American Morning

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June 16th, 2009
07:01 AM ET

Will airlines be the next GM?

From CNN's Carol Costello and Bob Ruff

Anyone out there old enough to remember the days when flying was fun and the airlines made you feel, well, special?

"The powder rooms," says this Pan Am commercial from the 1950s, "...look like those in a private home." The commercial shows smiling "stewardesses" attending to every passenger's need. Viewers are assured that "the travail has been taken out of travel."

Those WERE the days.

Today, not getting bumped from an overbooked flight and scoring an aisle seat are considered triumphs.

And airline profits seem as dated as that Pan Am ad (Pan Am went out of business in 1991).

The airlines are losing money hand over fist. Here's the roll call from the first quarter 2009:

  • American: $375 million net loss
  • Continental: $136 million net loss
  • Delta: $794 million net loss
  • Southwest: $91 million net loss
  • United: $579 million net loss
  • US Airways: $103 million net loss

High fuel costs are only part of the problem. People just aren't flying as much as they used to. The International Air Transport Association (IATA) says so many people are in debt that, even if the economy improves, "a significant portion of existing income or any new cash could be used to pay down debt rather than spend and travel."  Businesses too are figuring out ways to curb air travel.

So, are the airlines about to land on the same road that led GM and Chrysler to bankrupcy?

Airline analyst Mike Boyd of the "Boyd Group" says that while the airlines are in trouble, the industry is not likely to crash like the the auto sector. One big difference, he says, is that when passengers don't fly, airlines can simply park the unused planes. That allows them to cut flights, save fuel, and limit the damage. And that's exactly what they've done in the past when faced with significant losses.

But none of that means the airlines don't need or want help.

Rep. John Mica (R-FL) told CNN's Carol Costello that infusion of foreign capital could breathe new life into the airlines. Right now a 1938 law restricts the amount of foreign ownership of U.S. airlines to 25%. Mica wants to up that to as much as 49%, so long as American control is maintained.

The IATA's Steve Lott wants the Obama administration to help too. He says the administration has talked up rail transportation without doing the same for the airlines. "When the government is pushing so hard for rail when there is really not as much a demand for rail than air, we have a problem with that."

The Government's response? The Department of Transportation told us, "Aviation is an important sector of the economy, period."


Filed under: Business • Transportation
soundoff (5 Responses)
  1. CharlesLH

    Good Morning:

    Aviation is not just an important part of our economy; it's an important part of our national security system. Every day, thousands of active duty military use commercial aviation to return from deployments or for business travel.

    In the event of a national emergency, our aviation system would once again be put to use for a wide range of reasons.

    Aviation is not just "another business" that might need to be bailed out; it's a necessity and safe aviation is a requirement. Get a life guys and wake up to the fact that flying is the ONLY way to efficiently get somewhere in a time-effective manner.

    June 16, 2009 at 11:43 am |
  2. valboski

    Health care will be the next GM

    June 16, 2009 at 8:41 am |
  3. Larry

    Between GM and the airlines I can't believe these clowns call themselves managers. Maybe less time on the golf course and more time in the office......

    You don't get in this kind of trouble overnight.

    I wonder what they take in salary and bonuses.

    June 16, 2009 at 8:40 am |
  4. Bernadette Loesch

    Good Morning John and Kiran, I would remind the airlines that there are too many of them and a natural winnowing is normal. Second, if the agency responsible for monitoring them were less mired in red tape and showed the flying public that airlines are indeed safe we would not consider resorting to train travel. Instead of being proactive, what we see after fatal crashes are fixes as a result of serious engineering failures.

    June 16, 2009 at 7:42 am |
  5. Aaron

    Great article Carol, but I recently saw an article showing how much revenue the airlines have brought in due to baggage fees and other fees. I have flown more this year than I have in past years which is only eight flights, however, all but one of those flights was overbooked. If these airlines are not making money they need to adjust how they are conducting business. More revenue from sources and overbooked flights should equal profits. It is being mismanaged. Bet the managers are overpaid.

    June 16, 2009 at 7:41 am |