Don't even think that you have a more difficult job than Tom Horton. Although some airline bosses can still seem besotted with this once glamorous business, at ground level it's an industry that has lost more than $60 billion in the past decade, erasing every penny earned in its 80-year existence. An industry whose combined market value, below $30 billion, is less than that of Starbucks, one of its vendors. One with irrational competition, uncontrollable fuel costs, a feckless regulator, and jets and airports filled with people who don't like you--and not just the passengers but your employees too. Beyond that, well, who'd want to run a major airline that just went bankrupt, sending its former CEO fleeing from the building?
Horton does. He runs American Airlines, which is running for its independence in bankruptcy court in New York City. American lost $10 billion in the past decade and $2 billion last year alone. Last November, when other carriers made money, American was filing for Chapter 11. Things have gotten tougher. Recently the carrier had to cancel hundreds of flights, and its on-time rate plunged below 50% because of an unofficial showdown with and slowdown by its 10,000 pilots, whose contract was chucked out by the bankruptcy court earlier this year. American hastily summoned Allied Pilots Association (APA) president Keith Wilson to Dallas from Washington for peace talks.
Horton is hanging tough; he knows that bankruptcy will allow American to slash operating costs, and he says a revitalized fleet will regain passengers lost after years of underinvestment and deteriorating service. He has reason to hope. In its most recent quarter, American earned a $95 million profit before restructuring costs, an operating-profit turnaround of at least $381 million over the previous year. The company has more than $13 billion in financing to buy 550 new jets to replace its ancient fleet of MD-80s, 767s and 757s and promises upgraded services and amenities. "Our people are doing a really good job. They are standing tall and doing a great job for our customers," Horton told Bloomberg Television in July after the sparkling quarterly numbers came in.
Customers might beg to differ. But one thing is sure: after a dismal decade of bankruptcies that has made air travel as much fun as a high-altitude nosebleed, airlines have finally figured out how to make money. The mergers of Delta and Northwest and of United and Continental have removed billions of available seat miles (ASMs) from the system as the combined companies rationalize routes. That's why planes are 80% filled (and overhead space is overfilled). The carriers now charge a basic price for a seat and offer a menu of fee-based options--for roomier seats, for boarding early, for meals--to generate more revenue.
This is the future for consumers: you can buy a lie-flat seat in business class and be cosseted or suffer in the knee-bashing cheap seats in the far back. That means 10 seats across instead of nine in coach in Boeing's new 777 at American. Some dream. Either way, you'll get there.
Union Turbulence