One-way ticket to bankruptcy
As early as the beginning of the spring semester, assignments, papers and tests are thought of in terms of “pre-Spring Break” and “post-Spring Break.” This annual ritual is something that all college students enjoy, whether it’s because of a vacation in Mexico or the Caribbean or just because it means some time off from school. With a little planning, it’s usually possible to find low or even deeply discounted Spring Break airfares. These discounted fares may seem to have no downside to consumers — especially the budget-conscious college student — but they mask very serious problems facing the airline industry.
You don’t need to look far to witness airline industry problems. In December 2004, Largo-based Southeast Airlines suspended operations at the St. Petersburg-Clearwater Airport. This January, discount carrier ATA announced it would discontinue local service as of April 10. Underscoring the harsh economic reality the ATA decision means to the airport, the local ABC affiliate reported that, “Last year, nearly 1.4 million travelers used the airport; more than half were aboard ATA.”
The financial problems that precipitated the end to Southeast Airlines and ATA’s flights are not unique. Fierce competition has forced the traditional legacy carriers such as Delta, United, American and Northwest Airlines to rethink fare structures in an attempt to compete with the success of discount carriers. Delta Airlines recently rolled out its Simplifares™, which lowered fares, changed fees and eliminated the Saturday night stay requirement. In the domino effect that is oftentimes seen in the airline industry, other carriers have been forced to match ticket prices and structuring or face reduced passenger load.
Don’t get me wrong, I enjoy lower airline ticket prices. The problem is that the current market simply cannot sustain these prices without drastic cutbacks on services like in-flight amenities and frequent flyer miles. A worst-case scenario could even involve the liquidation of a legacy carrier.
One of the primary drains on airline profits is the rising price of oil. Increased worldwide oil demand predictably raises the price for a gallon of gas. The airlines have been largely unable to pass these price increases on to airline passengers due to the intensely competitive airline market. The financial implications of rising fuel costs on airline companies are staggering. As The Chicago Tribune reported this weekend, United Airlines reported a $326 million dollar loss last month, partly blamed on $63 million in additional fuel costs compared to the same month last year.
One of the scariest and least reported effects of the monetary losses experienced by the airline industry is on frequent flyer programs. These programs were instituted as a way to establish brand-loyal airline passengers, but today the lowest fare seems to win over internet-savvy travelers. In addition, credit card companies have partnered with airlines to provide miles for car rentals, gasoline purchases and even dinner at local restaurants. The accumulation of all these miles creates a liability for already-cash-strapped airlines to fulfill these travel awards. Attempt to redeem miles now and you may find that getting your exact flight dates and times is harder than it used to be.
To make matters worse, FrequentFlier.com, a Web site dedicated to information about frequent flyer programs, states that “unlike dollars deposited in a bank account, which are typically insured by the FDIC, there is no protection for miles in frequent flyer accounts.” This is why travel experts recommend that consumers stop stockpiling miles and begin to use them as they reach desired award levels.
Airlines were certainly affected by the attacks of Sept. 11 and rising fuel costs, but the current fare structure is a sort of long-term suicide for some air carriers. Rock bottom fares alone don’t sustain financially sound airlines, so consumers must brace for the changing landscape of airline travel over the next year. Enjoy those low fares while they last and use your frequent flyer miles when you can, because next Spring Break you may not be so lucky.
Aaron Hill is a junior majoring in chemistry. firstname.lastname@example.org