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American Morning

Terrible Year So Far For Airline Industry

Aired August 05, 2002 - 08:48   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.
PAULA ZAHN, CNN ANCHOR: Simply said, this has been a terrible year for the airline industry. United Airline stock is tumbling. That came out after the nation's second largest carrier hired bankruptcy lawyers right after September 11th. United is not alone. Losses for the first half of the year range from $264 million for Northwest, more than $1 billion for American. The bad news for the airlines but what will it mean for passengers?

Joining us from Orlando this morning to talk about it, Michael Miller, president of Miller Air Group and an aviation consulting firm. Thank you for joining us.

MICHAEL MILLER, MILLER AIR GROUP: Hi, Daryn. How are you?

KAGAN: I'm doing great. But let's see how United is doing, with the latest news that they hired bankruptcy lawyers. United is saying, hey, it's not that big of a deal, come on, but that's not what you would think about the stock price. So what's going on with United Airlines?

MILLER: Well, first of all, the stock price tumbled On Friday, after it was revealed by "Business Week" -- actually, I think the stock price tumbled more because it came out of "Business Week" than it came out of United. But I would suspect that nearly every major airline, with the exception of Southwest, has hired bankruptcy attorneys. They have to consider the possibility. The hemorrhages after September 11th have been horrendous, and it really is the worst of times for the airlines.

KAGAN: That just might be the part of doing business right now. But, for the average consumer, the average traveler, do they need to be concerned? Is there a difference between a carrier like United hiring bankruptcy lawyers, and what we saw happen with Vanguard?

MILLER: Right, Vanguard is a good example. There are two scenarios that consumers should look out for. One is a small airline like Vanguard that can file for bankruptcy and shut down at the same time. That is unlikely, though, at the bigger airlines.

KAGAN: Why?

MILLER: The bigger airlines, well, if you look at history, TWA, Eastern, Pan Am, everyone who has filed for bankruptcy has usually operated 100 percent of their flights at the time. That will probably be the case in the future. The biggest airlines can't afford to be shut down for any length of time, not even a day or two, or else all their passengers will go somewhere else. So you really don't have to worry about the biggest carriers totally shutting down right away. A chapter 11 filing could be a big bump in the road, but it wouldn't be the end of the road.

KAGAN: So if you're looking at something -- we're coming about the time when people are starting to think, where am I going to spend the holidays? Do you need to consider that when buying the tickets?

MILLER: You need to consider a lot of different things. And actually, I would recommend that anybody who is buying a ticket to check out that carrier's Web site, look at the news, look at the pattern that they've been in. Have they talked about bankruptcy? Have they talked about shutting down? Have they talked about exiting markets? And for the most part, that's only the really -- the most struggling carriers. United and U.S. Airways are definitely among them. Those are two of the biggest airlines that have applied for government loan guarantees. If you go to the government for handouts, things must be desperate.

KAGAN: They must be, but there's all these confusing messages, because you see like United losing over $2 billion. The airlines losing $1 million a day. And yet, there's still these screaming bargains out there for travelers.

MILLER: Right. Well, it's -- basically, the airlines are doing so poorly, because airfares are at a 15-year low.

KAGAN: So it's our fault, the flying public?

MILLER: No, it's actually to our benefit, because airfares will probably never ever be this low again. The travel bargains are out there. Airlines are not going to disappear off the face of the Earth that quickly. If any of the big airlines goes through a bankruptcy, it will be a long, slow death, if it is a death, and I don't suspect that many of the big airlines will totally disappear.

KAGAN: One of the problems might be for people in small towns. That would probably be the first people to see their service cut, no?

MILLER: Yes. Because if an airline right now is looking at cutting their service out of any communities, it's probably looking at some of the smaller communities, where they don't really have any profits. And if they're the only one serving that community, it could be detrimental for that community. But right now, we're really looking at loss of big market air service. You know, what happens in the future, who really knows? But big market air service has been curtailed, and small markets need to pay attention to the trends and not be driving three hours to the next down for the better airfare if they want people to fly to their community.

KAGAN: So the immediate message right now for travelers is watch it, because it's a very fluid situation it sounds like to me.

MILLER: It's a very fluid situation, and the airlines really have to restructure. There's no way around it, and consumers just have to pay attention and watch the news.

KAGAN: Very good. Michael Miller, thank you so much, and fly safe. Thanks for your insights.

MILLER: Thank you.

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