Situation could devastate U.S. economy

The Air Transport Association, a trade organization of the nation’s major airlines, warned a Senate committee last week that the skyrocketing cost of fuel is posing a threat not just to the airlines, but to the nation’s entire economy. ATA chief operating officer John Meehan told the Commerce, Science and Transportation Committee that the U.S. economy “is inextricably linked to the vitality of its air transportation system. If the airlines continue to spiral downward, so will the economy.” He said commercial aviation contributes $690 billion to the U.S. gross domestic product, and 5.2 percent of U.S. gross economic output, and he warned that much of that could be at risk. “Unlike the temporary revenue hits from 9/11 and other one-time demand shocks, the airlines are now facing a massive structural cost increase,” Meehan told the committee. “Not even Chapter 11 can lower the price of fuel. More than 14,000 airline jobs have been cut so far this year, and that is just the tip of the iceberg. Scores of communities stand to lose all scheduled air service by early next year. More airlines – in addition to the nine that have already filed for bankruptcy or stopped operating – may simply shut down.” He said U.S. airlines are projected to lose $10 billion in 2008 – “a loss on par with the worst year in the industry’s history.”

Meanwhile, the Business Travel Coalition, representing corporate travel interests, told the House Committee on Small Business that the nation should prepare for air service reductions well beyond those already announced. BTC said that at the current level of oil prices, the “consensus estimate among analysts” is that the U.S. airline industry will have to shrink by 20 to 22 percent to survive. “Recent cuts in capacity, for implementation this fall, add up to just 12 to 13 percent, so it is likely that decisions to further cut services will need to be taken by Labor Day,” BTC said. The organization drew up a list of 150 airports that it says are “at risk of losing commercial air services.” The list is online at http://tinyurl.com/67bjv2. BTC said that “multiple liquidations at legacy U.S. airlines” are now “a serious possibility,” and that such a development would have “devastating implications” for the economy. “Massive job losses, supply chain disruption, declining business activity, shrinking tax revenues, weakened American competitiveness, devastated communities, and reduced tourism are just some of the predictable results from airline liquidations that could happen as early as the second half of 2008 as a direct result of unsustainable fuel prices,” BTC said. The loss of just one major airlines “would disrupt the travel of 200,000 to 300,000 passengers per day…The almost-full planes of remaining airlines would not be able to absorb much of these volumes,” BTC predicted.