Malaise in the Airline Industry: Safety, Fuel, and the Economy

This lead in today’s Financial Times says it all:

Chaos gripped US airports for a third straight day on Thursday as the government’s top transportation watchdog called for changes to airline safety oversight, citing an “overly collaborative” relationship between airlines and their regulator, the Federal Aviation Administration.

Calvin Scovel III, the US transportation department’s inspector general, made his comments before Congress as American Airlines cancelled 900 flights to perform safety checks, stranding thousands of air passengers.

American has canceled over 2,400 flights and counting this week due to potentially faulty wiring in its MD-80s, which comprise one-third of its fleet and form the backbone of its medium-haul domestic fleet.  At least 250,000 passengers have been affected, far more than when Southwest Airlines grounded dozens of 737s last week.  Disruptions are afflicting other airlines as well, and further groundings are likely as the FAA responds to the harsh light being shone on its inspection standards.

On Tuesday, Jon Stewart of The Daily Show responded aptly:

 

 

 

 

 

Stewart’s money quote:

It’s all sort of ironic, when you think about it.  When you fly, you are inspected quite thoroughly, whereas the plane itself is, perhaps, occasionally vacuumed.  See, with this administration, if a passenger blows up a plane, it’s a failure in the War on Terror.  But if the plane just blows up on its own, eh, that’s the market self-regulating!

Yes, that’s hyperbole (Jon Stewart is a comedian).  But if the aviation system is generally safe, why on earth would federal regulators start down the dangerous slippery slope of cutting corners, glossing over potential problems, and creating the appearance of impropriety in dealing with the airlines they’re supposed to regulate?

Meanwhile, external economic factors have eviscerated the viability of several airlines, while many survivors are trimming their capacity (for more coverage, see last week’s Hotline).  Yesterday oil prices (Nymex West Texas Intermediate) surged to a record $112.15 a barrel before settling at $110.87, even though US demand over the past four weeks was 0.4% below the same period a year ago.  Oil was $52 a barrel in January 2007.  Here is a quick list of airlines that are now history, a list that is bound to grow:

December 26, 2007 – Maxjet Airways (offering London-USA business class service) files for bankruptcy protection
March 31, 2008 – Aloha Airlines ends passenger services after more than 60 years
March 31, 2008 – Champion Air (Minneapolis-based charter operator) announces flights will end from May 31
April 3, 2008 – ATA Airlines ends service, files for bankruptcy protection
April 5, 2008 – Skybus, start-up low-cost carrier which had 65 new Airbus A319 jets on order, ends service
April 9, 2008 – Oasis Hong Kong, budget carrier, ends service after 17 months

So far, Amtrak revenues do not appear to have been hurt by the economic downturn (or recession), and fuel prices probably are driving some business to Amtrak.  This will likely hasten as airlines are forced to raise fares and further reduce capacity to stay in the black.

Intrepid blogger Aaron Donovan has noted that passengers trapped in the current nightmare at American’s hub at O’Hare have the option of Amtrak’s hub at Chicago Union Station, an easy ride away on the CTA Blue Line.  Even taking a leisurely-paced long-distance train would be a faster option for many people than waiting for the next available flight, whenever that might be.  And some passengers are indeed taking advantage of the train option.

Exhibit A:

[Amtrak spokeswoman Tracy] Connell says ridership has gone through the roof out of the Chicago area because of all the cancellations at O’Hare Airport. Some of its trains have seen up to a 60 percent boost in riders.

Exhibit B:

Amtrak has seen a spike in passengers since the flight cancellations began earlier in the week, especially in the Northeast, spokesman Cliff Cole said.

“Our ridership was heavy yesterday, is heavy today and is likely to be heavy tomorrow, based on our reservations,” Cole said Thursday.

Once again, Amtrak is proving its value and relevance by providing redundancy in a fragile transportation system.

—Matthew Melzer