30 September 2005

Gordon's Solution.

I was surfing aroud today and came across an article in Time written by Gordon Bethune, our former and elustrious chairmen of the board. The article is his take on the mess the airline industry is in, and the cure to fix it. Gordon lays the main part of the industry's problems at the government's feet. His solution is for the government and manufacturers (GE Capital) to stop bailing out weaker airlines, and letting the market decide who will survive and who will fail. And that reform in government laws would allow airlines to merge and offer better competition. Gordon also believes the airline industry is saddled with too many taxes, at current count airlines pay 14 seperate taxes to various governmental entities. Usually quite often, taxes the airlines can't pass on to consumers due to increased competition from low cost carriers. Gordon also wants the government to stop the 'pork' spending in bills and pour that money into our nations aviation infrastructure, i.e. upgraded ATC system, upgraded airports.

It's an interesting article. Gordon is known for "telling it like it is" instead of sugar coating his words. People either love him or hate him. I have mixed feelings for him, he came to Continental from Boeing when Continental was under dire financial hardship and many thought the airline would fail or be bought out, instead he turned it around to one of the most admired airlines in the United States. But, he left Continental in almost the same situation. While we're losing money, we're not losing as much as the rest of the industry. We are fully leveraged though, with approximately 21-22 billion dollars in debt. I'm sure our on corporate board is eying Delta & Northwest and the benefits that bankruptcy offers. The ability to discard labor contracts, the oppurtunity to dump an underfunded pension on the government and the possibility of returning our most unprofitable aircraft ( the boeing 737-500) to lessors.

So while I agree with his assement that the government needs some serious reform in it's laws and taxation of passenger airlines in the states, I don't think it's the full solution. It seems to me that these corporate boards of all the legacy carriers; United, Delta, American, Northwest, Continental, need to sit down and re-evaluate the whole business model. It seems that they are still hoping for a return of the business traveller, of lower oil prices, as the main means to profitability. I don't see this happening. Personally, I think we should all accept this reality, and work towards and develop a business model that accounts for this basic shift in flight travel and fare pricing that has occured in this industry, along with less government intervention (taxation, regulation, etc)

Though Gordon is right in one aspect, the airline industry is the most heavily regulated un-regulated industry.


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