Ask the pilot

2002: A year to forget. The pilot surveys the wreckage of one of the worst years ever for the airline industry.

Published August 15, 2003 7:30PM (EDT)

Now that 2003 is three-quarters over, the industry's financial and traffic rankings for 2002 are finally in. Sorry, that's how it works. No rush, as far as I'm concerned, and honestly if I never again have to look at a quantified summary of exactly how pitiful things are, it'll be too soon.

I'd planned to do a "good news first" sort of opening, but, well, er, um, unless this column is allowed to diverge into analyzing Red Sox trades or Howard Dean's improved poll standings (it's not), I haven't got much to boast about. In one sentence it goes like this: According to the International Air Transport Association (IATA), industry losses since 2001 are homing in on $30 billion, with nearly half a million employees thrown out of work worldwide.

The bulk of that damage has been to the largest U.S. carriers. Overseas, things for the most part have turned a corner, SARS-induced damage in Asia notwithstanding (and not yet tallied). On a list of net profit-earners for 2002, of the top 25 only one was a major U.S. airline. And need I bother telling you which? You are now free to move about the country.

Reeling from terrorism, war and general economic infirmity, the helplessly entrenched majors find themselves in the midst of some desperate brainstorming. Everything is on the table, from spinning off subsidiaries to reconsidering the very viability of the hub-and-spoke concept that has dominated our air system for decades. "Business model" is the buzzword -- how to discard it, rework it, start a new one from scratch.

Whatever the majors are doing, they're doing it wrong, gasping for survival while the rapacious low-fare opportunists expand meteorically. In 2002, Southwest, JetBlue, and AirTran banked slightly over $300 million in combined net profit while American, United and Delta lost nearly $8 billion.

And by the way, if you think the low-fares template is strictly an American craze, see Canada and Western Europe, where quirkily named enterprises like Jazz, Tango, easyJet and Ryanair have been capitalizing on it, or even Australia's Virgin Blue, another happy Branson baby. Imitators are springing up in Malaysia and elsewhere.

Here's a paraphrase of a question I'm asked all the time: "Lately, whenever I fly, fares are high and planes are always packed. How can the airlines possibly be losing money?" That's a fair question, and assuming those greedy, underproducing employees and their parasitic unions are not to blame, then who is?

As you're probably figuring I'll tell you, this gets extremely complicated, and since I'm neither an economist nor an accountant I'll keep it simple: Flights are full, but there are fewer of them. Load factors (percentages of seats occupied) are up, but available capacity is down. The average load on a U.S. flight in 2002 was just under 72 percent, while the percentage needed to break even was 81. This while many aircraft -- some requiring hundreds of thousands in monthly lease payments -- are consigned to molder in the desert.

I'm not sure what you're paying, but yields, which is to say income, are presently about 15 percent below what they were in 2000. High-yield, premium cabin business traffic remains way off the norm.

Let's cut to the chase and show some lists. The following data are culled from the 2002 World Airline Report, a yearly compendium by Air Transport World magazine. Despite my repeated plugging of ATW as the best publication on earth after Harper's and the New Yorker (and they still won't give me a complimentary subscription. So the least they can do is provide the fodder for a decent column. Regional subsidiaries -- Express, Connection, Eagle, Airlink, etc. -- are excluded unless noted:

The largest airlines in the world, ranked by number of passengers:

1. American Airlines (94.1 million)
2. Delta Air Lines (89.9 million)
3. United Airlines (68.6 million)
4. Southwest Airlines (63.0 million)
5. Northwest Airlines (52.7 million)
6. US Airways (47.2 million)
7. Lufthansa Group (43.9 million, including CityLine subsidiary)
8. All Nippon (43.3 million)
9. Continental (41.0 million)
10. Air France (38.0 million)

The Big Three, as they're known, have remained in the same 1-2-3 sequence for quite a while. American and Delta were known to flip-flop until the former's acquisition of TWA, at which point it solidified an untouchable position. This is a first top-10 score for Air France, which nudged Euro rival British Airways to 11.

