TOPICS > Economy

Struggle to Recover

December 25, 2001 at 12:00 AM EDT


GWEN IFILL: The airline industry– hit hard by the September 11 hijackings– is facing new passenger anxiety with the arrest Saturday of a man carrying explosives on a Paris to Miami flight. Before that incident, Margaret Warner recorded this discussion about the condition of the nation’s airlines.

MARGARET WARNER: By tradition is holiday on is one of the busiest el times of the year. But what does that mean in this post 9/11 world? Are travelers returning to the skies? What are they finding, and what does this mean for the airline and travel industry? To explore all of that, we turn to Rudy Maxa, a travel writer and regular commentator on public radio. Julius Maldutis, an aviation analyst and consultant for several investment banks. And Paul Steven Dempsey a law professor and director of the transportation law program at the University of Denver. Welcome to you all.

Paul Dempsey, are travelers returning to the skies?

PAUL STEPHEN DEMPSEY: Well, they are. Traffic is down year over year, 16% during this New Year’s and Christmas holiday season. It was down 20% during the last Thanksgiving season year over year. So people are beginning to come back. People are becoming more comfortable with the idea of flying.

MARGARET WARNER: The low fares, Rudy Maxa, also have to be an incentive here.

RUDY MAXA: No question. I think a lot of people ought everything was on sale and they’re disappointed when they call and maybe want to go to a smaller town somewhere in the United States and find out the fares are still very high. But between major routes, the fares have been very, very low, both nationally and internationally.

MARGARET WARNER: So Paul Dempsey, talk a little bit more about what travelers are finding on the security side; you’re saying they feel safer. Do they have reason to feel safer?

PAUL STEPHEN DEMPSEY: Well, they do. The tragic events of September the 11th are highly unlikely to be replicated for several reasons: One is, the cockpit doors on virtually all commercial aircraft have now been reinforced, and the pilots have been instructed not to leave the cockpit, unless they absolutely must. They’re instructed now to take the plane down and land it at the closest airport. There are armed federal marshals aboard the long haul flights, most of them, and there is a greater level of vigilance now. There is all the screening positions. The screeners are now told they have an opportunity within year to be transformed into federal law enforcement personnel. And I think they’re… They understand that their job now is very important.

MARGARET WARNER: Rudy Maxa, what you would add to the security picture?

RUDY MAXA: Well, I wish it were all that rosy. I agree with my colleague, that, indeed, it is safer to travel now, and no one is a bigger booster of travel than I am right now. But, by the same token, we didn’t learn the lessons of Lockerbie, and there is precious little baggage screening going on. It’s not going to come into effect, as Congress has asked for, simply because it’s impossible to build that many screening machines.

MARGARET WARNER: And you’re talking now about the new procedure that’s supposed to go in January, which didn’t apply to this holiday period any way?

RUDY MAXA: And most major airlines in the United States are still not… Except on international flights, matching passengers with their luggage. So, I mean, I wish I could say it was really safe to fly, and I wish everyone would fly, and I have been flying without worry. Having said that, though, we still have a ways to go. And I hope we don’t, as we did with Lockerbie, forget the lessons and not tend to business.

MARGARET WARNER: You have been flying a lot, you say. What do you find in terms of the evenness of the security procedures are they pretty standard across airports, or does it really depend where you are?

RUDY MAXA: It really depends where you are. It’s all over the map. I have flown both internationally and nationally since September 11, twice overseas. And, you know, I had an old corkscrew in the bottom of my carry-on bag that I forgot was even there. It was discovered in London’s Heathrow. And I flew the first international flight, one of the first flights that left Dulles after 9-11, and it was missed at Dulles, even though everything was hand searched. In the United States, you remove your computers from your bags to be x-rayed. You don’t overseas.

MARGARET WARNER: And, Paul Dempsey, what about the hassle factor? In other words, there were a lot of complaints from passengers that, in the weeks after 9-11, it almost wasn’t worth flying, unless you absolutely had to, because you didn’t want to wait in line for three or four hours?

PAUL STEPHEN DEMPSEY: Well, there have been some horrible experiences. At many airports… several airports, the delays have been three and four hours, and they’ve been telling people to check in that early before their flights. They now train more people. They’re providing better supervision and the times now are significantly reduced at most major airports. Normally today, you’re asked to get to the airport not more than two hours ahead, so that’s an improvement.

MARGARET WARNER: You mean they don’t actually want you to come longer than two hours ahead?

PAUL STEPHEN DEMPSEY: Well, some airports they don’t, because it simply creates a lot of people to try and deal with who are sort of milling around concourse waiting for their flights, and it’s… It creates a lot of congestion.

MARGARET WARNER: Mr. Maldutis, I want to bring you in here now. Despite this better picture, the airlines are still losing money.

JULIUS MALDUTIS: Absolutely. For the first nine months of this year, the nine major carriers reported a loss of $5 billion. For the fourth quarter, we’re looking at another loss that perhaps, will exceed $4 billion. The US Airline industry is in a very serious unprecedented financial crisis, something that’s even worse than what occurred in 1991. While I share some of the optimism that passengers are coming back, the problem lies is that business travel, which is the critical piece for the financial success of carriers, is still weak and is not coming back as expected. We’ve seen unprecedented low fares. Discretionary travel is coming back, but the key element is going to be the return of the business traveler.

