Airlines to keep suffering, experts predict

By Robert Dodge

The pain is not over for the beleaguered U.S. airline industry. Not for the stockholders. Not for the employees. And not for the rest of the travel and tourism industry.

That was the conclusion of aviation policy-makers and airline executives who attended a half-day seminar Tuesday sponsored by the George Washington University School of Business.

Few had answers to the central question posed at the event: Should the government be doing something different?

“We either adapt and change, or we perish,” said D. Scott Yohe, a senior vice president of Delta Air Lines Inc. of Atlanta.

The nation’s traditional legacy airlines continue to pile up huge losses as they struggle to gain wage and benefit concessions from workers. And even as the carriers slash costs, airfares continue to fall, resulting in shrinking revenue and more losses.

According to the Air Transport Association, the average fare for a 1,000-mile trip dropped to $115 in June, down from $145 in June 2000.

With United Airlines Inc. and US Airways Group Inc. in bankruptcy, and Delta threatening to file Chapter 11, officials had little hope for a Washington solution.

Regulators said they would continue to ensure safety. And a Justice Department lawyer said officials would be vigilant to protect consumers.

Policy-makers were less certain about Congress. They said lawmakers care deeply about air service to their states and districts. But they add that there is little political appetite to provide the carriers with tax relief, ease the cost of airport security or change labor laws so airlines can pool their resources to withstand a strike.

Sam Whitehorn, a senior Democratic aviation counsel on the Senate Commerce Committee, predicted that lawmakers would eventually be forced to help the airlines again.

While members of Congress want the airlines to slug it out, many also are highly sensitive to the effect on voters and local economies when air service is threatened.

“There is a schizophrenia in Washington about how to look at the airline industry,” said Delta’s Yohe.

While executives and regulators did not come up with new ideas, industry experts have suggested steps the federal government could take:

-Enact tax reform for the airlines. A commission appointed by President Clinton recommended that in 1993. Some experts say it is still a good idea. The industry estimates its federal tax bill at $14 billion, much of which is added to each airline ticket.

-Ask taxpayers to pick up more of the airport security costs added since the Sept. 11 terrorist attacks. Airline officials contend that airport security is a national defense expense.

-Raise the limit on foreign ownership in U.S. airlines to 49 percent from 25 percent to attract new sources of capital. Such a provision is a negotiating point in a proposed open skies agreement with the European Union.

-Amend the 1926 Railway Labor Act to allow binding arbitration so labor cannot use its power to threaten a strike most airlines could not withstand. Other experts suggest allowing the carriers to pool financial resources as a strike defense fund.

While Congress will revisit the industry’s woes, Whitehorn said the timing was uncertain: Lawmakers already have provided two assistance packages and are now focused on the Nov. 2 elections.

“It will not be the last time that Congress steps in,” he predicted.

All the proposals have varying degrees of support on Capitol Hill, where many lawmakers remain skeptical of providing the industry with a third bailout. But proponents said the tax and regulatory changes would help reduce the risk of taxpayers being asked to underwrite a bailout.

Kenneth Mead, the inspector general at the Transportation Department, said Congress would find it increasingly difficult to give the airlines a break on security costs when the government is running large annual deficits.

Airline executives did not agree on the importance of getting more help from Congress.

Yohe said it was important to Delta. But Chris Chiames, a senior vice president at US Airways, said his airline is in its second Chapter 11 bankruptcy and has a much shorter time line to obtain about $800 million labor concessions.

“We have a much shorter leash,” Chiames said.