Should You Worry About Airline Losses?


The numbers are so big they almost sound unreal: a $375 million loss for American, $91 million loss for Southwest, and a projected $2 billion loss for the industry as a whole—and that's just the first quarter of the year. But often it's difficult to separate the real-life consequences of the numbers from the numbers themselves. After all, the airlines are still flying, right, so what do these big losses mean for travelers?

One of the major effects we've already seen is capacity reductions. These act as a tourniquet on an airline's hemorrhaging budget (forgive the metaphor). But as we also know, airlines can't cut capacity fast enough, and the declining passenger demand is outpacing the cutbacks airlines are making.

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So what about the future, then? Well, airlines can't keep losing money forever, and will have to trim expenses in other ways. For example, upon announcing its first-quarter loss, Southwest also unveiled an employee buyout program. How this will affect travelers is anyone's guess, and depends on who takes the buyout. It could mean fewer flight attendants or baggage handlers, or a change behind the scenes that has less obvious implications. The carrier also froze salaries and hiring at the senior level.

American, for its part, is postponing proposed ticket agent layoffs (it currently employs more than it needs) and will instead reduce costs through other means. In a letter to employees, Tom Del Valle, American's senior vice president of domestic airport services, wrote, "We will work to mitigate the overage through other means - reducing overtime, developing more efficient work schedules, shortening part-time shifts, soliciting timecard leave, [and] conducting training on scheduled shifts."

Of course, the big elephant in the room is the B-word: Bankruptcy. As my colleague Tim Winship reported not too long ago, all these losses, coupled with an ongoing economic slump, could lead to weaker airlines succumbing to bankruptcy protection or, in the worst cases, liquidation.

But all is not doom and gloom—at least for the airlines. So far, fees have helped airlines protect themselves from posting truly gargantuan losses (According to American CEO Gerald Arpey, "The various service charges we implemented last year have also been helpful, generating hundreds of millions of dollars in incremental revenue"). Sure, fees are no fun for us, but they're crucial to the airlines right now. Expect fees to remain.

And in that same letter to employees, American's Tom Del Valle cited "recent fare activity resulting in booking stimulation" and said "we are optimistic that the changes underway will result in traffic growth over the summer." Hopefully he's right!

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