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Will the war in Iraq spell doom for U.S. airlines and their workers?

Published April 3, 2003 8:30PM (EST)

The ongoing Iraq campaign is symptomatic of larger geopolitical tensions that are having a disastrously toxic impact on the U.S. airline industry. The attacks of 2001 demolished not only the lower Manhattan skyline and much of our collective psyche, but the bottom lines of the country's airlines. A year and a half later, the battle for Baghdad will succeed in driving up fuel costs and driving away millions of passengers who weren't already driven away by post-Sept. 11 hysteria and airport security hassles. All this while the economy smolders and anti-American sentiment ratchets up talk of future terrorist strikes.

Airline casualties are being recorded around the world. In Europe, Swissair and Sabena, in business for seven decades, have disappeared. Colombia's Avianca, the second-oldest airline in the world, declared bankruptcy a few weeks ago, and now Air Canada has followed suit. But just as many foreign airlines are celebrating growth and profit. It's the U.S. airlines who are absorbing the full staggering brunt of the worst downturn in commercial aviation history.

In the bleakest forecast yet, Aviation Week magazine recently brought up the possibility that all of the major U.S. airlines, with the sole exception of Southwest, might soon be operating under Chapter 11 protection. As this article is being prepared, bankruptcy victims have included United, U.S. Airways and Hawaiian Airlines, with American narrowly avoiding joining them. The editors at Aviation Week might be expressing some worst-case pessimism, but the mere possibility of United, American, and Delta -- the world's three largest air carriers -- in simultaneous court-protected status, is one of the most astonishing things I can envision.

Losses since 2001 are approaching $30 billion, with more than 80,000 jobs eliminated. The airlines already are shouldering the onus of mandated security enhancements (the efficacy of which is fodder for another time), estimated at $10 billion. Now, as bombs fall across the plains of Mesopotamia, the Airline Transport Association (ATA), one of the industry's leading trade groups, forecasts a minimum of $4 billion in war-related losses, with passenger levels dropping to 17 percent below those of 2000. If the conflict drags on, those numbers will be even higher.

As it stands, even the most hopeful prognostications call for extreme financial distress and thousands of imminent layoffs. Chillingly, the already horrendous estimates do not include a scenario whereby terrorists again target a U.S. airliner. If that happens, nothing short of full-scale economic catastrophe will ensue.

In addition to $15 billion in direct aid and loan guarantees offered after Sept. 11, Congress has proposed another $3 billion in cash, tax relief and reimbursements to the battered industry (although news reports on Wednesday quoted a White House spokesperson as calling the additional assistance "excessive"). But is it holding the airlines and thousands of their employees hostage by first demanding sweeping reductions in labor costs? Whether such demands represent true economic desperation or punitive politics depends on whom you ask. In the words of Duane Woerth, head of ALPA, the world's largest pilot union, "a war is being waged on organized labor." Woerth says the administration's tactics are nothing less than "a fight to the death with no prisoners taken."

There's a degree of hyperbole in such outrage, and nobody doubts concessions will prove essential to the survival of certain companies, but scapegoating organized labor as the malevolent root of the industry's woes is a tough sell. The government expects huge employee sacrifices while it simultaneously strangles the airlines with absurd taxes and security burdens. And what could be a more gruesomely insulting gesture than airline executives awarding themselves millions in protective perks, as happened last week, after the worst-ever losses in airline history, while tens of thousands of workers are unemployed?

United is hoping for $2.56 billion in annual concessions from its unions, 44 percent of which will come from pilots, who have agreed to a 30 percent reduction in pay. American is looking to shave labor costs by nearly $2 billion per year in a package that will put 2,500 of its pilots on the street. U.S. Airways, first of the major players to declare bankruptcy (and first to emerge; see below), has won extensive give-backs, including termination of its pilots' pension plan. Among others, Northwest is looking for a $440 million yearly savings from its pilots, while Hawaiian claims it needs some $15 million in total wage cuts, $8 million of which pilots have already granted. (Not all people are familiar with Hawaiian, but the airline is one of the nation's oldest and carried almost 6 million passengers in 2001.)

When concessions are the topic, pilots are an easy target and tend to be the focus of attention, as their average salaries are highest among an airline's front-line workforce. But as you know, I get defensive when people play fast and loose with the image of pilots as overpaid and underproductive. I hate having to trundle out the same old reminders, but in light of current news it's especially poignant: Most pilots do not bring home the obscenely spectacular paychecks often cited by aghast politicians and media sources. Thirty-percent pay cuts might not be devastating to the relatively small number of senior captains earning $190,000, but they certainly influence the lives of many thousands of other pilots who bring home a quarter of that amount (provided they still have jobs at all).

Let's look at how circumstances are affecting U.S. airline operations both overseas and at home:

International front:

Within the past few weeks, even before the Iraq invasion was launched, United Airlines reported that its international bookings were down 40 percent, a remarkably appalling number. ATA and other sources say average traffic slips will be on the order of 15-20 percent, depending on region. Most of the U.S. majors have reduced their international schedules, either decreasing frequencies or eliminating destinations entirely. This is bad news, as high-yield international traffic (first-class and business-class fares on long-haul routes) is extremely lucrative.

