NCPA - National Center for Policy Analysis

A Simple Blueprint to Save The Nation's Airlines

December 10, 2002

With United Airlines joining the list of major passenger carriers in deep financial trouble, those familiar with the economic woes of the industry are offering advice for salvaging it.

The major carriers are losing large amounts of cash and revenue is running below the amount generated in 1995. Meanwhile, the industry's balance sheet now carries nearly 90 cents of debt for every 10 cents of equity.

While more than 80,000 employees have been laid off and more than 577 aircraft have been temporarily or permanently retired, no carrier has so far successfully dealt with the biggest problem -- union contracts and employment practices which drive labor costs substantially above competitors like Jet Blue, AirTran and Southwest.

Critics say the government has exacerbated the industry's difficulties with some very poor policy decisions.

  • The multitude of fees and taxes imposed by the government now accounts for about 25 percent of the fare paid by the average traveler and some would-be passengers are responding by staying at home -- a situation the government must redress by canceling those burdens.
  • New passenger and baggage screening procedures are adding expenses for the airlines, frustrating fliers and driving them away from air travel -- suggesting that the Transportation and Safety Administration should take advantage of the flexibility recently granted by Congress to be certain that new security procedures are introduced only as rapidly as consistent with reasonable travel convenience.
  • Because major carriers will be unable to compete successfully until their unit labor costs approximate those of their low-cost competitors, bankrupt carriers should be able to reject labor contracts as they do other types of agreements -- and to prevent labor costs from rising again once the industry's reorganization is complete, the government should require mandatory arbitration in airline labor disputes, some critics advise.

Source: Robert W. Crandall (former chairman and CEO, American Airlines), "Out of a Tailspin: A Recipe for Airline Rescue," Wall Street Journal, December 10, 2002.


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