- The Washington Times - Tuesday, June 14, 2005

What’s the most generous charity in America? You may think of the United Way, the Red Cross, Habitat for Humanity or the Salvation Army.

But it would be hard to find any humanitarian group that has shouldered so much sacrifice for the good of others as that capitalist creation, the airline industry.

Corporations are supposed to be in business to make money. But does anyone in the airline industry remember that? Since 2001, American carriers have lost $32 billion, and with fuel prices cruelly high, that number will only grow.

At any given moment, it appears half of domestic airlines are entering bankruptcy, exiting bankruptcy or wallowing in bankruptcy. Old-timers can remember when companies that couldn’t pay their bills ceased to exist. But airlines look at bankruptcy the way zombies look at death: unfortunate, but not incapacitating. It’s just a legal option that allows them to keep going when they are incapable of earning a profit — though it doesn’t explain why they want to.

Right now, the economy is growing, inflation is low, and airplanes are stuffed with travelers. In these circumstances, making money running an airline should be about as hard as getting wet in a rainstorm. But the industry’s fortunes don’t respect normal supply and demand laws.

In a recent speech in Tokyo, Giovanni Bisignani, head of the International Air Transport Association, marveled at his industry’s weird achievement. Over the last 30 years, he noted, the world’s total economic output tripled, and passenger traffic grew sevenfold.

But as Mr. Bisignani noted, “The more we sell, the more we lose.” In 2004, airlines around the world ran a deficit of $4.8 billion. This year, he’s expecting them to pay out $5.5 billion more than they take in.

All this is good for consumers, who have seen prices drop despite the clogged security checkpoints. Since 2000, the volume of passengers has grown nearly 5 percent. But the sweaty hordes have refused to bid up prices. In 2000, the average airfare came to 131/2 cents per seat-mile. Last year, it was down to 11.73 cents — a 13 percent drop.

The problem is a familiar one: several big “legacy” carriers with stubbornly high costs face growing competition from younger, leaner, more agile rivals. Airlines like United, American, Delta and Northwest grew up in the comfortable world before deregulation arrived a quarter-century ago, and amazingly, they’re still trying to overcome the sins of the past.

At the same time, Southwest, JetBlue and AirTran, which have always had to compete to survive, are growing because they’ve figured out how to charge low fares and still make money most of the time.

Even when the older airlines succeed to reduce their costs for labor and equipment, they manage to find a rake to step on. Lately, it has been rising fuel prices, which have more or less erased hard-won gains made elsewhere.

So some carriers have been forced into the equivalent of turning over the sofa cushions to find loose coins. Northwest recently decided to end the scandalous extravagance of giving each passenger a half-ounce bag of pretzel sticks. That step will save $2 million a year, which doesn’t look too impressive next to the more than $458 million it lost in the first quarter. American has eliminated pillows from most domestic flights, even though that will improve the bottom line by only $375,000 a year.

United, which has enjoyed exactly one profitable month since it filed for bankruptcy in 2002, has come up with a better way to cut costs: dumping its crushing pension obligations on the federal Pension Benefit Guaranty Corp., a course its fellow legacy carriers will be tempted to follow.

You have to wonder if airlines that can’t afford to pay for employee pensions or keep a few pillows on hand really belong in business. The economy would hardly miss a beat if a couple of big carriers vanished and more economical airlines stepped into the void. For some reason, though, the established airlines continue fighting for the privilege of giving away their service.

Maybe they’re akin to starving survivors in a lifeboat, waiting for one of the others to expire so they can eat him. Some day, they keep telling themselves, they’ll be fat again. They could be right, but they should know that capitalism often is great for everyone except the capitalists.

Steve Chapman is a nationally syndicated columnist.


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