Too many airlines? Too many flights?

[question everything]

Too many airlines? Too many flights?

Merger plan does little to quell fears

By Matthew Barakat
ASSOCIATED PRESS

May 21, 2005

McLEAN, Va. – Bankrupt US Airways may have saved itself by agreeing to merge with America West Airlines, but the deal does little to address what many in the industry believe is a fundamental problem: too many carriers offering too many flights.

When US Airways Group Inc. made its second trip into bankruptcy in September, some competitors hoped and many experts believed the airline would never emerge, allowing competitors to pick the bones from the carcass of the nation's seventh-largest airline.

Southwest Airlines Inc., for instance, made no secret of its desire for some of US Airways' gates at its Philadelphia hub, where the two airlines compete directly. Other airlines eyed US Airways' slots at airports in New York, Washington and Boston and some of its profitable Caribbean routes, but nobody wanted to acquire the dysfunctional airline as a whole.

Now, even though many in the industry believe the collapse of a carrier like US Airways would be the best remedy for excess capacity, the planned merger with America West calls for just a slight trim of the US Airways fleet.

More..

Find this article at:
http://www.signonsandiego.com/uniontrib/20050521/news_1b21airlines.html

[SheilaT]

1. I'd like to know where all those

excess flights and seats are. I haven't been on a plane that isn't completely full since before 9/11.

[question everything]

4. ATA between Minneapolis-St. Paul and Chicago Midway

Flew last month and it was really pathetic how empty the flights were. Of course, they do have once every hour, or so, usually as a stop between MSP and other destination like New York, I think. NWA also has many flights on this route.

The ticket was $79 one way at peak hour, which, for Thursday, started mid morning, $59 for non peak hour. They offered an upgrade for business class at $30, but for a barely one hour flight, they had no takers.

Christmas and New Year, though, MSP - LGA were packed. International MSP-AMS packed, very uncomfortable. I don't know why NWA still uses the old tortuous DC10 with its 2-5-2 configuration and with the pre-monstrous carryons overhead bins. They filled when barely a third of the passengers boarded (I carried a small carryons that easily fit..)

[BuelahWitch]

6. I was thinking the same thing

Crammed in like sardines on three of my last four flights.

[Steel City Slim]

2. Competition and Fairs

Fewer airlines and fewer flights mean less competition. Less competition means higher fairs. I'm sure the airline industry would love to see some airlines go under. That would reduce our options and give the existing airlines greater freedom to stick it to us.

[lnmike]

3. Too many airlines? Too many flights? Too many people flying?

The corporate oligarchs have had about enough of having to share their airports with us inconsequential proles. The country is full of people who have no business flying. Greyhound is good enough for 'em!

[Dover]

5. Article in The Economist says GE is propping up the airlines

A long article on the airline's pending 'collapse' in the May 21-27 issue:

(excerpt)-

...Arguably, however, the most significant change in the (airline) industry since the early 1990s has been the growing role of aircraft lessors. They are led by General Electric's Commercial Aviation Services (known as GECAS) and International Lease Finance Corporation (ILFC), owned by AIG, the biggest American insurer. The GE business offers a panoply of services to airlines: not only is it the leading maker of jet engines, but also it offers aircraft finance, aircraft leases, servicing and even pilot training. “No organisation envelops airlines quite like GE,” wrote Robert Ashcroft, an analyst at UBS, in a recent research note.

Moreover, GE is the leading lessor within America. Over half of its roughly 1,350 planes are with American carriers. In contrast, ILFC leases nearly 90% of its planes to non-American carriers. At the end of 2004, GE had 150 aircraft, financed to a value of $2.6 billion, with US Airways alone.

This explains why GE has been so supportive since September 11th of stricken airlines. A nightmare for GE would be another carrier flying into Chapter 11, or one of those already there being liquidated, as either would release a flight of planes on to the market, thereby further depressing second-hand values and leasing rates.

Many of GE's leases to American carriers are so-called leveraged leases. These let the owner of an aircraft (ie, GE) defer its tax bills by writing off the cost against tax over seven years. Add in the interest on money borrowed to finance the plane and the effect is to reduce the lessor's tax payments in the early years of the lease.

Companies from beyond the usual bounds of aviation have become involved in this scheme over the years, to defer tax. A firm could, through a special-purpose entity (SPE), stump up, say, only 20% of the cost of an aircraft and yet claim 100% in tax relief—all without putting the relevant debt on to its balance sheet. When an airline goes bust, however, the deferred tax could become payable sooner than expected, and the money in the SPE could be at risk. Firms such as EDS and Walt Disney that, surprisingly, are involved in financing aircraft leases, took write-downs when US Airways and United went into Chapter 11. Whirlpool, a maker of white goods, faced accelerated tax payments. For GE, another airline bankruptcy could be a double whammy: lost or lower lease revenues and large tax payments.

A glance at GE's exposure to American carriers explains its willingness to intervene to help airlines stave off Chapter 11 and liquidation. GE was quick to help United with short-term loans when it entered Chapter 11. It has also led a syndicate that lent up to $630m on a secured basis to Delta. It is to take 24 regional jets back from Independence Air and defer the troubled fledgling carrier's lease or loan payments on other aircraft. It has agreed to contribute $140m to US Airways through loans and deferrals on lease or loan payments, and to take back 25 Boeing and Airbus planes. Counting only US Airways, ATA (a smaller carrier in Chapter 11), Aloha Airlines and United, GE's exposure is $5.4 billion. Given that GE has a further 255 aircraft placed with Continental Airlines, Northwest Airlines and America West, it could soon have to dip its hand into its deep pockets again to fend off the effects of leases going bad as another of these operating airlines goes bust. As Eric Jones of GECAS says: “We're in the business of helping our customers if we can; we do it if it makes sense for us.”



http://www.economist.com/printedition/displayStory.cfm?Story_ID=3992095