- The Washington Times - Wednesday, January 15, 2003

Union wage concessions won by US Airways and United Airlines in the past week will save the air carriers money but won't end the need for them to operate more like their small competitors, according to aviation analysts.
Wages, which make up about 40 percent of costs for airlines, were a major factor in bankruptcy filings by US Airways and United Airlines in the past year. Other large airlines face similar labor expenses.
Five unions representing US Airways workers voted by narrow margins to approve wage concessions of $200 million a year. This is in addition to $840 million in concessions the unions granted last year.
"We are grateful to these hardworking employees who have made hard sacrifices during extremely difficult times," said David Siegel, chief executive officer of US Airways.
Most of United Airlines' unions also approved wage concessions. The only holdouts, the International Association of Machinists and Aerospace Workers, had their wages cut last week by 14 percent by order of a federal bankruptcy judge in Chicago.
The wage concessions were critical for United Airlines and Arlington-based US Airways, said Ray Neidl, airline industry analyst for the Wall Street financial firm Blaylock & Partners.
"It makes all the difference in the world," Mr. Neidl said. "Without that, there's no tomorrow. The ballgame's over."
Executives of the airlines, meanwhile, plan a "restructuring" to help them compete with the low-cost competitors taking away business. This includes flying less-frequent routes and smaller airplanes, and adjusting schedules more frequently according to market demands. This could lead to longer intervals between flights and, consequently, lenghtier waits for passengers.
Mr. Neidl said that any airline industrywide restructuring was likely to include fewer major airlines, known in industry parlance as "network carriers."
"You'll still have network carriers," he said. "The only thing is in the future, you'll probably have less of them."
Darryl Jenkins, director of George Washington University's Aviation Institute, predicted that airlines would use more "regional jets" common to low-cost carriers than bigger long-haul jets.
"Certainly we'll have a lot more smaller airplanes in the future," Mr. Jenkins said. "Your total costs for a smaller airplane are less than for a larger airplane, and they're easier to fill up."
The low-cost carriers, such as Southwest Airlines and JetBlue Airways, have remained profitable amid the financial turmoil experienced by the large airlines. Industry losses reached a record $9 billion in 2002.
At a Senate hearing last week, industry executives blamed taxes, security costs and labor contracts for their financial woes.
A Bush administration official, however, said large airlines also must shoulder part of the blame, citing flawed business models.
Major airlines suffered "financial turmoil" for two years before the September 11 attacks that ravaged the industry, said Jeffrey Shane, associate deputy transportation secretary.
They relied too heavily on attracting business-class travelers who were willing to pay higher fares for amenities, he said. They also used a hub-and-spoke strategy for their flights that concentrated flights around peak flying times at a few large airports.
Low-cost carriers tried to attract "price-sensitive" passengers, Mr. Shane said.
They also used a more efficient point-to-point flying strategy that involved changing routes rapidly to adapt to demand, thereby keeping planes in the air longer while carrying more passengers.
As a result, low-cost carriers doubled their market share to 18 percent in the past decade while major airlines consistently lost customers.


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