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Sorting out the airline mess

What with the latest reorganization filings by Delta and Northwest, lots of you are facing some real uncertainties about future travel. One reader recently asked whether she should risk booking several months in advance on Northwest; another wondered if Delta’s announced cutbacks at Cincinnati would prevent him from flying from Cincinnati to Europe next spring.

Although my crystal ball is far from perfect (it runs on Windows), I can make some fairly safe predictions that might help you decide how best to book airline travel during the rest of the year and into early 2006.

1. None of the big lines is likely to stop flying within the next year. Many of us are conditioned to view “bankruptcy” as the same as “going out of business,” but that isn’t the case. Chapter 11 is really about “reorganization,” not going out of business—in fact, it’s specifically designed to allow companies to stay IN business while they try to sort out their financial problems. We’d all be better off if we quit calling it “Chapter 11 bankruptcy” and instead think “Chapter 11 reorganization.”

Because reorganizing is exactly what Delta and Northwest are starting to do, what United has been doing for several years, what US Airways is about to complete doing, and what Hawaiian just did. They’re using the bankruptcy laws to stem losses by shedding debt and renegotiating various contracts and commitments. They’re continuing to fly, continuing to honor frequent flyer tickets, and, as far as travelers are concerned, continuing to operate as if nothing were wrong. Several of my fellow contributors to have looked at various aspects of the airline problem and provided some excellent additional details and suggestions.

For travelers: The bottom line is that, at least for now, you don’t need to avoid advance booking on any of the big legacy lines—American, Continental, Delta, Northwest, United, and US Airways. None is about to stop flying or fail to honor its ticket or frequent flyer obligations during the next year. The only airline of any size likely to stop flying is Independence Air, and even that isn’t a sure thing.

2. Expect significant big-line downsizing. One of the main reasons why Delta and Northwest filed to reorganize is to abrogate “scope” clauses in their labor agreements that limit the amount of flying they can turn over to 50- to 100-passenger regional jets (RJs). As cost pressures continue, both lines want to shift more of their thin routes over to the smaller planes, with their lower operating costs. Unless you fly exclusively among only the largest cities, there are RJs in your future—if they’re not there already. Delta’s downsizing of its Cincinnati hub is largely a matter of replacing many of its mainline flights with RJs.

The overall size of the Cincinnati hub operation will also decrease—Cincinnati is too close to Delta’s main Atlanta hub to be truly efficient. You’ll probably see other lines downsize their smaller hubs, too. But downsizing doesn’t mean complete abandonment. Although no longer hubs, American continues to fly from St Louis and US Airways continues to serve Charlotte and Pittsburgh. The reader who wants to fly Delta from Cincinnati to Europe will still be able to do so—but maybe not nonstop. Also, when one of the legacy lines downsizes a hub, at least one low-cost line is likely to jump in to fill the void. That’s what Southwest is doing at Pittsburgh and what AirTran is likely to do at Charlotte.

For travelers: Even when a big line downsizes a hub, you’ll still be able to fly on it—but maybe on a smaller plane, and maybe with a connection rather than a nonstop. And when a low-cost line moves in, you’re likely to see sharply lower fares.

3. You might also see a big-line merger or two. Already, some financial types are talking up a possible merger between Delta and Northwest (Northwest has also been mentioned as a partner for Continental). Make no mistake: The primary purposes of any such merger will be to cut back still further on flights and decrease competition—both to make it easier for those lines to raise fares.

For travelers: Big-line mergers would likely result in higher fares, especially on routes with only one surviving line. But any such mergers would almost surely combine frequent flyer programs, so your mileage and flight opportunities will be safe.

4. Low-cost lines will continue to displace legacy lines. Even with reorganization, the legacy lines will have a tough time matching the costs of the low-fare lines. Several legacy lines have already announced cutbacks in domestic flying to concentrate on the more profitable international routes. But those routes, too, will see new low-cost competition this year.

For travelers: Depending on where you fly, you may need to switch preferred airlines from legacy to low-cost lines, with an accompanying negative impact on your frequent flyer benefits. There isn’t much you can do about it.

5. Overall, fares have to increase. Even perennially profitable Southwest would lose money this year if it had not hedged fuel purchases adroitly, and it will not be able to continue those hedging benefits in future years. JetBlue says it might lose money, at least in the third or fourth quarter. If the low-cost lines have to increase fares, you can bet the legacy lines will copy.

For travelers: You’ll still see lots of good deals, but expect a general upswing in fares.

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