With Delta and Northwest joining the ranks of bankrupt airlines in September, about 40 percent of available seats on domestic flights are now with carriers that are in Chapter 11, according to the Air Transport Association, Washington, D.C. For meeting planners and attendees, airline bankruptcies likely mean route cutbacks, reduced services, and higher ticket costs.
“You've got to roll with the punches,” says John Heimlich, chief economist at ATA. “Bankrupt airlines tend to shrink, change the fleets, trim routes or the frequency of some routes, so you may see the flights get a little fuller,” he says. If new low-cost carriers don't fill the void in a given market, “then fares might go up a bit.”
In 2005, the U.S. airline industry is expected to lose between $9 billion and $10 billion, due in large part to rising jet fuel prices. Over the last five years, the industry has lost more than $40 billion.
In that period, 17 different U.S. airlines have filed for bankruptcy, according to ATA, including major carriers such as United, ATA, Delta, Northwest, Independence, and US Airways, which recently merged with America West. (As part of its restructuring, Delta announced in late October that it plans to discontinue its low-cost carrier, Song, by May of next year, with most of Song's flights being absorbed back into the Delta network.)
Northwest, the world's fourth-largest airline, “will continue to operate normally to serve customers, honor tickets, fly its competitive schedule” and continue its frequent-flier programs, states Tracy Carlson, Northwest spokeswoman. However, Northwest, like Delta, has initiated route cutbacks as it reorganizes. “In nearly every case, our schedule reductions have involved single reductions in frequency [i.e., cutting six flights a day to five],” explains Northwest's Carlson. “We are re-accommodating customers on other flights as we would through any schedule change.”
It is important to note that with bankrupt airlines, passengers retain all rights they would have otherwise had, experts say. Airlines will generally work to accommodate group customers in the event of cancellations, rerouting, or refunds — it just might take a little longer. “They generally settle out in favor of continuing customer relationships, but things generally do take longer just because they tend to stretch out payments,” says Robert Mann, an airline consultant at R.W. Mann and Co., Port Washington, N.Y. To help ensure you receive a refund should an airline go under, pay via credit card rather than making a direct payment to the airline, he adds.
Experts also say shaky airlines pose other problems for planners and passengers. “It's not so much a question of whether they [bankrupt airlines] are going to be around a year from now. The question is: Are they going to be flying to that destination and are they going to have enough flights?” asks Terry Trippler, a Minneapolis-based airline expert at Trippler & Associates. Both Northwest and Delta have been more aggressive with cutbacks than either United or US Airways when they entered Chapter 11.
To avoid cancellation trouble, Trippler offers some simple advice: Seek out the airlines that are growing. “A year from now there's a good chance that growing airlines like Southwest, JetBlue, Frontier, and AirTran are going to have more flights, while there's a good chance that Delta, Northwest, and United will have fewer.”
Seats Shrink, Prices Rise
A trend that could affect group bookings is legacy carriers cutting back on domestic routes, says Mann. Because it's tougher to compete with the low-cost domestic carriers, airlines like Delta are focusing on the more lucrative, and less competitive, international business. As a result, they will use their larger aircraft for international routes, leaving the smaller planes for domestic flights.
“The issue is: Will the number of seats or the size of the airplane change so that it creates problems for large groups?” Mann says. “Will enough seats have exited the market so it forces the rebooking of folks who were thought to be on a larger aircraft?” Connecting flights will be affected the most by the domestic pullback, he believes. “You'll see far less connecting service via some of the hubs with a focus more on origin and destination business in and out of the hubs.”
Route cutbacks will have an impact on site selection for planners like Lisa Dyson, director, conventions and conferences, at the Association of Wall and Ceiling Industries, Falls Church, Va. “I'm less likely to look at a second- or third-tier city than I would be normally out of fear of not having enough flights to go in and out,” she says. “If you stick with your first-tier cities, you're still going to get the lift — even though you might have funkier flight patterns.”
Dyson is concerned about the impact higher prices will have on meeting attendance. In a recent survey of AWCI meeting attendees, respondents said the cost of transportation weighs heavily in their decision to attend cross-country meetings. “That never used to be an issue,” she says. With the association's annual meeting scheduled in California next April, Dyson is wondering what attendance will be like.
After reaching historic lows in 2004, airfares are up about 15 percent in 2005, according to a survey by WorldTravel BTI, based in Atlanta. Meanwhile, Terry Trippler, Trippler & Associates, Minneapolis, projects that fares will jump another 15 percent in 2006, thanks to fuel prices that are expected to remain high. On the other hand, American Express has forecast that short-haul economy air fares will rise 5 percent to 8 percent, and international and long-haul business air fares will rise 2 percent to 6 percent.
Goodbye, Official Carrier
With this uncertainty, it's enough to make association planners rethink their relationships with airlines. “I don't even attempt to find an airline to do awith anymore,” Dyson explains. Over the past few years, she has had meeting with Delta, US Airways, and Southwest, and all have discontinued their meetings discounts, so now she doesn't bother using an official airline. Dyson books her travel through Expedia, which she finds is more responsive than the airlines in making changes. “If something happens with flights being canceled or routes being dropped, they will pick up the ball and actually re-route you with X airline.”
Meeting discount programs have largely gone away, says Trippler. Why? Low-cost carriers like Southwest have driven the costs down throughout the industry to levels below the contracted rates. The benefits of naming official carriers these days are more about the extra services — special check-in counters, complimentary tickets, etc. — than about price, he says.
Another casualty is customer service, which, generally speaking, Dyson finds is worse with the bankrupt airlines. “Before, if you missed a flight because of something the airlines did, they would put you up in a hotel,” she says. “They don't do that any more. There's a general feeling of, it's not our problem.”
Windy Christner, senior director, meetings and expositions, at the American Pharmacists Association, Washington, D.C., is another planner who fears that the hassles of air travel will have a negative impact on meetings.
“It's not a real good start to the meeting experience if [attendees are] so distraught with their travel situation when they get to the meeting.” she says. “If they have a bad experience, it's going to be a reflection on us.”
In the last 5 years, 17 U.S. airlines have gone bankrupt.
Here's a compilation of some recent and high-profile actions.*
|1/10/01||TWA (acquired by American Airlines)|
|8/13/01||Midway Airlines (ceased operation in 2003)|
|12/9/02||United Airlines (expected to emerge in early 2006)|
|3/21/03||Hawaiian Airlines (emerged from Chapter 11 in 2005)|
|9/12/04||US Airways (merged with America West)|
|12/1/04||Southeast Airlines (ceased operations in November 2004)|
|9/14/05||Delta Air Lines|
|9/29/05||TransMeridian Airlines (ceased operations in October and is liquidating assets)|
|*Source: Air Transport Association|