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Another Route for Sick U.S. Airlines? Delta and Northwest May Need to Go Beyond Traditional Tactics

Posted on: Thursday, 29 September 2005, 12:00 CDT

By Micheline Maynard

The ranks of U.S. airlines operating under bankruptcy-court protection have become thinner, as US Airways emerged from Chapter 11 and merged with America West to form the country's biggest low- fare carrier.

In a few months, United Airlines wants to be next to come out of court protection after three tumultuous years. In that time, it has made deep cuts in wages and benefits, terminated its pension plans and remade itself from an employee-owned carrier into one run like the others.

Those differing approaches are the paths generally taken by airlines in bankruptcy: cut, as United did, or paste, as US Airways did with America West on Tuesday. But the strategies may offer little in the way of direction for Delta and Northwest, the two carriers that filed for protection from creditors under Chapter 11 of the federal bankruptcy code this month.

James Womack, a consultant and author of "Lean Solutions," to be published next month, said that what Delta and Northwest needed as a role model was an airline version of Toyota Motor a big, efficient company able to stay ahead of industry trends and make tons of money doing so.

On the surface, the two other major U.S. carriers, Continental and American, might seem to have role-model qualities. But early this month, Continental which used two rounds of bankruptcy protection in the 1980s and 1990s to slice its labor costs and develop an efficient, customer-focused operation warned that the spike in fuel prices would lead to a significant loss this year, even though it had obtained cutbacks from employees.

And American, the only big U.S. airline that has not filed for bankruptcy protection in recent years, is operating without any protection against fuel prices and with a debt load in excess of $20 billion and overdue pension obligations, for which it is trying to gain congressional relief.

Industry analysts and others said that instead of looking to other carriers as examples, Delta and Northwest should come up with a business model that they insist is necessary for big players to survive and thrive.

Jan Brueckner, professor of economics at the University of California at Irvine, said Delta and Northwest had an opportunity to use the bankruptcy filings to get free of vestiges of the regulated era that permeate the industry even though restrictions on routes and fares were eliminated starting in 1978.

"This is deregulation's bite," he said. "These airlines were sheltered until basically 1980. The market has finally beaten them up so that they have to start thinking like carriers that were never regulated." Whether Northwest or Delta will take such a tack is not clear. At the moment, Northwest is focused on its demand for $1.4 billion in cuts from its unions, including a second round of pay cuts from pilots. Delta executives, meanwhile, say they are speeding up the restructuring plan they started last year, which was intended to cut costs and make the airline more nimble in the face of low- fare competition.

Arguably, analysts said, Southwest, the low-fare airline that carries the most passengers within the United States, might serve as a Toyota equivalent, given its string of profits, its productivity and a market capitalization that is more than all the other big airlines put together. Many of its methods are being copied by rivals, Northwest and Delta among them.

Specialists say both Delta and Northwest could go much further and initiate the next phase in airline restructuring: an extensive rethinking of precisely which employees and expertise an airline should keep.

Source: International Herald Tribune

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