It’s time to follow the money to see what we’ll be facing on the road in the next few months. And let me tell you now: If you’ve tied your future to the Big Six, you’ve got big, big trouble.
As I mentioned last week, the four Big Six carriers not already in bankruptcy filed their calendar third-quarter financial results last month and ugly isn’t quite the word. And that is where we start.
Another $900+ Million Down the Drain
The red ink flowed profusely as all four of the financially undead revealed, once again, that they have no clue about how to fix their problems and are unwilling to look in the corporate mirror and admit that the problems are their own fault. First-out-of-the-box Continental chimed in with a $16 million third-quarter loss and the master deflector, chief executive Gordon Bethune, found a new scapegoat: government taxes and interference. In previous quarters when Continental reported losses, Bethune alternately blamed passengers, his “stupid” Big Six competitors and the low-cost airlines.
Financial reports brought a torrent of losses from Delta ($651 million), Northwest ($46 million) and American ($214 million). That means another $927 million down the drain and before we even heard from bankrupt United or US Airways.
American Learns the Wrong Lessons
Reacting to its loss–and the reality of even larger hemorrhaging in the next two quarters–American announced a series of changes that will only guarantee that passengers will be less likely to fly with them and certainly won’t pay a premium whenever they do step on an American flight.
The airline dropped the other shoe on its moribund More Room Throughout Coach initiative. After reversing itself and adding seats back on its Airbuses and B-757s last year, American said that it would wedge seats back into its remaining mainline jets over the course of the next few months. That means it will be back to a knee-crunching 31 inches of legroom in coach on all flights while the competitor American fears most, JetBlue Airways, offers at least 32 inches and as much as 34 inches of seat pitch at every chair in its fleet. American will also dump 14 MD-80s from its network. While the MD-80s are no bargains, their 2×3 configurations are more popular with flyers than the cramped, uncomfortable 3×3 quarters of the B-737s. In other words, not only is American reducing legroom in coach, it’s also increasing the percentage of middle seats it flies. And just to further annoy customers, American also said it would add still more flights at its clogged, delay-prone Dallas/Fort Worth hub while reducing the number of point-to-point nonstops it offers elsewhere.
So who, exactly, at American figured that the airline could curry favor with customers by offering less legroom, more middle seats and more itineraries that require a connection through a hub? And why, exactly, is anyone at the increasingly clueless American brain trust listening to this person?
Delta Writes a Pre-Bankruptcy Scare Letter
Speaking of clueless, you have to shake your head at the decision Delta Air Lines made in late October on the heels of its $651 million loss. It wrote to its best customers in the most bizarre language possible essentially warning flyers that the airline is on the verge of declaring bankruptcy. “We recognize that we have several hurdles to overcome to avoid court-supervised restructuring,” said the letter credited to senior vice president and chief marketing officer Paul Matsen. “However, even if that were to happen, we will continue to provide you with safe, secure and reliable service both in the air and on the ground.” The letter then went on to offer a laundry list of basic services that won’t be affected by a bankruptcy.
Now let’s forget for a moment that Delta probably can’t avoid a bankruptcy filing given its continued losses and alarming cash burn. None of that is a secret to the recipients of this goofy note. But literally dozens of you have sent me your copy of this letter along with pithy comments that indicate you now have less confidence in Delta than ever before. “If they think I’m so stupid that I don’t know that a ‘court-supervised restructuring’ is corporate speak for bankruptcy then I don’t want to do business with them,” one of you wrote. Said another JoeSentMe.com member: “Boy, these guys are idiots!”
Is Us Airways Falling Apart?
Never let it be said that the management of the moment at US Airways has ever seen the forest for the trees. While it successfully convinced its bankruptcy-court judge to impose extra-contract wage reductions of 21 percent on its union employees, management apparently didn’t realize that workers wouldn’t take the pay cuts lying down. As this court-ordered reduction is layered atop two voluntary rounds of givebacks, the line workers at US Airways have reacted by working-to-rules and implementing other legal slowdowns. In recent days, absenteeism has increased, flight cancellations and delays have skyrocketed and management seems incapable of finding crews to work its full schedule. Then there’s this frightening note: The FBI is investigating the cause of puncture holes found near the landing gear of three US Airways aircraft. Whether the holes were intentional damage or the result of routine wear-and-tear is unknown.
The High Cost of Independence Air
When Atlantic Coast morphed into Independence Air in June and launched squadrons of repainted former United Express regional jets (RJs) from Washington/Dulles, a lot of clear-eyed observers suggested that there was no possible way the airline could fly profitably. And now the RJs are coming home to roost. After months of flying 50-seat planes less than half full at fares that cost less than a casual lunch for two in many of the cities they serve, Independence may be running out of cash and out of time. Pointing to huge aircraft payments due in the coming months, one analyst is predicting that Independence may have no choice but to file for Chapter 11 bankruptcy before the end of the year. That prediction started another run on the company’s stock this week. Share prices have now dropped 73 percent since Independence Air launched on June 16. We’ll know more about Independence Air’s financial state when the carrier releases its third-quarter results.