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CNN Live Today

Airline Agonies

Aired March 12, 2003 - 11:42   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


LEON HARRIS, CNN ANCHOR: For those of you worried about making air travel plans in these uncertain times, some airlines say they have a plan. They're easing the rules on some ticket changes. USAirways calls it the "Peace of Mind" policy. Travelers can make changes to their tickets without paying any extra fees, but only if war breaks out or the terror alert goes to red. That's the highest level.
Delta has a slightly different plan for trans-Atlantic travelers only. They can change most tickets without penalty, if bought in the month of March.

United and Continental are also relaxing the rules.

Airlines have been telling their corporate tales of woe on Capitol Hill and asking for billions of dollars in tax cuts from Congress. That has reverberated on Wall Street. American's parent company is down 34 percent, Delta is down 22 percent, and Continental is down 15 percent and that's in one day, yesterday.

Now the truth about your tickets. Airlines must charge four different taxes and fees imposed by the government, and that's just for domestic tickets.

Let's get a cost breakdown down and an outlook on a troubled industry from Mark Orwell, managing editor of "Travel and Leisure" magazine.

Good morning to you, Mark.

MARK ORWELL, "TRAVEL & LEISURE" MAGAZINE: Good morning, Heidi.

COLLINS: Let's go ahead and go straight to your ticket, if we could, because I think a lot of people, when they look at that ticket, it's just a bunch of numbers and they look for their seat assignment, and that's about it. What are we seeing?

ORWELL: Well, you know, I actually brought a ticket with me that, as you can see, it was an international ticket, and in this corner of the passenger receipt, it has a lot of codes and a lot of numbers on it. Very briefly, what stands for is the first number up here is the base fare that I paid for the ticket, $245.

However, I also had to pay an international departure and arrival tax of -- it's a federal tax -- $26.80, $2.50, that's the September 11th-inspired federal security fee, and then I paid an additional $64.30 for foreign airport charges and taxes, as well as customs fee, immigration fee and Department of Agricultural fee, for a grand total of $338.60.

COLLINS: Right. So let's start with the federal tax? What is it? What are we getting with that?

ORWELL: Well, in this case, it's simply a fee imposed by the FAA that for domestic flights, it's 7.5 percent of your base ticket price. You're also going every time you're going to pay $3. You're also going to pay the September 11th security fee every time you get on a plane in the United States. So a round trip could be $5. $4.50 is the maximum allowed to be charged by the airports for airport fees, a passenger facility charge is what they call it. So all of these are on top of the base fee, and that's what makes up the grand total of the ticket that you pay for.

COLLINS: So two quick questions for you -- this passenger facility charge up to $4.50, which doesn't sound like a whole lot, but gosh, I mean every single ticket they're getting $4.50 on, that could add up, and I'm understanding it's for airport projects. What if the airport doesn't have any projects planned.

ORWELL: Well, it's for the airport maintenance, airport infrastructure, it's noise reduction projects, all of these things are used. It's a federally mandated thing, but the airports actually get the money to use to keep up their infrastructure.

COLLINS: All right, we're also looking at some airline operational costs now. We know that the airlines are in deep trouble. Some would argue it happened before September 11th, and September 11th, obviously, made things much worse now, pending war. A couple of companies have been saying they very much fear being out of business altogether.

As far as operational costs go, tell us a little bit about that.

ORWELL: Well, a lot of people will say, oh, so the base fare you pay for your ticket, that's the profit for the airline? Well, no, it's not the profit. Most of that is going to pay for salaries and fuel. Those can make up 50 or 60 percent of the base fare. The rest goes to maintaining all of their airplanes. I mean everything down to paper clips, advertising, you name it, the cost of running a business, and most airlines are not making a profit. So in other words, that base airfare that you're paying is not even enough to give the airlines a profit.

COLLINS: Now there are a couple of airlines making a profit though. One of them Southwest. We hear of other ones, Jet Blue, Frontier Airlines, doing very well, but I think that, at least with the general public, might not see what a huge difference this airline is from the majors, United, American, Delta.

Tell us why they're doing so well.

ORWELL: Let's look at Southwest in particular. There's nothing new about this, because they've been around for over 25 years, but they do not offer all the bells and whistles. There's no meals. There's no menus. There's no assigned seating. Short-haul flights are what they aim for. In fact, their average flight is only about 425 miles distance. What they realize is that they're not competing with the other airlines. They're competing with the family car, and so they have a different business model than most major airlines.

So it seems to be working. Whether Southwest Airline and its other no frills competitors is the wave of the future remains to be seen, but especially being compounded with the economic crisis, with the threat of war looming, I think a lot of big airlines are going to take a very, very hard look at Southwest as a business model for the future.

COLLINS: Regional jets, here we come.

ORWELL: I think so.

COLLINS: Mark Orwell from "Travel and Leisure" magazine, thank you so much.

