Tough week for the airline industry

Airlines ground planes. What shoe will drop next?

In the last week four airlines have shut down or announced shut down of passenger operations, and two have announced cut backs in their operations. Starting Monday, a shoe fell every day. Then news hit about skipped maintenance on planes, which grounded flights. No doubt the problems will continue. What shoe will drop next?

• March 31, Champion Air announces they will cease operations on May 31.
• April 1, Aloha Airlines abruptly shuts down all passenger operations.
• April 2, America Trans Air (ATA) files bankruptcy
• April 3, ATA abruptly shuts down
• April 3 Sun Country announces cut backs in their operations.
• April 4, Northwest Airlines announces a five percent cut in their domestic flights.
• April 5, Skybus Airlines ceases all operations.

Then starting with Southwest, then American, Delta, United, airlines were forced to ground planes to check maintenance records on the planes.

What's happening?
It's no surprise that the airlines have been struggling with expenses for several years. Almost all of the major carriers that are still in business have been in bankruptcy protection at least once. The primary blame is being placed on the cost of fuel, competition, and out of control expenses. As anyone who fills up the tank of a car knows, fuel prices continue to rise rapidly, and it’s drastically affecting the airline industry, as well as trucking, cruises – anything that uses fuel.

Champion Air, a charter carrier, has a fleet of Boeing 727's. While once the workhorse of the airline industry, these planes are the most expensive to operate in today's market. The engines are inefficient by today's standards and they require three pilots in the cockpit. Champion thrived off of charters to athletic teams and to MLT Worry Free Vacations. Champion has lost the contract for sports teams to Northwest; and because of the high cost of leasing the charter service, MLT has been replacing the charter service in their offering.

Aloha Airlines, which flew flights from the West coast to Hawaii and inter-island flights has been claiming unfair competition on the part of the upstart Go Airlines. ATA has been depending on their contract with the Military to provide transportation services. They have been losing money on their passenger service for years. When they lost the contract with the military, they didn't have a backup plan. Skybus has only been operating for about a year out of Columbus and had fares as low as $10. I find it incredible that any airline executive would think they can exist on $10 fares. In my mind, this is just poor management and judgment.

Northwest normally makes seasonal cutback in its operation. It's really not surprising that they are making cutbacks now as the ski season ends and demand for flights to Mexico and the Caribbean decline. To some extent their announcement is expected. However, Northwest is also still flying old DC9 planes that they acquired through the acquisition of Republic Airlines in the early 1980's. These planes are not fuel efficient, old, and requiring high maintenance. While they plan to replace the jets, this will take some time and they need to cut the costs in light of current fuel prices. Until they can replace all of their older planes, we can expect that they will continue to focus the bulk of their flights to more fuel efficient planes and that currently means cutting flights.

Sun Country, while the darling of the Minneapolis market, is too small to be able to ride the sudden jump in fuel prices without cutting expenses. They operate many of their flights during the winter with seats contracted out to wholesales at fixed prices. The increase in fuel prices ate into their profit on these seats. As a result during a period when the airline normally makes a profit, it took a loss.

What do I do if I’m booked on flights for these airlines?
If you were booked on a Champion charter flight through MLT Vacations, you will be accommodated on Northwest Airlines.

If you’re booked on Aloha, ATA, or Skybus contact your credit card company immediately. But don’t expect a full refund. You might get it, but the track record for airlines that go into bankruptcy is that you’ll get back pennies on the dollar.

File a claim with your travel insurance company. Don’t have insurance? Oops! (see below)

Finally, contact your travel planner to get on another airline.

What does this mean for flying in the future?
As the major carriers continue to cut back on the number of flights and the seats, space will become even tighter on flights to popular destinations. Fewer seats will translate to higher prices simply because there will be less seats available for the airlines lowest prices.

Over this winter we saw some of the highest capacity measurements of airplanes. This is good for the airlines, but the problem comes when a flight is cancelled. It becomes very difficult to accommodate passengers on another flight, either on the same carrier or a different carrier, simply because spare seats are not available.

Airlines will continue to be creative about increasing their income. All of the airlines have begun enforcing the weight limits on checked luggage that they have had for years, but have not been enforcing. United, US Airways, and Northwest all recently announced that they will begin charging for the second and third checked bag. We can expect other airlines to follow this policy. It will cost you to pre-reserve a seat in popular coach locations on Northwest. Want the convenience of curb check-in? Expect to start paying for it. Food in coach is now a chargeable item (and it’s still nothing to write home about). The cost of alcoholic beverages has gone up, and we can expect that soft drink to no longer be complementary. More and more of the airline experience will become a la carte. (see blog entry From Chips to Movies - Airlines go a la Cart)

As airlines cut back and pull out of markets and smaller airlines shut down, there will be less competition. Prior to last Monday, there were three airlines flying between Minneapolis and Midway (Chicago) – Air Tran, ATA, and Northwest. Today you can still get seats for $59 one way. However, last week Air Tran announced that they will discontinue flying this route on May 6. The only airline left will be Northwest starting May 6. With no competition, we can expect that Northwest will increase the price.

How can I protect myself from future shut downs and cancelled flights?
You need to do two things. Always use a credit card to purchase your travel. While this doesn’t guarantee that you will get a full refund, contesting the charge with the credit card company is the only recourse you have. If you pay with check or cash, you are just out the money.

Purchase travel insurance (www.awatravel.com/insurance). However, here’s the catch. You need to make sure the policy you are buying covers default by the vendor, and you must buy the policy before the vendor declares bankruptcy. Once a vendor is in bankruptcy protection the insurance companies consider default or ceasing operations to be a predictable event and the insurance will not protect you.

One thing is sure, the industry will continue to change. Stay tuned