WOMAN: There’s your seat assignment.
WOMAN: Thank you.
WOMAN: Have a great flight.
TOM BEARDEN: It’s the height of the summer travel season, and airplanes are filled to capacity with vacationers. That should be good news for the airline industry, except for one thing: Most of those passengers are flying on tickets that were purchased before the huge spike in oil prices.
MICHAEL BOYD, PRESIDENT, The Boyd Group: The American airline industry is probably losing money on 80 percent of the flights they’re flying.
TOM BEARDEN: Airline analyst Michael Boyd says that, on average, airlines are taking in $166 on a one-way fare.
MICHAEL BOYD: Of that, $139 goes to fuel, as of today. So, that leaves you with, what, $27 to pay for everything else — pay for the airplane, pay for landing fees, pay for the crew. So, they’re losing probably a lot more than $60 on average. And, remember, they have sold most of the seats for the next two months, all at a loss.
Southwest avoided financial strains
TOM BEARDEN: Boyd calculates, the industry could lose over $7 billion this year.
For most airlines just to break even, the price of oil would have to drop to $80 or $90 a barrel, which isn't expected to happen any time soon. So, airlines have begun looking for other ways to offset the costs. Perhaps most visible to passengers are the new fees for everything from checked bags to better seats.
The one exception to all this is Southwest Airlines, which gambled in the futures markets and locked in a price of $51 a barrel for much of its oil. It's the only U.S. carrier not having major financial problems and not charging extra fees. Southwest launched an advertising campaign poking fun at the competition's fees.
NARRATOR: Tired of being nickel-and-dimed by other airlines?
ACTOR: Is this your first flight?
Slashing schedules, raising fares
TOM BEARDEN: But it's no laughing matter to Steve Snyder and employees at Frontier Airlines, which filed for bankruptcy protection in April.
STEVE SNYDER, Spokesperson, Frontier Airlines: We have built a reputation over the years as very customer-friendly. Our corporate slogan is "a whole different animal." We have to walk a fine line of, how do you cover those costs without seeming like you're nickel-and-diming your passengers? And it really is a difficult decision.
TOM BEARDEN: Some people ask, why not just raise the fare?
STEVE SNYDER: I think everybody agrees the ticket prices need to go up. But the consumer, the traveling public out there, has gotten so used to airfares being very reasonable, very affordable, that even a small increase would be enough to completely change their mind about traveling, which then defeats the whole purpose.
TOM BEARDEN: Frontier and most major airlines are also cutting back on their schedules to try to save money. Frontier is dropping 17 percent of its flights. At Continental and United, it's 11 percent.
MICHAEL BOYD: This is the first time I have ever seen where airlines are pulling back capacity in the face of demand, not as a result of falling demand. The airlines are pulling back capacity as fast as they can because a lot of that demand that's there today, they can't serve and make any money. So, they're leaving passengers behind, rather than passengers leaving airlines behind.
From a recession to a depression
TOM BEARDEN: Schedule cutbacks also mean fewer jobs. More than 25,000 people are expected to be laid off industry-wide in the coming months.
Captain John Prater is a Continental pilot and the president of the Airline Pilots Association.
CAPTAIN JOHN PRATER, President, Airline Pilots Association: It's causing a recession to turn into a depression in our industry. We're losing companies. We're losing jobs. And we're forecasting more losses after Labor Day.
TOM BEARDEN: How would you characterize the mood of your membership?
Pensive, very frustrated. Our members took huge cuts in their wages. They gave up their pensions or had those pensions stolen to try to save their jobs. Now they're seeing those jobs and those companies disappear from underneath them.
TOM BEARDEN: In the past four months, Aloha and ATA Airlines have gone out of business. And some analysts predict that, before this oil crisis is over, one of the major carriers will be forced into liquidation as well. Frontier says it's fighting every day just to stay in game.
Does the cost of fuel threaten the very existence of your company?
STEVE SNYDER: Absolutely. I think it threatens the very existence of the airline industry as we know it. The way things are right now, the airline industry as it is right now is not sustainable. None of the carriers -- with the exception of maybe one or two here or there -- have a model that is sustainable at the oil prices that we're seeing. I don't think people truly grasp the crisis that is gripping the airline industry right now.
TOM BEARDEN: Snyder thinks people will start to pay attention this fall, when ticket prices are expected to increase dramatically, while available seats will become far more limited.