Comments on: Comments on 17840

Post number 17840

matty — Sat, 15 Jun 2002 08:07:57 -0800

UAL reported an industry record $2.1 billion net loss in 2001 and a net loss of $510 million ... Come on, $15 billion to 'bail out' the airlines? I know this subject has been hashed over before, but it seems every other week I read stories about how hard the airlines are struggling for business after 9/11. I fly on business every week - every flight is full, every airport is packed. I'm starting to think we're all being suckered...

By: electro

electro — Sat, 15 Jun 2002 09:03:48 -0800

Who cares if the airlines are struggling or not? If there's something wrong with the bankrupcy system, congress should fix the bankrupcy system rather than exempting politically powerful industries from it.

By: dhartung

dhartung — Sat, 15 Jun 2002 09:42:45 -0800

matty, flights are full because 20% of the commercial airline fleet was mothballed last fall; the famous airplane graveyard at Mojave Airport has never seen so many planes. You may be flying on airlines that have weathered the downturn better. And the flights that were eliminated are probably those during lower-traffic periods, anyway -- so your personal observations may not actually be statistically relevant. The $15 billion is not, of course, cash granted to them. It's simply federal backing for loans. If UAL fails at some point down the road the taxpayers could end up holding the bag, but even if you don't like that it's unfair to characterize it this way. The money is coming from banks, not taxpayers, and the banks will probably make money off of their loans. And obviously the airline is doing some belt-tightening -- the subject of the article -- in anticipation of applying for those loans. It may be corporate welfare, but the ripple effect of airline failures would be tremendous -- everyone from airline manufacturers to the tourist industry could be affected. The bail-out didn't occur because the airlines struggled financially of their own accord, but because of the unexpected 9/11 attacks and their effects on the economy and air travel. Even so, UAL has waited nine months to take advantage of this program.

By: hob

hob — Sat, 15 Jun 2002 09:47:38 -0800

congress should fix the bankruptcy system see, the thing about that is, by the time you get really interested in bankruptcy reform you no longer have the money to buy the votes... and i was under the impression that the whole point of deregulating industry was so that we'd have this darwinian evolution of airline companies: they compete like crazy, and then when a catastrophe hits the ones that are barely hanging on go kaput and we get new ones (like, for example, Jet Blue, which i keep eyeing as a cool airline to fly, but which doesn't go where i go, dammit...) if we're not going to let companies go under, then what's the point of free-market competition? wouldn't we be better off with a centrally planned airline industry?

By: kindall

kindall — Sat, 15 Jun 2002 09:57:23 -0800

My libertarian leanings mean I agree with you in principle, hob, but in the wake of 9/11 it seems as though all airlines are in danger of going under. The airlines still aren't getting what they used to get for a ticket and they're still paying off planes that aren't flying. Losing a few of the weaker airlines is one thing; losing all or even most of them would cause a lot of the economy to come to a standstill. I mean, has anyone investigated what it would cost to ship themselves by FedEx?

By: hob

hob — Sat, 15 Jun 2002 10:12:10 -0800

losing all or even most of them would cause a lot of the economy to come to a standstill. i don't see that happening. you seem to be assuming that nobody would be interested in getting into a suddenly-empty and vastly profitable market whose infrastructure is already in place. besides which, the reason all these airlines are going under is that less people are interested in flying. if less people are interested in flying, we need less planes in the air. if we need less planes in the air, we need less management overhead... thus, companies go under, and resources get re-allocated to something people are more interested in right now. right? or is the whole free-market economy thing just smoke?

By: rushmc

rushmc — Sat, 15 Jun 2002 10:17:40 -0800

Wonder how they'll fare when the war gets really ugly...time to nationalize, I guess.

By: mattpfeff

mattpfeff — Sat, 15 Jun 2002 11:12:58 -0800

you seem to be assuming that nobody would be interested in getting into a suddenly-empty and vastly profitable market whose infrastructure is already in place. (emphasis mine) Well, that's really the question, isn't it. Airlines face rather high start-up and maintenance costs. Profits had been erratic even before increased security concerns reduced demand (by both scaring potential customers and by making flying even more unpleasant, what with longer lines, added restrictions, and potential invasions of privacy) and increased costs (security equipment and personnel, loss of economies of scale, and, no doubt, employee turnover, to name a few). I'm sure smart managers can find ways to make airlines profitable, but it isn't clear that the market as is is some juicy plum just sitting there, ripe for the picking.

