Fleet

Airlines reduced the number of aircraft in their fleets by retirement, sale, or simply parking the airplanes. Especially targeted were less fuel – efficient and maintenance-intensive aircraft. The overall U. S. fleet was over 5,600 airplanes in 2000, but by 2003 there were only 4,479, a 20 percent reduction. Orders on new aircraft were reduced, down by over 100 airplanes at the end of 2002 as compared with the end of the second quarter of 2001. (See Figures 35-15 through 35-16 and Table 35-2.) At the end of 2006, the fleet still comprised only 4,339 aircraft.

Restructuring

At the end of 2002, only two major airlines ended up in the black. Southwest reported
profits of $241 million, and JetBlue reported $55 million. The remainder of all major U. S. air­lines reported substantial losses: American, $3.5 billion; United, $3.33 billion; Delta, $1.3 billion; Northwest, $766 million; Continental, $451 mil­lion; U. S. Airways, $1.66 billion. The combined losses of the industry exceeded $10 billion. It was no coincidence that the profitable airlines were the “no frills” low-cost carriers, and the unprofitable ones were the legacy airlines.

Traditionally, the legacy airlines’ largest cost of doing business has been wages and benefits of the rank and file employee, almost all of whom are represented by labor unions. The terms of union contracts control both wages and work rules, nei­ther of which can be unilaterally changed by air­line management. Yet, these were exactly what the airlines needed to change before any significant or long-lasting recovery could be expected. This was especially true since the cost of fuel, which has traditionally been the airlines’ second highest cost of doing business, continued to spiral upward.10

Beginning in 2002, the legacy airlines again resorted to the Bankruptcy Code as their last hope of survival. As the decade progressed, some critics said that Chapter 11 was becoming a man­agement tool, but the fact is that restructuring

of the type that had to be done could only be accomplished in reorganization in a bankruptcy court. Before it was over, every legacy airline would enter Chapter 11 bankruptcy.

The air carrier industry briefly returned to profitability in 2006. By then airline employment

had declined to 544,540, down from a high of

680,0 in the year 2000. Airline capacity, mea­sured in available seat miles, had been reduced by more than 25 percent by aircraft retirements. But profitability since then has been elusive. Next we will take a look at the airlines in bankruptcy,

etc

and how mergers have shaped the industry. But to put things in perspective, we need to briefly review how the airlines got to this point.