- The Washington Times - Friday, January 10, 2003

The Senate is examining options to prop up the finances of major airlines as they head into their third year of expected billion-dollar losses.
Airline executives and senators at a hearing yesterday warned of serious consequences for the nation's economy if bankruptcies and layoffs continue to plague the industry.
The executives also said high costs from taxes, security and labor contracts create little hope for improvement unless Congress intervenes.
"It can't be stated strongly enough that the magnitude of the problem we face as an industry is absolutely staggering," American Airlines Chairman Donald Carty told the Senate Commerce, Science and Transportation Committee.
The airline industry lost a record $9 billion in 2002.
Mr. Carty asked that the government pay for added security costs since the September 11 terrorist attacks and reduce taxes that now make up about 26 percent of the cost of a typical economy-class airline ticket. By comparison, taxes made up 7 percent of an average airline fare in 1972.
He said American Airlines is implementing about $2 billion in cost-saving measures, but they include laying off more employees. U.S. airlines have laid off about 80,000 employees since the September 11 attacks.
American Airlines, the nation's largest air carrier, has laid off about 27,000 of its employees.
"Labor is our company's single greatest expense and, with the exception of taxes, our fastest-growing expense," Mr. Carty said.
Among measures supported by airlines to reduce labor costs is a revision to the Railway Labor Act of 1926, the federal law that regulates labor relations when the public interest is involved. They want labor disputes resolved quickly by binding arbitration, which would limit rights of workers to strike.
Sen. John McCain, Arizona Republican and chairman of the Senate commerce panel, introduced a binding arbitration revision to the Railway Labor Act last year, but it did not pass.
"Whether or not Congress provides additional assistance, the industry must act to help itself," Mr. McCain said at the hearing yesterday. "The economy is struggling and many industries would like governmental aid."
Mr. McCain's spokeswoman said the senator might reintroduce his bill, but did not know when.
The federal government gave airlines $5 billion in 2001 after the September 11 attacks as the number of passengers dropped to half its normal number and security and insurance added huge costs to flight operations. Congress also established the Air Transportation Stabilization Board to provide loan guarantees to struggling airlines.
Sen. John D. Rockefeller IV, West Virginia Democrat, estimated that every one airline job creates the need for 18 other jobs to support it.
"It's impossible to overstate the impact of the airline industry on this country," he said.
Jeffrey Shane, the Transportation Department's associate deputy secretary, testified that large airlines would continue to suffer losses until they adopted business models similar to low-cost competitors, such as Southwest Airlines and JetBlue Airways.
After two years of record losses, major airlines "will almost certainly experience them again next year," Mr. Shane said.
He mentioned United Airlines and US Airways both of which are in bankruptcy as examples.
Their problems include too much reliance on business travelers, who pay higher fares for extra amenities, and flights scheduled around a "hub-and-spoke" structure, he said.
A hub-and-spoke structure means airlines fly routes in and out of a few big airports that act as hubs of operations. The flights also are clustered around peak flying times in the mornings and evenings.
Low-cost airlines use a "point-to-point" system in which they adjust their flights frequently to keep their airplanes flying for longer periods of time along any route that will give them the most passengers.
As a result, Mr. Shane said, many low-cost airlines "have remained consistently profitable."

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