By: hob

hob — Sat, 15 Jun 2002 13:59:52 -0800

increased security concerns reduced demand ... and increased costs so, some people people are scared to fly, so they don't fly. some people are pissed off at the added indignity involved with flying, so they don't fly. costs are higher because of the cost of adding all that indignity and alleviating those fears. higher costs means higher airfares, so once again, people can't afford to fly so they don't fly. i would postulate here that given the ability to choose, those people who are more concerned with indignity and cost than security would fly on an airline who was more concerned with keeping costs low and providing good service than with strip-searching everyone. those people who are more concerned with security would be willing to pay more for an airline which spends more on security guards than on stewardesses. i think the real issue here is that we're all afraid that we know how the choice would come down, because we've seen it: people would rather pay less and get good service than pay more and get hassled. we're afraid that people individually aren't willing to pay for their security from a threat that most people are likely to see as an act of god and thus not worth worrying about. the question is: is it OK for our gov't to second guess us this way? i understand that the gov't exists, in part, to do things that are best done collectively, but i wonder if this is one of them.

By: mattpfeff

mattpfeff — Sat, 15 Jun 2002 15:24:24 -0800

i would postulate here that given the ability to choose ... But the relevant alternative here isn't flying on another airline that better suits your concerns, it's choosing an alternate means of travel or not travelling at all. People are cancelling trips or taking the train or car instead of flying; the business is definitely suffering because of it. we're afraid that people individually aren't willing to pay for their security ... I don't think that's actually the reason for the bailout funds, though. The concern is that even the major airlines won't survive long enough to find out if enough people will pay -- i.e., if the market will bear the costs (and other adverse effects) of increasing airline security. If enough airlines go bankrupt, then the entire economy will suffer as a result. The bailout is intended to prevent that. I don't know whether the bailout is actually necessary or beneficial overall, but I do think it's based on a legitimate concern about the industry.

By: hob

hob — Sat, 15 Jun 2002 17:50:17 -0800

But the relevant alternative here isn't flying on another airline that better suits your concerns, it's choosing an alternate means of travel or not travelling at all. that's the point i was trying to get across: the crisis here is artificial, or at least artificially exacerbated. if the airlines were not forced to put measures in place that the public obviously don't support enough to pay for or put up with, they wouldn't be in so much trouble. given that the gov't has forced this kind of idiocy on the airlines, i think it's perfectly reasonable that it bail them out when they go bust as a result; but i wish we'd avoided the whole quagmire to begin with. i certainly wouldn't pay more at the ticket counter to fly on an airline that would humiliate me and cause me inconvenience; why does my gov't insist that i have to pay for it anyway?

By: electro

electro — Sat, 15 Jun 2002 19:00:18 -0800

...the ripple effect of airline failures would be tremendous... I think you might have unrealistic ideas about what airline backrupcies would entail. For example, if you think they would stop flying airplanes, you're way off base. Airlines can't afford to stop flying (incidently, that's why their unions are so goddamn powerful). Basically, they would get protection from their creditors at the expense of having the oversight of a judge on all their financial dealings. Of course, judges tend to be a lot more expensive than congressmen....

By: fleener

fleener — Sat, 15 Jun 2002 20:06:26 -0800

Airlines needing a bailout? Oh please. If they can't survive, other airlines will take their place. That's called capitalism. Oh wait, I forgot we were discussing America. Nevermind. Enjoy your constitutional dictatorship.

By: kindall

kindall — Sat, 15 Jun 2002 23:18:44 -0800

If they can't survive, other airlines will take their place. What kind of moron would start a new airline after watching half a dozen fold? My nightmare scenario is that the airlines all figure out they can survive only by cutting the number of flights in half and tripling their prices. It would make commercial air travel the privilege only of the wealthy. That would suck, in my humble opinion. I hardly fly at all compared to a lot of people (two or three times a year at most), but I'd sure hate to only fly once a year, and have to save up all year to do that much.

