Bailing out

[elSicomoro]

Air travel in the US has gone from a luxury for some to a necessity for many. More people are flying than ever before (or least were until 9/11/2001). We've been delayed for hours in trying to get to our destinations. We've tried to change our flight schedules, only to incur a heavy penalty. In the vein of road rage, there is now "air rage."

And now, it appears that the airline industry needs a bailout due to what happened...and it's turning its eyes to the government.

On one hand, the government could say, "F**k you. Not our problem. What we did was in the interest of national security."

On the other hand, I think of all the carriers of the past that are now gone: Eastern, Braniff, Piedmont, (the old) Pan Am, Ozark, (and the soon-to-be-gone) TWA.

The government is against the wall on this one. If no bailout is done, it could lead to bankruptcy for one or more carriers. Our choices for domestic travel would become limited, which could lead to cuts in destinations, not to mention a rise in prices...more of an oligarchy than we already seem to have.

But if the numbers are true ($2.5 billion up front, $12.5 billion in loans), this could be seen by some as propping up the fat cats that run the airlines.

The airline stocks have plunged dramatically over the past year. US Airways has went from $48 to $6, United from $48 to $17, Continental from $57 to $17. I don't know the full background of the airline industry, other than deregulation 20 or so years ago. But flying as a whole doesn't seem to be profitable, particularly now.

[verbatim]

with my mother being a phsycologist, i think that insurance agancies and airlines are in the same boat in that they shouldnt need gov't help to keep that $280million profit margin after taxes and paychecks. i think the airlines could stand to lose some budget weight, and get used to giving us good service and not overcharge. but you know, thats just my opinion which many free economists might disagree with.


but i think that the airlines do need to stay afloat one way or another. business will return, its something that the us cant live without and still keep our status as an economic bighitter. so after they lose all that excess money, yes, the gov't does need to step in and give them some support. its a social interest more than a constitutional thing. its the right thing to do.

[tw]

Remember previous federal 'bail outs'. They were not government money provided or loaned to the sick organizations (NYC or Chrysler). Bailout simply meant that government underwrote those loans, if the organization defaulted. Chrysler had to obtain bank loans at prevailing rates to qualify for the government bailout. A German bank, at the last minute, almost destroyed the entire Chrysler rescue package when they almost backed out at the last minute.

Any bailout for the airlines should be based on the same concepts. The Feds don't really save the organization. They simply underwrite the loans. When Iacocca let the engineers, rather than accountants, run the company, then Chrysler was repaying those bank loans in four years.

IOW the loans simply permitted new management to correct reasons for problems. The poor Lindsay and A Beam leadership in NYC was replaced by responsible leadership - Koch. Townsend and Ricardo, who could not even drive a car, were replaced by Iacocca - a man with engineering training and experience. He even had a driver's license.

Same must apply to the airlines. Crisis is due to poor management. A loan without corresponding management solutions would be wrong.

Previously cited were airlines such as TWA. Anyone notice that TWA's top management did not come with airline experience. Instead they just kept flying the same planes longer - cost controls. When TWA went under, they had the oldest airplanes in the industry. MBA attitudes saw profits in money games - depreciation and cost controls - rather than in better airline operations.

Why does Southwest do so well? Before discussing bail outs, we should be discussing whose top management comes from where the work gets done and whose management instead has a cost control mentality.

[elSicomoro]

Originally posted by tw
[BPreviously cited were airlines such as TWA. Anyone notice that TWA's top management did not come with airline experience. Instead they just kept flying the same planes longer - cost controls. When TWA went under, they had the oldest airplanes in the industry. MBA attitudes saw profits in money games - depreciation and cost controls - rather than in better airline operations.[/b]

The airline was still suffering from the effects of Icahn, some 10 years after he faded from the picture. TWA's service was excellent...but to be successful, you have to perform well AND make money.

(As a side note, thank God their name is now off the dome in St. Louis.)

Why does Southwest do so well? Before discussing bail outs, we should be discussing whose top management comes from where the work gets done and whose management instead has a cost control mentality.

I'm not exactly sure, but these would be my posits as to why Southwest does well, and is flying almost all its flights right now:

--No international travel: Since Southwest only flies domestically, they can use smaller Boeing planes. While the cabin can be cozy, it's no worse than I've seen on other carriers.

--No assigned seating: I love the boarding pass...gives people a good reason to get to the airport early.

--Expenses are low???: With exceptions of course, Southwest flies into smaller airports: e.g. Chicago Midway, Houston Hobby, Islip (Long Island), Burbank. Would it be safe to assume that it saves money b/c they're not renting gate space at places like O'Hare or LAX?

--No frills: Domestic flights...and I believe most of their flights tend to be short. No need to serve a lot of extras to the customers. When I was flying on them from St. Louis to BWI, I believe we were served cheese danish Pop-Tarts for breakfast.

If US Airways is buckling as they say they might, perhaps Southwest should look into moving a little further up I-95...or at least consider LVI.

[Undertoad]

And then there are those "Must Be Football Season" ads.

[lisa]

Originally posted by sycamore
I'm not exactly sure, but these would be my posits as to why Southwest does well, and is flying almost all its flights right now...

There are a couple more that I know of:

Southwest uses ALL the same planes. Ergo they only have to have one type of spare parts and ALL flight crews can fly ANY of their planes.

They set their schedule to absolutely minimize the amount of time that a plane spends on the ground (I believe their original goal was 30 minutes from landing to take-off for each airplane). Their attitude is that a plane on the ground is NOT generating revenue.

The CEO of Southwest, I believe, wrote a book about their business plan. Never read it myself, but a friend said it was a good read. If I remember correctly, it's called "Nuts" (could be "Peanuts", I'm not certain).

[tw]

Originally posted by lisa
There are a couple more that I know of:

Southwest uses ALL the same planes. ...

They set their schedule to absolutely minimize the amount of time that a plane spends on the ground ...

IOW Southwest has better management. Even without connections to other airlines and without ticketing through the big ticketing computer systems (ie. Saber), Southwest operates successfully. No assigned seating does not signficantly reduce expenses. Assigning seats is not an expensive operation. But keeping flights in the air and keeping to those schedules does substantially reduce expenses.

BTW the closest Southwest airport to Philly is BWI. Many local hotels run stay a night at the BWI hotel, then park all week for free. Flying at smaller airports does not reduce Southwest expenses but does mean less 'nickel and dime' harrassment to the Southwest customer.