Another way of gauging a carrier's size is to use a figure called an RPK, or revenue passenger kilometer. One passenger traveling one kilometer equals one RPK, so it's a method that accounts both for customer volume and distances flown. In other words, flying 100 people from Cape Town to London outscores flying 100 people from Dallas to Phoenix. The catch is, running Dallas-Phoenix 12 times a day can help make up the difference. Frequency is the variable. If we use RPKs, the top 10 gets a little more international, with long-haulers like British Airways, Japan Airlines and Qantas entering the picture, kicking out Southwest and US Airways.

You might be tempted to think of the biggest airline as the one with the most aircraft, but capacity differences make this especially specious. American Eagle has more planes than Alitalia or Qantas, for instance. For the record, American Airlines wins with 806 jetliners, followed by United and Delta with 557 and 547, respectively. Air France's 253 present the largest non-U.S. fleet, followed closely by British Airways and Lufthansa. FedEx, incidentally, has 324 jets, and UPS 228.

To me, passenger totals are the most accurate benchmark. As when trying to determine the largest airplane, you don't measure wingspan or fuselage length. A 777-300 is longer than a 747, but is it bigger? Weight is the fundamental criterion.

The most successful airlines in the world, ranked by net profit for 2002:

1. Lufthansa Group ($777 million)
2. Singapore Airlines ($601 million)
3. Cathay Pacific ($511 million)
4. Emirates ($287 million)
5. Ryanair ($259 million)
6. Southwest ($241 million)
7. Thai ($235 million)
8. Qantas ($223 million)
9. Iberia ($167 million)
10. British Airways ($134 million)

Plenty of stars on that list, but almost no Stars and Stripes. These are pre-SARS standings, so you can expect any Asian names above to disappear from this year's list. For those unfamiliar, Cathay Pacific is the airline of Hong Kong; Emirates is the pride and joy of the United Arab Emirates, Iberia belongs to Spain, and Ryanair is a low-fares upstart based in Dublin -- the European equivalent of Southwest. Also, Lufthansa's and Singapore's startlingly good fortunes are doubtless influenced by their all-freight divisions, whose stats are co-reported but which operate separate fleets. Northwest has a similar setup, but it doesn't seem to have helped...

The least successful airlines in the world, ranked by net loss:

1. American Airlines ($3.5 billion)
2. United Airlines ($3.2 billion)*
3. US Airways ($1.6 billion)*
4. Delta Air Lines ($1.3 billion)
5. Northwest ($798 million)
6. Swiss International Air Lines ($624 million)
7. Air Canada ($525 million)*
8. Continental ($451 million)
9. KLM ($449 million)
10. America West ($430 million)*

In a way this isn't really fair -- the harder they come, the harder they fall. But there's that Big Three again, this time spliced by US Airways to form what you might call the Four Airlines of the Apocalypse, a real billionaires' club. Those asterisks designate carriers that are or were operating under bankruptcy protection.

You have to have sympathy for Swiss, formed from the ashes of the failed Swissair a couple of years ago, now itself on life support. Along with KLM, it shows things aren't entirely rosy in Europe either. Of course, two of the more substantial European names -- British Airways and Lufthansa -- are located conspicuously on that other list.

Just to pull some curiosities from the pile, the following are airlines that posted profits for 2002: Aeroflot, Alitalia, Aer Lingus, Air France, Air Malta, Ethiopian Airlines and LanChile. And just who is standing tough in the face of terrorism? Kenya Airways, Pakistan International, Royal Jordanian, Emirates, and Garuda Indonesia all showed in the black.

Israel's El Al lost $23 million, which was about $50 million better than 2001. Other randoms on the red side are Air New Zealand, All Nippon, AeroMexico, TAP Air Portugal, SAS and Iran Air.

Wait, there is good news after all: freight. IATA predicts a 6 percent growth for air cargo in 2003. Good thing I quit my cargo flying job for a passenger line instead.

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By Patrick Smith

Patrick Smith is an airline pilot.

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