Fifteen bucks to check a bag? Twenty more bucks for a second bag? An extra $10 for a window seat? A soggy sandwich for five bucks? Is there any possible reason the nation’s airlines have started treating fliers like ATMs?
There is: The airlines are dying.
Forget profitability; if crude oil breaks $150 a barrel and stays there, US carriers are less than a year away from mailing all the keys to all their planes back to the banks and leasing companies and telling customers, good luck finding your way to Florida. It’s that bad. In biblical terms, it’s End Times for airlines.
Here’s the math: American Airlines, still the biggest kahuna out there until Delta Air consummates its unholy tryst with Northwest Airlines, paid $6.7 billion for jet fuel last year, about three times what it spent on fuel in 2000, when it flew more miles with less efficient planes.
Keep oil trending in the direction it has been for the last month, and their bill rings up at $11 billion, maybe $12 billion, or almost half of every dollar it takes to run the world’s largest airline. That one-year increase – let’s just ballpark $5 billion – approaches the airline’s entire payroll for 2007.
Airlines collectively are looking at $70 billion in extra fuel costs this year, according to global trade group IATA, and that estimate was made before crude oil soared past $130 a barrel.
The new fees that American rolled out this year, including the head-scratching first-bag fee, barely move the needle on that kind of deficit. The airline says it’s losing $3 million a day and its cash balance is diving full-throttle toward bankruptcy.
American actually is in better shape than United and Continental in terms of cash reserves. But the industry’s bag of bankruptcy tricks is empty this time. Most carriers survived 9/11 by slapping around their unions, taking billions out of labor.
With oil at $150 for a long period, big carriers could pay their employees nothing and still not earn decent returns, much less make enough money to replace their aging fleets or improve their lagging customer service.
Consolidation isn’t a savior, either: Mergers cost money up front because labor unions must be bought off with higher wages to give permission.
So why not raise fares by $100? Because carriers have already raised prices 14 times this year, including this week by another $30. The hikes are particularly stiff on the business fares that New York law firms and Wall Streeters simply have to pay.
Would you spend $600 a person just to fly to Disney World? The carriers are at a tipping point for demand; big price hikes will push more people off the planes, meaning fewer dollars in their coffers.
A growing number of folks see us flying straight toward government re-regulation. If airlines can’t survive competing in a free market, Uncle Sam will be forced to set routes and prices to make sure the economy hums. We’d get to party like it’s 1977, and few among us have the correct pants for such an occasion.
Having the feds run the airlines might work OK for corporate fliers, but it’d basically mark the end of cheap leisure travel, the spur-of-the-moment weekend on South Beach or the let’s-go-to-Vegas-right-now urge.
The idea behind re-regulation is simple: Charge enough to keep airlines in the sky, which means the end of “excess inventory” that we know as deeply discounted seats. And who knows what happens to prized frequent-flier programs – who needs loyalty when the schedule and price is set by a government board?
The International Association of Machinists actually asked Congress to re-regulate the industry at merger hearings this spring, a refrain that’s likely to gain steam from other airline unions that sense their demands for higher pay are going over like stale peanuts.
Fliers who are irked at $15 for a bag should expect more creativity on the fee front: more money for assigned seats; the end of whatever free drinks and snacks aren’t already gone; surcharges to talk to any live airline employee about anything; even surcharges to earn frequent-flier points on fares.
For airlines, it has become the dogma of desperation.
Dallas writer Eric Torbenson covers the airline industry.