MARGARET WARNER: Before we go on to the business traveler, though, let me ask you a little bit more about the low fares, about the fuller… slighter, fuller planes. Are you saying that right now, if a plane leaves, and I don’t know, flies from Washington to LA at 80% capacity, which I gather is the average right now, it’s still… Will the airline be losing money on that flight?

JULIUS MALDUTIS: Absolutely. They’re going to lose money because the fares are so low, and the only passengers they’re attracting are the discretionary vacation travelers. So while volume is coming back, just in the month of November the average fares were down; 23% revenues for the month of November are down 40%. So we are going to see some very ugly financial numbers when the carriers start reporting their results at the end of January, early February.

MARGARET WARNER: Rudy Maxa, are people who know… Who aren’t flying, are they just not traveling, or are they going more by train or bus or car? What are the numbers there?

RUDY MAXA: Some are not traveling. There really wasn’t a huge increase overall in Amtrak’s numbers after September 11, which surprised a lot of… surprised me. I can’t tell you about bus travel, but there are a smaller percentage more driving. So some people are staying at home. Some people are taking other modes of transportation. Hopefully, hopefully, slowly this holiday season we’re going to do better numerically with airplanes than we did during Thanksgiving.

MARGARET WARNER: All right, Mr. Maldutis, back to you. Now, what about the government bailout back… After ember 11, there was the $15 billion Congress passed. Only $5 billion in cash, I guess, and the rest in loan guarantees. But what has that done for the airlines?

JULIUS MALDUTIS: The $5 billion was very critical to keep the carriers operating after September 11. I think it was a very good move on the part of the government. The concern on my part is that the $10 billion loan guarantee program is not going to be available to everyone. We’ve only had two small carriers applying for it. It has some very stringent conditions. Remember, the steel industry got a loan guarantee program, and out of 25 steel companies, I believe, only one was able to obtain and meet the government conditions. So the $10 billion loan program is a what if situation. The real critical piece is that business travel should return, and that will depend on the course of the US economy.

MARGARET WARNER: Professor Dempsey, back to you. So, can the airlines weather this?

PAUL STEPHEN DEMPSEY: Some airlines can; some airlines cannot. We had one major CEO of a major airline recently say that his company would perish unless the cost structure was significantly adjusted downward. There are going to be some chapter 11 filings probably after the new year, and there are going to be some carriers that likely will be liquidated. I’m not going to name names, but there are some carriers that are in serious trouble.

MARGARET WARNER: And, Mr. Maldutis, what would it take… You said the real key here is the business traveler. We’d, of course, like to see that particularly after the first of the year. When is that coming back?

JULIUS MALDUTIS: Well, obviously, if the economy starts recovering, as many economists expect early next year, I would expect that business travel will start coming back. The real critical issue, will we get back to the previous volumes? And I think there are some very serious questions whether this industry will come back in the form that it was prior to September 11. So it’s going to be a very touchy situation.

MARGARET WARNER: But what tells you that? I gather there is an up-tick in buying timeshares on planes. Business travelers are doing that now, companies are.

JULIUS MALDUTIS: And not only time shares, but the sale of executive jets basically taking away a lot of business travel that normally would travel on the airlines. In fact, United Airlines has started up a subsidiary that caters just to the corporate jet market. So the question is, will you see business travelers that normally would fly on United Airlines opt out to fly on a business jet for its subsidiary? Again, the real critical piece, is business travel going to come back, and at this point in time it’s really going to take a strong economic recovery?


RUDY MAXA: But the onus is not just on the business traveler coming back. The onus is also on the airlines to make sense of business fares. Prior to 9-11, business fares were astronomical compared to leisure fares, and it wasn’t right. And business people were sick of it, and they were voting with their feet long before September 11. And until the airlines find out a way and the short-term of cutting by 85% some business fares through early January is not going to do it… Until they find a way to price this so business travelers don’t feel they’re getting ripped off, you know, it’s a two-way street here. It’s not just the onus to get the business traveler back on, it’s also for the airlines to begin, figure out a new, more creative way of pricing so the business traveler doesn’t feel he or she is being gouged.

MARGARET WARNER: Would you agree, though, with Mr. Maldutis in general, that the real comeback for the airline industry is going to be when the economy gets back out of recession?

RUDAY MAXA: If, again, if they convince business travelers it’s worth it getting on the planes. So instead of sending one person to a meeting, if they really need to send three, they might send three, or they might not teleconference, or they might not phone it in. So it’s going to require a change, I think, on the part of the airlines in pricing.

PAUL STEPHEN DEMPSEY: Well, there are two other factors that are essential recovery: One is a capacity in relationship with demand. Right now we have an excess amount of capacity relative to demand, and some of that has been grounded, and still we don’t have the load factors we should have, even with these fares. And second, is the cost structure of the major airlines. The major airlines have signed labor agreements in recent years that are unsustainable in terms of the viability of the companies, given their ability to price at a level to cover those costs.

MARGARET WARNER: But Professor Dempsey, it sounds like you’re all saying is, ultimately both the problems the solutions have less to do with September 11 than they do with the overall economic health and the health of the… Or rather the economics of the airline industry, period.

PAUL STEPHEN DEMPSEY: Well, my friend Julius is absolutely right. It was shaping up to be a miserable financial year for the industry, even before September 11. The catastrophe of September the 11th, it scared away an enormous amount of passengers who were terrified by watching planes crash into the World Trade Center again and again and again on the evening news.

MARGARET WARNER: Thank you, all three, very much.