A legacy of problems

James Doran says America’s major airlines are in urgent need of new strategies to cope with soaring operating costs, inefficient fleets, over-extended route networks and a weak economy

An unofficial graveyard of the American airline industry hangs from the rafters of the Smithsonian Air and Space Museum in Washington. An old TWA mail plane dives across the flight path of a propeller-driven Eastern passenger plane which in turn passes precariously close to the wing of a fabled Pan Am Clipper, the aircraft that came to define the glamour and adventure of flight in the 1930s. But all of these once-great pioneers of American commercial aviation are no more. They were driven out of business by the forces of competition. They were the so-called legacy carriers – big airlines that lived high on government subsidy and cheap oil until deregulation in 1978.

But as markets were thrown open, it soon became apparent that this glamorous business, with its sharp-suited captains, pretty hostesses and free champagne for all, was completely and utterly unviable. A quick look at the finances of the combined US airline industry makes for startling reading: in the three decades since deregulation, US carriers have made a combined loss of more than $13 billion, a sum larger than the annual gross domestic product of Bolivia.

During the same three decades, more than 200 airlines have gone bust in America.

If the business model of the average airline made little sense back when aviation fuel was cheap, it is hardly worth the paper it is written on today, with oil soaring past $130 a barrel and jet fuel north of $161. By early June, jet fuel prices had surged by more than 65 per cent – with every extra dollar on the price of a barrel adding $465 million in costs to the US airline industry.

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