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Airline industry takes another hit

Kai Ryssdal Aug 10, 2006


KAI RYSSDAL: Most of us woke up this morning to the news out of London: 21 people arrested in a conspiracy to blow up airliners over the Atlantic Ocean. It has been a story today mostly of inconvenience, not tragedy. Tens of thousands of people stranded at airports in Europe and the US. American carriers were targeted, we’re told. Continental, American and United Airlines specifically. A rude dose of reality for an industry just now turning the corner from Sept. 11. United reported its first quarterly profit in six years not too long ago. Scott McCartney writes for the Wall Street Journal.

SCOTT MCCARTNEY: It’s like a snake-bit business. As soon as they get things going in the right direction something else happens. As soon as they cut costs so they could compete with low-cost carriers after 9/11 and then they got hit with a huge increase in oil prices. It’s a cruel business.

RYSSDAL: Those costs are piling up today. Any idea of how much carriers that fly in and out of Heathrow are going to have to absorb?

MCCARTNEY: Well, yeah, it’s an interesting thing. I think if this is a short-term event, this could be analogous to a hurricane or a blizzard and those generally run into the tens of millions of dollars in losses for the airlines. It’s a lot of money, but it’s not disastrous for them. If there’s a longer term impact or if something else happens that makes this worse, then obviously there would be a more severe impact.

RYSSDAL: Well let’s talk about that for just a second. What is the longer term impact on this going to be? Is it going to be customers saying ‘I’m not even going to deal with the security, forget it, I’ll just drive where I’m going’?

MCCARTNEY: I think you’ll see some of that in terms of short-haul flying. The history of these things is pretty clear. You get these incidents that produce longer security lines and you can see what happens. Short-haul flying does drop off, people ride Amtrak instead of taking the shuttles in the Northeast, they drive instead of getting on Southwest between Los Angeles and Las Vegas and you do see a drop-off there. But travelers are extremely resilient and they adjust. We adjusted to taking off our shoes. We didn’t like it but we figured out how to get through security the same way. And I think there will be a period of adjustment here where we’ll pt up with longer lines, we’ll put up with the hassle factor, we’ll figure out what to do about shampoo and things like that and life will go on.

RYSSDAL: In addition to just having sort of turned the corner here in the airline industry, US airlines are making a big investment in those foreign routes too aren’t they? They’re lucrative, they’re selling really well . . .

MCCARTNEY: They are and I think honestly that will continue. People will continue to go to London. You know, this will pass. Airlines, in the sense they’ve turned the corner, this has been a good summer for them but on the other hand there is always a drop-off in traffic in the fall. Prices always drop in the fall. So far we haven’t seen as big of price drops as we did last year so that’s a good sign for the airlines but it’s still a pretty precarious airline economy, You still have two big carriers in bankruptcy, there’s a lot to sort out and work through and this will make it more challenging.

RYSSDAL: As security increases as it inevitably will, and we’ve already seen it today in the wake of this incident, are the airlines going to have to absorb those extra security costs?

MCCARTNEY: I think the costs mostly will come in reduced travel if there is reduced travel and in things like, you know, there may be a lot more checked bags and so they’ll have to adjust staffing for that. In terms of security costs, it’s really the federal government that going to, and travelers we already pay heavily for the security fee that’s taken out of tickets. It’s unclear whether consumers’ll get hit or Congress will have to come up with more money for TSA or airlines will kick in more or all of the above.

RYSSDAL: Alright Scott, thanks. Scott McCartney is a columnist and the travel editor at the Wall Street Journal

MCCARTNEY: Good to be with you.

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