For Some Airlines the Skies Remain Cloudy : Airlines: A year after declaring bankruptcy, Eastern struggles to regain its share of the marketplace. But the carrier’s financial woes are shared by several other major players.
Last week I received a surprise check in the mail from Dallas. It was from the Dalfort Corp., formerly Braniff Airways, and the check represented my pro-rata share as an unsecured creditor from the 1982 bankruptcy of Braniff.
Eight years ago, in May, 1982, I held an expensive Dallas-Honolulu round-trip ticket on Braniff when the airline declared bankruptcy and ceased operations. (A newly organized Braniff--a totally different company--started up in 1984. Last Sept. 28, the “new” Braniff also failed.)
Under terms of the 1982 Braniff bankruptcy settlement, unsecured creditors like myself (and anyone else who holds an airline ticket, for that matter) received payments on a pro-rata basis, based on the defunct company’s remaining assets.
The check arrived at an interesting time. It was just a year ago this week that Eastern Airlines, being struck by its machinists and pilots, declared bankruptcy.
Customers were stranded. About $125 million in tickets were left in the hands of some frustrated, angry travelers.
Eastern’s bankruptcy, however, was not a total surprise. The airline had been losing money--some would say hemorrhaging--for a number of years.
The airline lost $130.8 million in 1986. The loss was $181.7 million in 1987, and a staggering loss of $335.4 million occurred in 1988.
Even after the bankruptcy, the airline continued to claim it would soon be out of bankruptcy. Eastern sold $650 million in assets to help finance a comeback. It cut 600 jobs and imposed temporary pay cuts on about half of its 20,000 workers. It sold its Latin American routes to American.
One thing is clear: Even with the airline now flying at about 65% of its pre-strike activity, there have been more losers than winners as a result of the strike and the bankruptcy.
Who are the losers? The nearly 30,000 people at Eastern who no longer have jobs, and the thousands of airline passengers who now find themselves confronted by higher air fares almost across the board on former Eastern routes.
When Eastern first announced the bankruptcy, other airlines rushed to attend their own predators’ ball. Airlines like American and Pan Am moved quickly into Miami and San Juan, Puerto Rico, former Eastern strongholds, establishing (or increasing) their hub size.
And, while Eastern sold off asset after asset, the losses continued. Before the strike, Eastern had 255 planes. By the end of December, that number had been cut to 188. Employees shrunk from 32,000 to 20,000, daily flights from 1,100 to 800.
To make matters worse, travel agents, who account for approximately 75% of airline ticket sales, began to desert Eastern.
At this writing, many of Eastern’s fares remain substantially below other carriers. But the fares aren’t being sold by many agents.
Some agents say they don’t want to sell the Eastern tickets, fearing liability problems if the airline would fail.
Some airline officials argue--and I agree--that the reason travel agents won’t sell the tickets is that many seem more concerned with receiving higher commission checks for selling higher air fares on other airlines.
For example, I called one travel agent and asked what the lowest air fare was between Atlanta and New York City. I was quoted $301 on Delta. In fact, the lowest air fare is $198 on Eastern. And it’s refundable!
Another fare comparison: Eastern’s lowest fare between Atlanta and Los Angeles is $278 with a seven-day advance purchase. But the “lowest” fare I was quoted by another travel agent--again, on Delta--was $384, with a 14-day advance purchase.
A few weeks ago, during a slow traffic period when airlines traditionally offer discounts, Eastern slashed many of its fares on popular routes.
Normally, other airlines would rush to match the fares to stay competitive. But this year, the other airlines didn’t match the fares.
Why? “It’s clear,” one airline official said. “We no longer consider them competition.”
But Eastern’s problems do not exist alone. Texas Air, Eastern’s parent corporation, lost a whopping $718 million in 1988. In 1989, the loss was $885 million.
And recently, a bankruptcy examiner ruled that Texas Air had underpaid Eastern for many of its assets. As a result, Texas Air agreed to pay Eastern $280 million.
That may buy some time for Eastern, but a question remains: How much time? The airline claims in its advertisements that it is rebuilding a great airline, “one passenger at a time.”
At that rate, considering the lack of travel-agent support, the airline may be liquidated.
It’s also no surprise that the three airlines topping the 1989 U.S. Department of Transportation list for passenger complaints concerning quality of service were Eastern, Pan Am and TWA.
At TWA, rumors continue that airline officials and pilots are expecting the worst: the sale of all or part of the airline. TWA Chairman Carl Icahn may do just that.
In 1986, part of a major contract signed by TWA pilots restricted Icahn’s option to sell TWA as long as the airline’s financial performance remained above a certain level. Analysts projected that the performance would drop below that level this year.
Meanwhile, TWA has begun to sell some of its 747s to build up some cash reserves. (The airline now has long-term debt obligations of more than $2.7 billion.)
Also it has not been a good year for Pan Am. In 1988, the airline received concessions from its unions totaling $500 million over three years.
In December, 1988, came the big blow--the terrorist bombing of Flight 103 over Lockerbie, Scotland. Ticket sales plummeted, and continued falling through 1989.
And now, more than a year after the tragedy, the financially troubled carrier is confronted with the possibility that it could run out of cash.
“Every year about this time we all say that we can’t wait until summer,” one Pan Am official said.
The summer season traditionally is the time of year when each airline makes its most money. However, with its slow winter travel volume, Pan Am may not be able to wait until summer.
“I think we have enough cash to hold on,” another official said.
Pan Am’s chairman, Thomas Plaskett, has publicly stated that the key to Pan Am’s future is in finding a merger partner. So far, there have been no takers.
What does all this mean to travelers?
In the short run, it is generally expected that Eastern, TWA and Pan Am will continue to operate, albeit at a loss.
If you are a member of one the airlines’ frequent-flier programs and you have amassed substantial mileage, now might be a good time to consider using that mileage.
(If an airline fails, travelers with mileage points have little chance to redeem those points with another carrier.)
Airlines such as Eastern, TWA and Pan Am also need public support. In a business where survival of the fattest seems to be the name of the game, it is not in our interests to see airlines fail.
Airline failures so far have led to increased ticket prices and domination of certain routes and airports by mega-carriers.
If price is a great motivator, then the public has no reason not to fly Eastern, particularly if passengers exercise a couple of common-sense precautions. Try to book nonstop flights (as opposed to flights that must connect). And always pay with a credit card.
All is not doom and gloom for Eastern, however. The airline has announced that it has set aside a $115-million refund plan to pay for outstanding tickets in the event the airline goes under.
By the way, I’m tempted to frame my Braniff check instead of deposit it. Why?
My original ticket had been worth $800. As an unsecured creditor, after eight years the check I received was for $9.36!
