Consider these grim airline facts: In the last 12 months, one major U.S. carrier--Eastern--has folded, and two others--Pan Am and Continental--have continued to operate only under the protective provisions of Chapter 11 of the U.S. bankruptcy laws. At this writing, Pan Am is on the verge of ceasing operations. And a fourth major airline--TWA--is close to becoming the latest to file for Chapter 11.
Pan Am is losing upwards of $2 million a day while it anxiously awaits approval of the $440-million sale of its London routes to United. At this pace, it could literally run out of money by early this week.
Last month, TWA announced that it was unable to meet a $75.5-million bond payment, and that its "continued existence as a viable carrier will be seriously threatened" without a major infusion of cash.
What does all this mean to consumers?
If you're an airline passenger, the friendly skies may be turning dark quickly, especially when it comes to reasonable air fares.
Under deregulation, which was supposed to increase competition, the big airlines are giving all the indications of positioning themselves into a privatized cartel. And that means air fares will undoubtedly increase.
It's ironic perhaps, but if this practice is allowed to continue, the only protection for consumers against higher fares and fewer routes may be to lobby their senators and congressmen to consider re-regulation in markets that become dominated by single carriers.
By swallowing each others' planes, routes and landing slots, the survivors can accomplish a number of things: They can control specific markets, flight frequencies and schedules, and they can raise fares.
The airlines not only can raise fares, they do. First they buy the gates and landing slots, then, in some international cases, the routes.
Next to go are the discount fares once offered by their former competitors--which they, in most cases, matched.
When Eastern Airlines ceased operations on Jan. 18, the big airlines wasted little time jockeying for position to carve up the spoils. A sampling:
--For $41.4 million, Delta purchased 18 Eastern gates and facilities in Atlanta, Delta's home base. This move gave Delta as much as 87% of the passenger traffic at Atlanta's Hartsfield International Airport. (Delta also bought Eastern facilities and three gates at LAX for $21.7 million.)
--United has bid $54 million for Eastern gates at O'Hare Airport in Chicago, United's headquarters city.
--United also bid $5.5 million for 67 takeoff and landing slots at Washington's National Airport.
But the carving up of Eastern began long before Jan. 18. American purchased all of Eastern's Latin American routes. And last August, American bought an additional 11-gate terminal from Eastern at the Munoz Marin International Airport in San Juan, Puerto Rico. American also bought some of Eastern's Canadian routes.
An unusual period of consolidation? Hardly. In fact, the route sales and acquisitions represent a continuing trend in the airline business--the big airlines get bigger.
When TWA purchased Ozark Airlines, its market share in St. Louis jumped to more than 80%. When Northwest took over Republic, its market share in Minneapolis jumped an equal amount.
And what happened to airline passengers?
They were left with few airline choices and, in virtually every case, higher fares. (A U.S. General Accounting Office survey revealed that in cases where one airline enjoys market dominance, fares have increased dramatically--and the airlines take in 27% more revenue at these airports.)
Two recent cases in point:
--Last December, Midway Airlines, unable to compete in Philadelphia with rival USAir, sold its assets and facilities in the city to its competitor. USAir paid nearly $60 million for the Midway hub.
By January, full coach fares from Philadelphia to Boston had increased 16%. And most other business fares on the same route increased an average of 69%. Prices between Philadelphia and Hartford, Conn., jumped an average of 47%.
--Before Eastern folded, it accounted for 25% of the Atlanta airport's traffic; Delta had 55%. With Delta's purchase of Eastern's assets, Atlanta is now inescapably synonymous with Delta. Right before it ceased flying, Eastern was charging $158 for a round-trip ticket between New York and Orlando, Fla. It also was offering $158 fares between Chicago and Miami.
Many airlines matched the fares.
But less than a month after Eastern's demise, the cheapest "off-peak" fare between New York and Orlando offered by United or USAir was $278; by Northwest and American, $342. On the Chicago-Miami run, the cheapest off-peak round-trip ticket offered by Northwest or American was $379.
Already, the big airlines are looking to see what they can buy from Pan Am and TWA, if and when the two carriers cease flying.
In 1985, United paid $750 million for Pan Am's Pacific routes. Now it wants more. As part of its pending deal with Pan Am on the London routes, United is hoping to get first crack at purchasing Pan Am's Latin America routes--which include such cities as Rio de Janeiro, Caracas and Buenos Aires--and going head-to-head with American in these markets.
Finally, it seems that some carriers may have threatened to become too dominant in some markets. The U.S. Justice Department entered the ring after Delta made its bid for Eastern's Atlanta assets. The department's antitrust division asked Eastern's bankruptcy judge to hold up the deal, claiming that "the liquidation of Eastern in the manner proposed raises substantial competitive concerns."
A few days later, the department went one step further. It threatened a lawsuit to stop United from acquiring Eastern's Washington, D.C., landing slots. The slots went instead, for $32.25 million, to Northwest.
Still, the airline garage sales continue. At this writing, between 10 and 15 carriers are poised and ready to spend more than $1.3 billion for routes and assets.
And if Pan Am or TWA fail, the number of routes and assets on the auction block will soar.