Airline Morale

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Airline Morale

Yesterday's USA today (April 4, 2005) has a letter to the editor from Patrick Lee titled Airline passengers get far more than they're paying for. The letter talks about how the price of an airline ticket for spring break is the same as it was 25 years ago and that is not even after adjusting for inflation!

The letter was in response to another letter title "Airlines once paid close attention to customer service," and it points out that most passengers pay more for parking than they do for airline tickets these days. According to Lee, most of the airline company employees have taken pay cuts so that jet service remains cheap. Furthermore, terminals have been upgraded at no charge to customers.

I have been writing about airlines for over half a decade (mostly complaining) and this letter addresses part of what is going on. A recent article in BusinessWeek titled Why GE is Keeping Loser Airlines Aloft discusses why this problem takes place. They do this by loaning the airlines lots of money and using the planes as collateral.

Here is an excerpt:


Why is GE so eager to lend a hand? It makes money off the well-collateralized loans and wants to keep as wide a customer base as possible. The Fairfield (Conn.)-based giant owns about 1,300 aircraft, a massive aircraft-engine unit, and has more than $29 billion in loans and leases to airlines. It's more exposed than rivals like International Lease Finance Corp., a unit of American International Group, which has 88% of its 676-plane fleet leased to airlines outside the U.S. But GE also demands so much collateral and places so many conditions on assistance that analysts believe its downside is limited. The loans to Delta, for example, are backed by $3.5 billion in assets, ranging from spare parts to landing slots. "If GE were to take back a bunch of planes," says analyst Roger E. King of CreditSights Inc., "within a year they would have them all moved" to U.S. freight haulers or Asian carriers.

GE insists that it isn't getting in the way of industry dynamics. It has already taken back dozens of aircraft from its U.S. customers and has reduced its exposure to the large national carriers, says Henry A. Hubschman, president of GE Commercial Aviation Services (GECAS). "Each case is unique," he says. "We don't believe we are the ones who can strategically manipulate the market."

The question that begs asking is how Jetblue and Southwest can make money and provide a great travel experience. The morale on these newer airlines including Song is an order of magnitude better than on the older airlines. I suppose pay cuts are part of the problem. Regardless, it is not a good sign when travelers like myself eagerly anticipate the arrival of Southwest at JFK or LaGuardia Airports. The older airlines really need to do something soon to stay in this race.

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