Roundup: US Airlines Retrench to Save Themselves

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Last updated at: (Beijing Time) Tuesday, August 20, 2002

Roundup: US Airlines Retrench to Save Themselves

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Large players in the US airline industry, deep in financial difficulty, have adopted retrenchment strategies after they announced operational reviews, and in one case filed for bankruptcy, over the past week.

US Airways, the seventh largest US airline, announced that it had filed for bankruptcy on August 11, saying it needed the protection of the court to reorganize debts of 7.83 billion U.S. dollars, which is more than the 7.81 billion asset list filed withthe court.

Two days later, on August 11, American Airlines, the world's No.1 airline, announced it would slash 7,000 jobs, retire its entire fleet of up to 74 Fokker-100 jets between 2003 and 2005, and streamline operations by cutting back flights.

Then came a similar announcement from United Airlines, the nation's second largest airline. The airline warned of the possibility of filing for bankruptcy in late Autumn, saying a significant cost-reduction is desperately needed.

All this bad news from the US airline giants is a fresh sign that the US airline industry is in deep trouble nearly one year after the September 11 terror attack.

September 11 was a gigantic bombshell to the US airline industry, resulting in a huge loss of passengers. Concerned about safety in the air, many former airline customers have switched to overland transport, worsening a serious problem of overcapacity inthe industry as a whole.

The US airline industry, which is largely subject to the broad economic situation, was, as the the US edged into recession in March 2001, already dipping into the doldrums before the terror attack. As the economic recession hit home, fewer people were willing to travel and there was less demand in the airline market.

Airlines took action to counter the overcapacity problem causedby a combination of unfavorable reasons, and total flights in thecountry were reduced from 1.4 million in 2000 to less than 1 million in 2001, according to official statistics.

The overcapacity could be traced back to the expansion strategyadopted by the industry during the booming period in the 1990s when major airlines aimed to become full-service mega-carriers through mergers and buying more airplanes.

Even as recently as last year, American Airlines purchased the TWA company. However, it was not long before American Airlines changed from expansion mode to retrenchment. Besides laying off workers from the TWA division, it also planned to retire nine Boeing 767-300's acquired from TWA.

US Airways, American Airlines and United Airlines, having suffered huge losses over the past year, all believe in the need to slash costs and reorganize their operations.

The companies also believe that, by taking the initiative to voluntarily reorganize, they will regain their competitiveness andreturn to profitability.

US Airways claimed it could eventually emerge from bankruptcy. American Airlines' Chairman and CEO Donald J. Carty said that "We believe our future lies in continuing to operate as the world's leading network carrier."

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