By: zoopraxiscope

zoopraxiscope — Sun, 16 Jun 2002 05:11:20 -0800

even if all the airlines went chapter 11, they'd continue to fly under reorganization plans. i say let the market do it's job and quit rewarding inefficiencies by proferring bailouts to companies that don't know how to run their businesses correctly.

By: fleener

fleener — Sun, 16 Jun 2002 07:27:40 -0800

kindall, what kind of moron? Do you know anything about the subject? Anything? There are dozens are smaller airlines waiting to take their place. And if there were not, there are plenty of corps that would buy the bankrupt airlines and restart them. To suggest the airlines are in trouble is flatly ridiculous. This is a money grab, nothing more, nothing less.

By: mattpfeff

mattpfeff — Sun, 16 Jun 2002 09:57:41 -0800

the crisis here is artificial, or at least artificially exacerbated. if the airlines were not forced to put measures in place that the public obviously don't support enough to pay for or put up with, they wouldn't be in so much trouble. Maybe. I'm not so sure. People are genuinely concerned about the safety of air travel, and, given that concern, it makes sense for them to see if there are alternatives they won't find so stressful. I also don't know why you think the public doesn't support the increased security measures -- I haven't heard of many people opposing them. Rather, they seem to have been accepted as a necessary inconvenience. There are dozens are smaller airlines waiting to take their place. And if there were not, there are plenty of corps that would buy the bankrupt airlines and restart them. Maybe. Take a closer look, for example, at what has made Southwest Airlines successful -- this article is helpful. The way they did it is by largely avoiding the markets the major airlines have dominated -- and are now struggling in. It isn't obvious that they could replace United et al., and, even assuming they can, that still might not be good for the market overall, if the costs of starting or updating the infrastructure of an airline post 9/11 are sufficiently high that overall competition suffers. Bailouts are, of course, a money grab (as fleener says) on the part of the airlines. But they may also be benefical to the economy overall.

By: kindall

kindall — Sun, 16 Jun 2002 12:21:16 -0800

kindall, what kind of moron? Do you know anything about the subject? Anything? Business? Economics? Why, yes, I do, thanks for asking!

By: BlueTrain

BlueTrain — Sun, 16 Jun 2002 12:58:50 -0800

i say let the market do it's job and quit rewarding inefficiencies by proferring bailouts to companies that don't know how to run their businesses correctly. What kind of inane logic would allow corporations, which provide a necessary transportation to citizens, to collapse? Do any of you "free-market, head in the books instead of reality" people actually understand the implications of an airline collapse? i.e., Boeing fired thousands, Tourism died, Air travel is still no where close to original levels. And if there were not, there are plenty of corps that would buy the bankrupt airlines and restart them. To suggest the airlines are in trouble is flatly ridiculous. This is a money grab, nothing more, nothing less. Any proof whatsoever? Congrats on a completely hollow argument. Oh wait, I forgot we were discussing America. Nevermind. Enjoy your constitutional dictatorship. Troll.

By: zoopraxiscope

zoopraxiscope — Sun, 16 Jun 2002 14:25:49 -0800

what kind of inane logic would allow government to subsidize inefficient companies whose executives still somehow manage to bring home money in buckets? southwest is out there, and they're completely solvent because they have some clue on how to run their business. if the people running the other airlines can't figure out how to do the same, then they should be allowed to fail. there's little reason for the government to prop up the airlines the way they've always propped up amtrak. that's a losing proposition all around, imo.

By: electro

electro — Sun, 16 Jun 2002 15:30:34 -0800

BlueTrain: No one is suggesting that the entire airline industry should collapse. The worst thing that could happen would be a bunch of bankrupcies. Planes would continue to fly, but less frequently and more expensively. Well-run airlines like Southwest would have the opportunity to expand their service. And judges would be watching the executives to make sure that they were actually trying to fix their companies rather than just cashing out. To repeat my earlier point, if there's something wrong with the bankrupcy system, congress should fix the bankrupcy system rather than exempting politically powerful industries from it.