start.

 

[LJDRVR]

What I want to know is this:


The airlines are slated to lose 3 billion this year. Our government will collect 14 billion in taxes from the airlines. Now, granted most airline leadership is inept beyond all reason, but is this industry being sacrificed for the sake of our gigantic government? This is a question not a statement. Any opinions, or am I the only one going WTF?

 

[Dizel8]

Ahh, don't worry. They collect from us and gives taxbreaks to VirginUSA. It is only fair! Wonder how much taxes will be paid in the US, after all, it is essentially a foreign controlled airline. Perhaps they can claim, that the true corporate office is in Bermuda or perhaps the Cayman Islands.

 

[jarhead]

Are the LCC carriers taxed any less than the legacy airlines? How are LCC carriers able to turn a profit if they have the same taxes as the legacy carriers? Is the tax structure really the problem for the airline industry?

 

[a320drivr]

Because our costs are lower, we have fuel hedged, we dont have the expenses of operating internationally, we dont operate multiple fleet types, etc. It does not mean the pilots arent paid a fair wage which I'm sure someone will say we arent.

 

[jarhead]

Then you are saying that taxes are NOT the problem?

 

[B6Busdriver]

Flawed business models coupled with high costs are the real problem. Also it's insane that airlines can't even raise their fares $20 to cover fuel costs like CO has tried unsuccessfully several times. It's amazing to me what the average American thinks about airfares. Case in point is my neighbor who couldn't believe how expensive it was to fly from BOS to MCO. She was complaining that it was going to cost $200 dollars roundtrip!!!!! This during spring break. Amazing!!! Twelve years ago it cost about $180 to $250 roundtrip on the same route.

 

[jarhead]

B6Busdriver

So often on these boards I see pilots blaming the state of the airlines, and their problems, on “flawed business models” It has become almost a catch phrase, really signifying nothing. Just round words with no definitive meaning in the context given. I don’t expect an airline pilot to know what a ‘proper’ business model is, as most pilots did not major in business. That said, perhaps someone on these boards can articulate what the flaw(s) are to the “business model” and even better, define what you mean by the term “business model” What would be a ‘good’ business model? Anyone?

To my view, the real crux of the problem is excessive capacity, and there is not enough ticket money to go around, when those carriers with lower costs (LCC’s) do make money with the lower fares that allow them a profit with low cost tickets. The majors do not seem to be able to hold pricing power with the LCC competition out there, and with the fractionals taking business pax from airlines, as executives dislike the airport hassles they get at hub airports. So, you’re left with the leisure traveler who can plan ahead for cheap tickets, and if they are not available, they just don’t fly.

 

[B6Busdriver]

It's simple. The traditional or so called legacy carriers are only able to make money in the very best of economic times. I don't know what the answer is for the legacy carriers. All businesses struggle from time to time but the airline business has gone through this so many times. There has to be a way to minimze these losses in tough economic times. It's become a viscious cycle. Maybe consolidation would ease the problem but certainly not fix it.

So often on these boards I see pilots blaming the state of the airlines, and their problems, on “flawed business models” It has become almost a catch phrase, really signifying nothing. Just round words with no definitive meaning in the context given. I don’t expect an airline pilot to know what a ‘proper’ business model is, as most pilots did not major in business. That said, perhaps someone on these boards can articulate what the flaw(s) are to the “business model” and even better, define what you mean by the term “business model” What would be a ‘good’ business model? Anyone?

To my view, the real crux of the problem is excessive capacity, and there is not enough ticket money to go around, when those carriers with lower costs (LCC’s) do make money with the lower fares that allow them a profit with low cost tickets. The majors do not seem to be able to hold pricing power with the LCC competition out there, and with the fractionals taking business pax from airlines, as executives dislike the airport hassles they get at hub airports. So, you’re left with the leisure traveler who can plan ahead for cheap tickets, and if they are not available, they just don’t fly.

 

[Publishers]

Taxes

Taxes are not the problem -- if anything as some taxes are fixed,, they are a more significant expense for the LCC. Either way not the big factor.

As to the other more important question, what is the business model. Like trying to get an SR 71 turned around at cruise speed, it is not that easy to change the overall model in any kind of timeliness. For starters, the gates, the aircraft, the equipment and reservation systems, are all long term by their nature. That A320 or whatever is designed to give you years and years of service and it is not necessarily easy to get rid of one along the way. Especially when times are tough like we have been going through.

More significantly, the big factor in all this is not being an LCC, it is having a more efficient airline with less cost. Just by the nature of starting much later than the legacy carriers, they accomplish that. Their model says -- if it could talk== we want to get the business by selling comparable service for less and survive by having less cost to start with we have to cover.

For the most part, their employee group realizes that their success hinges on keeping that cost low. It is hard to go out and demand pilot pay like United, when you know that if your cost structure was like Uniteds you may well be up a creek or dead in the water. I cannot succeed with my model if I was like them. For the most part, these people are hungrier and more in tune with who they are and what is going on than the prima donna's at the legacy carriers. At the legacy carriers, the young are gone. The remainder are the older, more expensive, more hardcore employee group. Before the airline could average their pilot cost over both young and old and get a decent average. Now they have only the expensive left/

Look at another factor--- Eastern, Pan American, Braniff, etc. are all gone. We are down to a few legacy carrierrs and with each blip in the screen, another one may bite the dust. Name all the new carriers that have as an objective to be an international legacy airline. Not happening.

 

[Dizel8]

Taxes are most certainly a part of the problem. SWA CFO mentioned, that the goverment makes more of a SWA ticket, than SWA does.

The goverment got their grabby hands in everything, whether it be fuel, PFC or landing fees.