Real Airline Woes

Background

Yesterday, this blog poked fun at the airline industry over its silly regulations concerning cell phones and seat belt demonstrations.

Today, I will look at some of the real issues that the industry is facing.

The airline industry has always been one of boom and bust. The intense capital nature of the business makes it very difficult to make money. In fact, in the history of the industry, airline earnings have a CUMULATIVE NET LOSS. Today's problems will only add to this record.


Bankruptcies: 4 In 3 Weeks

---Aloha Airlines filed for Chapter 11 bankruptcy and shut down operations on March 31.

---ATA Airlines files for Chapter 11 bankruptcy and shut down operations on April 2.

---Skybus Airlines ceased all operations and filed bankruptcy papers this past Saturday.

---Champion Air, a Minnesota-based charter airline, will stop flying by May 31.


Stalled Mergers

---The proposed merger between Delta Airlines and Northwest Airlines has been on hold for months as the two unions representing the pilots have been unable to reach agreement.

---United Airlines and Continental Airlines began merger talks earlier this year, but talks have been put on hold as these two airlines are waiting to see what happens with the Delta and Northwest discussions.

---The Air France - KLM buyout of Italian Carrier Alitalia is facing opposition from Alitalia labor unions. If agreement is not reached soon, the Italian government will be forced to jump in.


Safety Issues

---The Federal Aviation Administration has begun cracking down on airline compliance with safety inspections. This has resulted in cancelations at American Airlines, Southwest Airlines and Delta Airlines.

---American Airlines canceled over 1000 flights today, or about one-third of its schedule, impacting about 100,000 travelers. Inspection of wiring problems caused cancelations of hundreds of flights two weeks ago and 460 flights yesterday.

---Several weeks ago, Southwest Airlines grounded about 10% of its fleet as it inspected for structural problems. The inspection lapse resulted in a $10.2 million fine from the FAA.


Fuel Costs
---Fuel prices continue to go higher. Another record was set today. There is a growing belief that this is not a temporary spike. Yesterday, the Energy Agency forecast that oil prices will average $101 for the entire year; this is a sharp increase from earlier projections.

---UPS, the world's largest shipping company, warned today that 1st quarter earnings will be lower than expected due partially to higher fuel costs.


New Product Delays

Yahoo Finance is reporting that "The Boeing Co. delayed its 787 jetliner program again Tuesday, pushing back its expected debut in commercial service to the third quarter of 2009 as it continues to grapple with problems involving its supply chain and the need to redo work done by contractors.

The newest delays push the 787's schedule back approximately another six months and mean the aircraft touted for its potential to be more fuel-efficient than other large jets is now more than a year behind its original schedule.....

The fourth delay with the 787, coming less than three months after the last one, further undermines Boeing's credibility on the much-hyped program and also is a setback to the more than 50 airlines that have placed nearly 900 orders for the top-selling plane. Buyers are likely to seek compensation for the delays."


The Usual Ongoing Problems

Delayed flights.....Lost luggage.....Dealing with Homeland Security.....You get the idea. It's no wonder that the industry has such a bad reputation.