ASTA, ARTA to Congress: Just Say ‘No’

Travel trade organizations urge Congress not to give the airlines additional federal relief

By: Jerry Chandler

After airline executives pleaded for more federal relief last week, travel agency organizations stepped up to urge Congress not to give in to the demands. ASTA’s statement even said that, unless the airlines change the way they do business, why “should we continue to sink taxpayer dollars into a failing system?”

The ASTA comments shot for the moon: If the government agrees to further help the struggling industry, the airlines should shut down Orbitz, withdraw proposals for domestic code-sharing agreements with major carriers, supply lawmakers with plans for reforming pricing and service to achieve profitability under foreseeable marketplace conditions, make all airfares available for sale through all distribution channels and eliminate what it described as punitive nonrefundable ticket restrictions.

ARTA, meanwhile, said it would submit written testimony opposing any further aid to the House Aviation Subcommittee, which heard testimony from industry executives Sept. 24.

“It’s time to put the marketplace not Congress in charge of the airlines,” said John Hawks, the organization’s president.

In an Associated Press report, Rep. John Mica, R.-Fla., the subcommittee chairman, said the airlines won’t get a government bailout but could expect some assistance with the cost of additional security requirements imposed after last year’s terrorist attacks.

“They need our help,” he said.

No matter how Congress handles their pleas, the major airlines definitely are struggling and everyone knows it.

“They’re in trouble, and they don’t know how to get out of it,” said Morten Beyer, chairman of Morten Beyer & Agnew, an aviation consultancy based in Arlington, Va.

Donald J. Carty, American Airlines chairman and CEO, told the House subcommittee: “Without relief, our efforts to control our own costs will be futile.”

The average U.S. carrier “is 90% leveraged ... our balance sheets and credit ratings are deteriorating rapidly,” Carty told lawmakers.

In 2001, major airlines lost some $7.7 billion in the United States. This year, Wall Street pegs those losses at $5.7 billion to $7 billion.

But, unlike the $15 billion in federal support that followed Sept. 11, this time the carriers are seeking a more subtle form of bailout. They want taxpayers to pay for terrorism liability insurance for up to one year and to reimburse them for the cost of mandated security changes, such as the strengthening of cockpit doors.

Airlines also want an end to monthly security fees paid to the Department of Transportation and elimination of the $10 security fee that passengers now have to pay on each roundtrip.

Airlines are also worried about sharp increases in jet fuel prices and a further falloff in ridership if the United States invades Iraq. “Such an event really would put a financial burden on this industry,” American’s Carty said. “That would inevitably sink several carriers.”

Special Treatment?

Airlines want a significant cut in federal fuel taxes to help offset rising fuel prices.

“We are not asking for special treatment,” said Leo F. Mullin, Delta Air Lines chairman and CEO.

But critics argue that is precisely what airlines are requesting.

“It’s time for the marketplace to punish and reward management and labor decisions in the airline industry,” the president of the Business Travel Coalition, Kevin Mitchell, said in a prepared statement.

In the immediate wake of last year’s terrorist attacks, the coalition voiced support for the federal bailout. But Mitchell believes the burden now lies with the airlines to buoy their own balance sheets.

He indicated they can start by treating customers better. Cramped airplanes, diminished service and implementation of use-it-or-lose-it strictures for nonrefundable tickets “have backfired,” he said.

The result?

“There’s a backlash from customers whose loyalty was taken for granted,” Mitchell said.

Gerald Greenberg, president of Baldwin Travel Bureau in Los Angeles, agreed.

“[Airlines] are crying the blues, but I think they created a lot of their own problems,” Greenberg said.

Even if Congress approves the measures that carriers want, industry observer Beyer maintained that it may not be enough.

“What they’re proposing is no more than a Band-Aid,” said Beyer, adding that if they get what they want from legislators, carriers “will just dig their hole deeper.”

Beyer believes governmental re-regulation is needed to maintain the viability of the U.S. airline industry. Since 1979, airlines have been free to set their own routes and fares, unencumbered by the oversight of the now defunct Civil Aeronautics Board.

But Beyer conceded that re-regulation “isn’t going to happen.” In the absence of a move to re-regulate, he said, airlines must exercise “an extraordinary amount of self-discipline to restructure their whole route systems.”

Right now, the major carriers provide jet service in some 140 U.S. cities “and virtually every one of the airlines operates in at least 100 of these cities,” Beyer said. Without eliminating some of that overlap, he said, he doesn’t see carriers returning to profitability.

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