How temporary these measures are remains to be seen, and depends on both the political climate and American mindset. Frankly, the latter worries me almost as much as the former. Cutbacks in the name of economics are one thing, but at the same time they strike me as an echo of our country's growing isolation from the world at large. I find it disturbing that our airlines no longer serve vast regions of the world -- indeed whole continents. As I wrote several columns ago, not one U.S. passenger airline currently flies to a single destination anywhere in Africa, while the Near and Middle East are similarly abandoned. For now, United, Northwest and Continental operate widespread service throughout the Pacific Rim, but the future might see great parings of flights here and elsewhere.

Delta's Paris to Bombay route is about as adventurous as we get these days. Not long ago, one could hop a Pan Am 747 to Nairobi, Lagos or Karachi, while even a few years ago U.S. airliners still called at places like Riyadh, Delhi, Cairo and Dubai. All of these routes are gone now, and we seem perfectly content to let our European and Asian partners handle most of the exotic flying through code-share arrangements.

There are several large airlines that fly to all of the continents -- British Airways, Lufthansa, South African Airways and Qantas among them -- and their intercontinental business is booming. But if these airlines have anything in common, it's that none of them are ours.


Aviation Week's opinions notwithstanding, US Airways is celebrating its exit from Chapter 11 status, official as of March 31. (Auspicious? Maybe, but remember TWA played Chapter 11 peekaboo for years.) But the new US Airways will be a smaller, trimmer company that will curtail its longer routes and concentrate on short-haul flying using smaller jets. Many of these jets will be 50-passenger regional jets -- R.J.s as they are known -- flown by US Airways Express affiliates.

What the largest airlines badly want, and what they may receive in time, is increased ability to bypass union restrictions and farm out flying to low-cost R.J. operators, whether wholly owned subsidiaries like those at US Airways, or separate entities that borrow the major's colors and brand.

A decade ago, turboprops were the workhorses of regional flying, feeding passengers -- 19, 30 or 50 at a time -- from small outlying cities to large hubs. Today, travelers board sleek, state-of-the-art R.J.s in a wide swath of markets, including many longer-distance services that supplant, rather than feed, the jets of the major carriers. Atlanta to Toronto, for instance, or Washington to Orlando. By 2001, almost 1,600 R.J.s were in service around the world, with 900 more on order.

These planes, which can seat anywhere from about 30 to 100 people, provide an illusion of seamless service between a major and its affiliate. A passenger may not see any important differences between American Airlines and American Eagle, United and United Express. But in fact they are run as independent units, with completely separate employee groups and pay scales. Wherein rests the strategy and appeal: The cost of labor is laughably substandard. As you've heard me lament, pilots at the controls of these small but very sophisticated jets make as little as $14,000 a year. For the traveling public, comfort and amenities aboard R.J.s are basic at best (at least in this country), and R.J. deployment in certain markets, owing to their seat-mile economics, often results in higher fares.

For now, union contracts restrict R.J. flying through so-called "scope clauses," holding it below a certain percentage of the major's total business, based on aircraft units and/or number of seats. But the majors will be lobbying hard to increase this percentage. How many foxhole conversions they score from frightened unions will be revealed eventually.

In the meantime, Southwest's cattle cars are still full, and jetBlue continues to expand. Delta is about to launch its own alter ego, Song, to compete with jetBlue in the busy East Coast leisure market, while United has won desperately sought approval to spin off its own low-fares stepchild. The trend and philosophy here, whether you're an airline boss or its paying customer, are obvious: simple, cheaper, leaner.

I believe, when this is all said and done, that the U.S. airline as we know it may have ceased to exist. It would not surprise me to find, five years from now, a domestic air structure dominated by Southwests, Songs, and jetBlues, while an enormous network of regional jets feeds the skeletal remains of the majors, who will focus on longer-range, high-yield routes and international services.

It's not a pretty picture, really, for those of us who spent our entire adult lives trying and failing to make a living in this crazy business (15 years as a licensed pilot for this writer, with an average take-home of $14,200 for each of them). As a laid-off employee I would rate my chances of ever again returning to an airliner cockpit as somewhere between extremely tentative and very doubtful. Those in my predicament have few options other than a minimum-wage position at a regional, biting the bullet and driving one of those spiffy R.J.s the CEOs love so much.

Meanwhile, the airport today is a place of inconvenience, fear, distrust and fatigue. Passengers are more wary, and more weary, then even before. My self-interest aside, I can nonetheless assure you of the safety and integrity of the system. I'd like to say more than "get out there and fly," lest I echo some of the more infantile examples of leadership tossed our way by those in power, as if there is nothing more noble or patriotic than going shopping in the face of terrorism. But truly, my best advice is to encourage a nervous public to overcome its squeamishness.

Still, I can't help seeing the geopolitical cauldron becoming more precarious, which, if recent events and trends are any precedent, means even darker clouds gathering for the airlines.

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By Patrick Smith

Patrick Smith is an airline pilot.

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