The Travails of the Legacy. Airlines-Bankruptcy
The survival of the air carrier industry in the days after 9/11 was no sure thing. Passenger volumes plummeted. Fares were lowered in an intensified competition for what traffic there was. Enhanced airport security procedures, with attendant delays, contributed to the problem. Added costs to the airlines included cost of security (e. g., fortified cockpit doors), increased insurance premiums, and increased taxes. Fixed airline costs, like airplane lease payments and debt service, ran on. There was talk of nationalization of the industry or, at least, re-regulation. Gloom prevailed.
The airlines did what they could within the limits of management discretion, but that generally was not enough. It was not enough even with the payouts made by the Air Transportation Stabilization Board, which paid out $7 billion in direct assistance to the airlines and many billions more in indirect assistance in the form of loan guarantees to selected airlines. Aid included a tax holiday and pension relief. Still, it was not enough.
On August 11, 2002, US Airways was the first carrier after 9/11 to seek bankruptcy protection. US Airways was the largest carrier at Washington Reagan Airport, and as such was severely impacted by the airport’s closure for an extended period of time. In Chapter 11, U. S. Airways made significant changes to its operating model. It became the first U. S. airline to eliminate the pensions of its pilots, affecting some 6,000 employees. It became the first legacy carrier to eliminate complimentary meal service on domestic flights. As a part of its reorganization, it began a process of de-emphasizing its hub and spoke system, particularly in the Eastern United States, in favor of point-to-point service similar to Southwest’s successful model. While in bankruptcy, the airline received a government-guaranteed loan under the Air Transportation Stabilization Board.