The airline industry will suffer another unprofitable year and does not expect to recover until 2004, executives of the major U.S. carriers told members of Congress yesterday.
In a hearing before the Senate Committee on Commerce, Science and Transportation, the executives said the industry's outdated cost structure needs an overhaul to ensure the major airlines' survival. They said they particularly need to reduce labor costs and heard some support for a revision in the labor law that would limit strikes.
Richard H. Anderson, chief executive of Northwest Airlines, said he expected the industry to lose about $3 billion this year, after a loss of $9 billion in 2002. The airlines lost $7.7 billion in 2001. Two major carriers, Chicago-based United Airlines and Arlington-based US Airways, are operating under bankruptcy protection.
"The airline industry remains stuck in the most difficult period of financial distress it has suffered since it was deregulated almost 25 years ago, perhaps the most difficult period in modern aviation history," said Jeffrey N. Shane, an associate deputy secretary of transportation.
American Airlines chairman and chief executive Donald J. Carty pointed to several forces that are driving the larger airlines to restructure their operations. In addition to the fallout from the September 2001 terrorist attacks, the big airlines have had to confront the rapid expansion of low-cost carriers, the increasing use of the Internet by travelers looking for cheap fares, and the reluctance of business travelers to pay several times what leisure travelers pay for a flight.
Carty said reducing labor costs had to be a top priority. Labor is the highest cost at American and most other airlines. American is trying to reduce costs by $4 billion but so far has found only half that amount.
"The future of our company will not be assured until we find ways to lower our labor costs," Carty said. Anderson said the forces driving change in the industry are "permanent and irreversible."
As in hearings last year, the airline executives asked Congress to cut ticket taxes and to provide more money for security. "These taxes and fees are simply too high, and they cannot be passed on to passengers in the form of higher ticket prices," Anderson said.
Sen. John McCain (R-Ariz.), the incoming chairman of the committee, was reluctant to give additional aid, preferring to allow the airlines to survive or fail on their own. "Although there may be ways that we can be helpful, we must be cautious about any effort we might undertake," he said. "As a general matter, government involvement in the financial health of an industry should proceed cautiously."
In addressing the industry's labor costs, at least one lawmaker, Sen. Kay Bailey Hutchison (R-Tex.), said she would support a proposal by McCain to amend the Railway Labor Act of 1926, which covers the airline industry, to require that a panel of arbitrators quickly resolve disputes, effectively curtailing workers' ability to strike.
McCain introduced the measure last year, but it failed to pass. The airlines recently voiced a renewed interest in the legislation. McCain did not address the measure at the hearing, and a spokeswoman said later that she was unsure whether the senator intended to reintroduce it.
"We must make sure that this industry stays viable. And I think Senator McCain's bill will do that," Hutchison said. But Sen. John D. Rockefeller IV (D-W.Va.) said he was "unconvinced" that the amendment was necessary.
"Some changes will not necessarily be changes our employees will embrace," Carty said. "We need to reexamine that labor code. It does need to be changed for the long-term health of our industry."
But Carty acknowledged that changes to the labor laws "are not going to get us through this crisis."
Some airlines argue that the Railway Labor Act causes labor conflicts to drag on too long and gives unions the opportunity to force airlines to agree to higher pay and more benefits.
"Binding arbitration could be a very viable alternative," Anderson said. "There needs to be a real discussion" in Congress, he said.
Duane E. Woerth, president of the Air Line Pilots Association, said the existing law works well. It resolves nearly all labor negotiations and it doesn't need to be changed, he said.
"Once every 10 years we have a strike in this business," Woerth said. "It's too big, it's too risky and unnecessary a step to provide binding arbitration. I think this is a solution in search of a problem."
The airline executives also defended their use of their hub-and-spoke system, the traditional model of major airlines that send flights through main hub airports and then on to smaller cities, rather than making direct flights. Critics have said that since low-cost carriers such as JetBlue and Southwest do not use hubs and spokes and perform better financially, the major airlines should consider abandoning their system.