- Mar 7, 2004
- Total Time
Contrary to conventional wisdom, "there is no clear evidence" that US airlines operating under Chapter 11 bankruptcy protection "harm the industry by contributing to overcapacity or underpricing their competitors," according to a new study by the US General Accounting Office, the investigative and research arm of Congress. Furthermore, GAO found that in individual markets and industrywide, "the liquidation of major airlines has had only a very temporary or negligible effect on capacity, as other airlines have quickly replenished capacity." In what may be its most controversial finding, GAO suggested that one reason capacity has not left the industry despite 162 airline bankruptcies since deregulation is that companies higher up in the aviation "value chain," including OEMs, financiers, lessors, GDSs, airports and credit card companies, do not want capacity to depart. "There is considerable evidence that these other members of the value chain have earned a good return on capital while airlines have not," the agency stated. "Those companies further up the value chain face less competition and are able to impose higher costs on airlines. Accordingly, these companies have a vested interest in ensuring that airlines survive and that capacity [does] not leave the industry." The report also notes that few airlines have been successful in reducing costs significantly during bankruptcy.