The New Flight Plan
The nation's airlines miraculously survived their post-9/11 tailspin. Too bad that wasn't their only problem
If the mainline carriers recover, JetBlue and other aggressive startups could go the way of PeopleExpress and dozens of other defunct discounters, taking with them the benefits that trickle down to travelers. But predicting good health for the big airlines is a risky bet. United announced recently that its emergence from Chapter 11 would be delayed until next year. Investors have been bidding up American, but they are so skittish about the company itself that the average holding period for the stock is only 15 days, according to Morgan Stanley, down from 72 days last year. And the industry isn't likely to turn an overall profit until at least 2005--barring any further shocks. Even if that happens, a study by Raymond James & Associates argues that the big carriers, hamstrung by high costs, will back away from the most competitive domestic markets and settle for more-profitable long-distance and international routes.
Harried sky warriors may delight in seeing the airlines get their come-uppance. But be careful what you ask for. A shrinking industry, even with a rising proportion of cheap carriers, could accelerate the erosion of service to less profitable regional markets, like Fresno, Calif., and Bangor, Maine--which don't have enough daily fliers to attract Southwest-style airlines. And discounters don't always mean improved service. When Southwest entered Jackson, Miss., in 1997, it offered cheap flights to a handful of cities. But it eventually drove out TWA (since purchased by American), which had connected Jackson to the rest of the country through its St. Louis hub. And even if the big carriers remake themselves as nimble middleweights, they may be forced to pull out of marginal hub airports like Pittsburgh, Memphis, and Cincinnati, with nobody else interested in replacing the home carrier. "We'll have a viable, robust industry," predicts consultant Michael Boyd of the Boyd Group in Evergreen, Colo. "But it's not going to be plebeian. It will be more exclusive." At least you'll be able to watch TV.
THE BIG GET ... SMALLER
While most major U.S. airlines are losing money and reducing capacity, discount carriers are doing the opposite.
Estimated net earnings, 2003
Southwest $292 million
JetBlue $81 million
AirTran $61 million
America West -$65 million
Alaska -$74 million
Continental -$240 million
US Airways -$615 million
Northwest -$659 million
Delta -$1.0 billion
American -$1.7 billion
United -$2.2 billion
Estimated changes in available seat miles, year-end 2003
JetBlue 66.3 percent
AirTran 21.6 percent
Alaska 7.0 percent
Southwest 4.9 percent
America West 3.3 percent
Continental -2.0 percent
American -3.7 percent
Northwest -4.3 percent
Delta -8.0 percent
US Airways -8.7 percent
United -9.0 percent
Source: UBS; USN&WR
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