Struggling US Airways Is Still Alive

The continued existence of US Airways, which is in its second round of bankruptcy protection and now flirting with a merger, defies the conventional wisdom in vogue since the airline industry went into a tailspin in 2001.


The continued existence of US Airways, which is in its second round of bankruptcy protection and now flirting with a merger, defies the conventional wisdom in vogue since the airline industry went into a tailspin in 2001.

Surely, the thinking has gone, one of the nation's old-line carriers would buckle under the pain from the 9-11 attacks and the recession, the pounding from discount carriers and the wallop from surges in oil prices.

But US Airways' ability to persevere reveals a larger truth about the industry: Even the weakest airlines are hard to kill.

In the industry's last downturn, in the early 1990s, three major carriers folded, including Pan American World Airways and Eastern Airlines.

This time, despite losses of more than $32 billion in the last four years, no major airline has been grounded. At the same time, upstart carriers such as JetBlue Airways and Independence Air are rapidly adding seats.

In fact, in 2004, there were more seats in the air than any other year in the industry's history, and discount carriers have orders for more than 400 planes in the next few years. To fill all the seats, airlines are slashing fares, leading to the big losses.

For travelers, the trends have been a boon. Even in Charlotte, which has some of the highest fares in the country, average ticket prices have fallen 11 percent in the last year. With the summer travel season starting, those fares are expected to continue falling, with the Charlotte debut next month of discount carrier AirTran Airways.

News last week of US Airways' advanced merger talks with Arizona-based America West is further evidence of the industry's resilience. Both airlines, as well as most in the industry, adhere to the thinking that airline consolidation is inevitable in some form, whether through death or marriage.

But they're both also taking advantage of changes in the industry that give them a better shot than in the past to stay afloat on their own.

Among those changes: greater government intervention, deeper sacrifices from labor unions, and more innovative financing from creditors and investors.

"Consolidation and contraction will happen," said John Heimlich, chief economist with the Air Transport Association, an industry trade group. "It's just happening at a slower pace than we would have thought."

US Airways' fate has huge implications for Charlotte, the airline's biggest hub and home to about 5,600 of its 25,000 workers. If the airline disappeared, other airlines would almost certainly come to town, but passengers would have fewer nonstop flights to fewer cities. In a merger with America West, some observers think Charlotte would play a key role in a combined national carrier and that fliers would have more access to West Coast destinations.

To see how much the industry has changed, consider this quote from the ATA trade group: "It becomes starkly clear that wholesale bankruptcies in the airline industry, major liquidation and even the forced nationalization of airline system are the risks we confront. There remains a short window of opportunity if we are to avoid this likely outcome."That was from March 2003, more than two years ago. Since then, no major airline has shut down, and two of the top 10 are operating under bankruptcy protection.

As recently as last fall, pundits were forecasting US Airways' collapse.

"So long, US Airways," a National Geographic travel columnist wrote in September. "Now that the nation's seventh-largest carrier has filed for bankruptcy protection a second time in as many years, many industry-watchers give it only a few months before it liquidates."

One of the big changes in the continued survival of US Airways is the role of federal government agencies and courts.

In the aftermath of the 9-11 attacks, the federal government gave airlines $5 billion in direct payments, including about $330 million to US Airways to keep it operating.

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