BAILOUT OF MORE THAN $4 BILLION COULDN'T HELP THE AIRLINES, BUT YOU CAN 06/30/02
The economy is healthy. Perhaps not bursting with health, but definitely on the road to pink.
Against such a backdrop, it’s worrisome that despite some midair refueling to the tune of more than $4 billion in federal grants to help the airline industry after the Sept. 11 terrorist attacks — it is still thrashing about like a bird caught in an oil spill. In the past, carriers and the economy have always been like tandem bike partners — mirroring each other’s rise and fall. Not this time.
While the U.S. economy grew at a 6.1 percent annual rate in the first quarter of the year, faster than the previous estimate of 5.6 percent, the airlines sector has been going south as its debt as a percentage of annual revenues is already higher than
it was in the early ’90s, when the industry struggled through a recession and a post-Gulf War slump in passengers.
Standard & Poor’s decision on Friday to downgrade the
corporate debt ratings of the nation’s five largest airlines further into the “junk” range is a very bad sign. With
average fares in 2002 getting progressively worse compared to 2000, the last year for the major airlines to see a sunny balance sheet, hitting this
financial air pocket will bump the industry further into a storm of no return — because a lower credit rating will make it harder for carriers to
borrow money and they will probably have to pay higher interest rates to obtain loans or sell bonds.
It’s a Catch-22 situation — to attract more customers, carriers need to go all out and make flying a joy again ... but they simply don’t have the cash for the bash.
The industry lost about $7.7 billion last year. And the five biggest carriers accounted for $7.1 billion of those 2001
Low-fare carriers have made life miserable for the big five. With their aggressive pricing and eye for opportunity, they have proved that being nimble and flexible spells profits.
JetBlue Airways, a profitable low-fare startup, woke up the industry’s giants when it scooped up all 27 of Long Beach airport’s disused jet departure slots. JetBlue realized that this facility was sitting idle just 20 miles from seven million Angelenos. The rest is aviation history in the making.
American Airlines — content with its four slots till JetBlue’s rather decisive acquisitions set the cat among the pigeons — suddenly wanted to double its presence and start a New York-to-Long Beach service.
Since June 15, American has been running two daily nonstop flights to New York on Boeing 757-200s. Not to be outdone, JetBlue introduced a fourth daily nonstop flight to John F. Kennedy International Airport on June 11. And if that’s not enough, a fifth daily flight (yes, yes — to New York) takes wing from Oct. 10. An incredible turnaround for an airport that had till recently been in the blind spot of most airlines.
A sore point for JetBlue’s
rivals is that JetBlue currently uses only five of the 27 slots it reserved and isn’t required to fill them until May 2003. The airport bent its policy requiring airlines to make use of reserved slots within six months and gave JetBlue two years, based on the delivery schedule of new planes to the growing carrier. Hopefully, JetBlue will grow its fleet and utilize the rest of the 22 slots. That will reduce LAX’s burden to some extent during the holidays.
Speaking of holidays, if you decide at the eleventh hour to boldly go where no skeptic has gone before, Trip.com has last-minute vacation packages from 30 departure cities, including Orange County, Los Angeles and Las Vegas. You can search for deals by state or browse through packages based on themes: There’s golf in the Bahamas ($82 a night), beach fun at Waikiki ($32 a night), “take-it-easys” in San Diego ($68 a night) ...
So pack those bags and help the economy fly high.
AMTRAK CAN SOLVE THE TRAFFIC ISSUE, IF GIVEN A CHANCE 06/23/02
A half century ago, the Interstate Highway System was sold to Americans as an emergency evacuation network — a national security measure.
For a post-Sept. 11 world, we need a national transportation system that’s truly shock-resistant. We need backup systems when we face emergencies like the total airline shutdown that followed the terrorist attacks. It cannot be overemphasized how heavily dependent the nation is on guaranteed movement of people and goods — critical to the economy’s upswing.
With people understandably avoiding air travel, Amtrak, especially in its Northeast Rail Corridor, became a
savior in the post-Sept. 11
scenario — running extra trains, honoring airline
tickets, even transporting members of Congress to New York City to witness the devastation at the World Trade Center site.
While California’s Amtrak
network is impractical to use
(unless you live by the station and your work hours fit into the train schedule), rail
infrastructure is far from
perfect even on the East Coast — hampered by outdated
electric propulsion systems and antique infrastructure.
Rail advocates have always been getting a cold shoulder from Congress. Since Amtrak was formed in 1971, the
federal government has spent $25 billion on it, while pouring $750 billion into highways and airline travel.
In 1997, Congress mandated that Amtrak was to become self-sufficient by December 2, 2002. But it’s illogical to expect Amtrak to turn profitable while, in the words of former Amtrak president and CEO George D. Warrington, “running a network of unprofitable trains.”
David Gunn, the new chief of Amtrak, has made it clear that Amtrak has reached the end of the line. A loan of at least $200 million is needed to keep the wheels turning through the summer.
The current mess is not Gunn’s doing, though. Amtrak had financially derailed long before he took over. According to Gunn, the situation is worse than imagined, pointing out that he has discovered Amtrak is now $3.7 billion in debt. Quite a surprise, since as late as last summer, Amtrak told Congress that it was on track regarding the mandated target of self-sufficiency.
While conservatives in Congress think privatization is the way out, it would be wise to learn from the British experience. After half a decade of fatal crashes, spiraling costs, ticketing confusion and bankruptcy — Britain realized that privatization was a mistake.
Another pointer from successful train systems around the world — all of them receive substantial capital infusion from their governments. For example, the Japanese rail system was brought to its present state of superefficiency by pumping in $4-6 billion between 1996 to 2000. France and Germany invest $2-4 billion a year to maintain world-class railroads.
The National Railroad Passenger Corporation, which is Amtrack’s official name, started 31 years ago with 25 people on its payroll. Today, the company’s 24,000 employees are in danger of losing their jobs. In February, Amtrak announced that it was laying off 1,000 workers — 10 percent of those cuts were from the management.
The reasons in favor of government funding for
Amtrak are compelling. It’s evident that building more highways to ease a traffic crunch is a self-defeating
policy that merely fuels more sprawl. A rush-hour driver in San Bernardino spends
64 hours a year in traffic,
according to a study by the Texas Transportation Institute. And the congestion is rising all the time. For example, the average urban motorist in 2000 spent 62 hours in traffic or 2 1/2 days — compared to 16 hours in 1982.
There’s an environmental payoff as well — cars and airplanes are heavier polluters than trains.
Also, rail right-of-ways are often already in place —
expanding rail service does not involve eating up open space expensively and controversially as do new highways and airports.
In short, trains take the share-a-ride concept to its perfection — savings on gas and lesser pollution. With the added benefits of higher
safety, lower stress and hey, no parking problem.