Not a good time to be an airline

March 27, 2003

Free Market Foundation

The airline industry’s losses are so severe that the U.S. Air Transport Association recently used the word “nationalisation.” It said that once the shooting in Iraq starts, “nationalisation of the industry as a result of wholesale airline bankruptcies is conceivable.”

The last year the U.S. industry ran in the black was 2000, when it made $2.5 billion.

The following year it lost $7.7 billion followed by a loss estimated at $10 billion in 2002, and a loss of $6.7 billion is forecast for 2003.

Here are some of the factors involved.

Last month’s Orange Alert in America caused advance bookings internationally to drop 20 percent.

As fuel prices soar, hundreds of planes have been parked even though lease payments must still be made.

Extra security has added $4 billion to the industry’s cost structure.

Observers and analysts are asking what will happen if the industry doesn’t survive? American Airlines has reportedly sought the kind of financing that typically precedes a bankruptcy filing.

Can one imagine a nation bereft of air service and what that would mean for the rest of the economy?

Source: Editorial, Airline Doom? Wall Street Journal, March 14, 2003.

For text (WSJ subscription required) http://online.wsj.com/article/0,,SB104760560589176500-search,00.html
For more on Air Travel http://www.ncpa.org/iss/reg/

FMF Policy Bulletin/18 March 2003