ORWELL: Thanks, Heidi.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com







Aired March 12, 2003 - 11:42   ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
LEON HARRIS, CNN ANCHOR: For those of you worried about making air travel plans in these uncertain times, some airlines say they have a plan. They're easing the rules on some ticket changes. USAirways calls it the "Peace of Mind" policy. Travelers can make changes to their tickets without paying any extra fees, but only if war breaks out or the terror alert goes to red. That's the highest level.
Delta has a slightly different plan for trans-Atlantic travelers only. They can change most tickets without penalty, if bought in the month of March.

United and Continental are also relaxing the rules.

Airlines have been telling their corporate tales of woe on Capitol Hill and asking for billions of dollars in tax cuts from Congress. That has reverberated on Wall Street. American's parent company is down 34 percent, Delta is down 22 percent, and Continental is down 15 percent and that's in one day, yesterday.

Now the truth about your tickets. Airlines must charge four different taxes and fees imposed by the government, and that's just for domestic tickets.

Let's get a cost breakdown down and an outlook on a troubled industry from Mark Orwell, managing editor of "Travel and Leisure" magazine.

Good morning to you, Mark.

MARK ORWELL, "TRAVEL & LEISURE" MAGAZINE: Good morning, Heidi.

COLLINS: Let's go ahead and go straight to your ticket, if we could, because I think a lot of people, when they look at that ticket, it's just a bunch of numbers and they look for their seat assignment, and that's about it. What are we seeing?

ORWELL: Well, you know, I actually brought a ticket with me that, as you can see, it was an international ticket, and in this corner of the passenger receipt, it has a lot of codes and a lot of numbers on it. Very briefly, what stands for is the first number up here is the base fare that I paid for the ticket, $245.

However, I also had to pay an international departure and arrival tax of -- it's a federal tax -- $26.80, $2.50, that's the September 11th-inspired federal security fee, and then I paid an additional $64.30 for foreign airport charges and taxes, as well as customs fee, immigration fee and Department of Agricultural fee, for a grand total of $338.60.

COLLINS: Right. So let's start with the federal tax? What is it? What are we getting with that?

ORWELL: Well, in this case, it's simply a fee imposed by the FAA that for domestic flights, it's 7.5 percent of your base ticket price. You're also going every time you're going to pay $3. You're also going to pay the September 11th security fee every time you get on a plane in the United States. So a round trip could be $5. $4.50 is the maximum allowed to be charged by the airports for airport fees, a passenger facility charge is what they call it. So all of these are on top of the base fee, and that's what makes up the grand total of the ticket that you pay for.

COLLINS: So two quick questions for you -- this passenger facility charge up to $4.50, which doesn't sound like a whole lot, but gosh, I mean every single ticket they're getting $4.50 on, that could add up, and I'm understanding it's for airport projects. What if the airport doesn't have any projects planned.

ORWELL: Well, it's for the airport maintenance, airport infrastructure, it's noise reduction projects, all of these things are used. It's a federally mandated thing, but the airports actually get the money to use to keep up their infrastructure.

COLLINS: All right, we're also looking at some airline operational costs now. We know that the airlines are in deep trouble. Some would argue it happened before September 11th, and September 11th, obviously, made things much worse now, pending war. A couple of companies have been saying they very much fear being out of business altogether.

As far as operational costs go, tell us a little bit about that.

ORWELL: Well, a lot of people will say, oh, so the base fare you pay for your ticket, that's the profit for the airline? Well, no, it's not the profit. Most of that is going to pay for salaries and fuel. Those can make up 50 or 60 percent of the base fare. The rest goes to maintaining all of their airplanes. I mean everything down to paper clips, advertising, you name it, the cost of running a business, and most airlines are not making a profit. So in other words, that base airfare that you're paying is not even enough to give the airlines a profit.

COLLINS: Now there are a couple of airlines making a profit though. One of them Southwest. We hear of other ones, Jet Blue, Frontier Airlines, doing very well, but I think that, at least with the general public, might not see what a huge difference this airline is from the majors, United, American, Delta.

Tell us why they're doing so well.

ORWELL: Let's look at Southwest in particular. There's nothing new about this, because they've been around for over 25 years, but they do not offer all the bells and whistles. There's no meals. There's no menus. There's no assigned seating. Short-haul flights are what they aim for. In fact, their average flight is only about 425 miles distance. What they realize is that they're not competing with the other airlines. They're competing with the family car, and so they have a different business model than most major airlines.

So it seems to be working. Whether Southwest Airline and its other no frills competitors is the wave of the future remains to be seen, but especially being compounded with the economic crisis, with the threat of war looming, I think a lot of big airlines are going to take a very, very hard look at Southwest as a business model for the future.

COLLINS: Regional jets, here we come.

ORWELL: I think so.

COLLINS: Mark Orwell from "Travel and Leisure" magazine, thank you so much.

ORWELL: Thanks, Heidi.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com