LJ_Reloaded
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So, is this editorial article factually wrong?
http://www.nytimes.com/2011/12/12/opinion/the-unprofitable-skies.html
EDITORIAL
The Unprofitable Skies
Published: December 11, 2011
For travelers facing down another holiday season of crowded flights, American Airlines’ filing for bankruptcy protection may be more bad news. The company’s employees and pensioners are already bracing for job and benefit cuts. Yet the pain brought on by a big bankruptcy is unlikely to transform the industry into a profitable one.
Almost all the nation’s big airlines have steered a course into Chapter 11 over the last decade. They all shared one main objective: getting out from under labor contracts they claimed they could not afford. American was one of the few that avoided bankruptcy in the 2000s. Its parent company, AMR, argues that its annual labor costs are about $800 million higher than those of its rivals. Bankruptcy will give American leeway to cut pay and benefits by allowing it to reopen union contracts. It will also allow the company to drop its pension plan into the lap of the federal Pension Benefit Guaranty Corporation, which would have to plug a $9 billion deficit. If it did so, retirees whose pensions exceeded the P.B.G.C.’s cap — from $4,653 a month for those retired at 65 to $2,094 for those retiring at 55 — would see their benefits drop.
Using bankruptcy to lift these obligations — as many carriers have — has not made the industry more profitable in the long run. While the nation’s carriers made $4 billion last year, that is not the norm. American alone lost $10 billion in the last 10 years. Severin Borenstein of the University of California, Berkeley, estimates that airlines lost $54 billion from 2000 to 2009 on their domestic routes. In the 33 years since the deregulation of the industry in 1978, they reported negative net income in 23 years.
Travelers would lose if American cut flights on less profitable routes, reducing competition. Some analysts think that American could cut capacity by up to 10 percent, paring operations on routes on which it has a low market share, like Boston to New York.
The airline bankruptcies of the past decade were often followed by big mergers, including those of US Airways and America West, Delta and Northwest, and United and Continental. If American follows the recipe (some analysts have suggested US Airways as a partner), three big airlines would control 70 percent of the national market. Such concentration is unlikely to spur airlines to improve a dismal record on consumer satisfaction. The industry’s long-term lack of profitability is bad for consumers, employees and investors. But bankruptcy filings and megamergers may not fix the problem.
http://www.nytimes.com/2011/12/12/opinion/the-unprofitable-skies.html
EDITORIAL
The Unprofitable Skies
Published: December 11, 2011
For travelers facing down another holiday season of crowded flights, American Airlines’ filing for bankruptcy protection may be more bad news. The company’s employees and pensioners are already bracing for job and benefit cuts. Yet the pain brought on by a big bankruptcy is unlikely to transform the industry into a profitable one.
Almost all the nation’s big airlines have steered a course into Chapter 11 over the last decade. They all shared one main objective: getting out from under labor contracts they claimed they could not afford. American was one of the few that avoided bankruptcy in the 2000s. Its parent company, AMR, argues that its annual labor costs are about $800 million higher than those of its rivals. Bankruptcy will give American leeway to cut pay and benefits by allowing it to reopen union contracts. It will also allow the company to drop its pension plan into the lap of the federal Pension Benefit Guaranty Corporation, which would have to plug a $9 billion deficit. If it did so, retirees whose pensions exceeded the P.B.G.C.’s cap — from $4,653 a month for those retired at 65 to $2,094 for those retiring at 55 — would see their benefits drop.
Using bankruptcy to lift these obligations — as many carriers have — has not made the industry more profitable in the long run. While the nation’s carriers made $4 billion last year, that is not the norm. American alone lost $10 billion in the last 10 years. Severin Borenstein of the University of California, Berkeley, estimates that airlines lost $54 billion from 2000 to 2009 on their domestic routes. In the 33 years since the deregulation of the industry in 1978, they reported negative net income in 23 years.
Travelers would lose if American cut flights on less profitable routes, reducing competition. Some analysts think that American could cut capacity by up to 10 percent, paring operations on routes on which it has a low market share, like Boston to New York.
The airline bankruptcies of the past decade were often followed by big mergers, including those of US Airways and America West, Delta and Northwest, and United and Continental. If American follows the recipe (some analysts have suggested US Airways as a partner), three big airlines would control 70 percent of the national market. Such concentration is unlikely to spur airlines to improve a dismal record on consumer satisfaction. The industry’s long-term lack of profitability is bad for consumers, employees and investors. But bankruptcy filings and megamergers may not fix the problem.
