Sunday’s New York Times ran a front-page article warning of the possible need for a taxpayer bailout of airline pension funds. As United struggles to emerge from bankruptcy protection, it needs to address its $13 billion in pension obligations, and right now it is apparently short by nearly half that amount. A United default, the article claims, could set off a domino effect within the airline industry.
This comes after United has already been forced to negotiate concessions from its workers, and after it was denied federal loan guarantees. It also comes as Delta is trying convince its pilots to accept $1 billion in wage and benefits cuts, as that airline struggles with its own cost-structure problems and pension obligations.
Meanwhile, discount airlines continue to rewrite the rules of the industry. Carriers like Southwest, JetBlue and AirTran increasingly dictate the price of an airline ticket, and the majors, despite being saddled with much higher overhead, have no choice but to match these fares. The smaller airlines benefit from efficiencies such as lower labor costs, streamlined routes, reduced fees from use of secondary metropolitan airports, and maintenance savings brought about by flying fewer types of aircraft.
Chuck Salter’s recent article on JetBlue examines the challenges facing that airline as it tries to grow from a regional carrier to a national one. JetBlue and other discount airlines continue to succeed financially and grow organically through the addition of new, profitable routes.
Looking ahead a few years, if the discount carriers keep growing and making money, can any of the major airlines survive? Or are they just stuck with the wrong business model, a relic of the days of regulation that will doom them to follow in the footsteps of other once-great carriers like Eastern, Pan Am, and TWA? And in the meantime, how much should taxpayers and the government be expected to lend a hand?