Ask the pilot

2002: A year to forget. The pilot surveys the wreckage of one of the worst years ever for the airline industry.

By Patrick Smith

Aug 15, 2003 | Now that 2003 is three-quarters over, the industry's financial and traffic rankings for 2002 are finally in. Sorry, that's how it works. No rush, as far as I'm concerned, and honestly if I never again have to look at a quantified summary of exactly how pitiful things are, it'll be too soon.

I'd planned to do a "good news first" sort of opening, but, well, er, um, unless this column is allowed to diverge into analyzing Red Sox trades or Howard Dean's improved poll standings (it's not), I haven't got much to boast about. In one sentence it goes like this: According to the International Air Transport Association (IATA), industry losses since 2001 are homing in on $30 billion, with nearly half a million employees thrown out of work worldwide.

The bulk of that damage has been to the largest U.S. carriers. Overseas, things for the most part have turned a corner, SARS-induced damage in Asia notwithstanding (and not yet tallied). On a list of net profit-earners for 2002, of the top 25 only one was a major U.S. airline. And need I bother telling you which? You are now free to move about the country.

Reeling from terrorism, war and general economic infirmity, the helplessly entrenched majors find themselves in the midst of some desperate brainstorming. Everything is on the table, from spinning off subsidiaries to reconsidering the very viability of the hub-and-spoke concept that has dominated our air system for decades. "Business model" is the buzzword -- how to discard it, rework it, start a new one from scratch.

Whatever the majors are doing, they're doing it wrong, gasping for survival while the rapacious low-fare opportunists expand meteorically. In 2002, Southwest, JetBlue, and AirTran banked slightly over $300 million in combined net profit while American, United and Delta lost nearly $8 billion.

And by the way, if you think the low-fares template is strictly an American craze, see Canada and Western Europe, where quirkily named enterprises like Jazz, Tango, easyJet and Ryanair have been capitalizing on it, or even Australia's Virgin Blue, another happy Branson baby. Imitators are springing up in Malaysia and elsewhere.

Here's a paraphrase of a question I'm asked all the time: "Lately, whenever I fly, fares are high and planes are always packed. How can the airlines possibly be losing money?" That's a fair question, and assuming those greedy, underproducing employees and their parasitic unions are not to blame, then who is?

As you're probably figuring I'll tell you, this gets extremely complicated, and since I'm neither an economist nor an accountant I'll keep it simple: Flights are full, but there are fewer of them. Load factors (percentages of seats occupied) are up, but available capacity is down. The average load on a U.S. flight in 2002 was just under 72 percent, while the percentage needed to break even was 81. This while many aircraft -- some requiring hundreds of thousands in monthly lease payments -- are consigned to molder in the desert.

I'm not sure what you're paying, but yields, which is to say income, are presently about 15 percent below what they were in 2000. High-yield, premium cabin business traffic remains way off the norm.

Let's cut to the chase and show some lists. The following data are culled from the 2002 World Airline Report, a yearly compendium by Air Transport World magazine. Despite my repeated plugging of ATW as the best publication on earth after Harper's and the New Yorker (and Salon.com) they still won't give me a complimentary subscription. So the least they can do is provide the fodder for a decent column. Regional subsidiaries -- Express, Connection, Eagle, Airlink, etc. -- are excluded unless noted:

The largest airlines in the world, ranked by number of passengers:

1. American Airlines (94.1 million)
2. Delta Air Lines (89.9 million)
3. United Airlines (68.6 million)
4. Southwest Airlines (63.0 million)
5. Northwest Airlines (52.7 million)
6. US Airways (47.2 million)
7. Lufthansa Group (43.9 million, including CityLine subsidiary)
8. All Nippon (43.3 million)
9. Continental (41.0 million)
10. Air France (38.0 million)

The Big Three, as they're known, have remained in the same 1-2-3 sequence for quite a while. American and Delta were known to flip-flop until the former's acquisition of TWA, at which point it solidified an untouchable position. This is a first top-10 score for Air France, which nudged Euro rival British Airways to 11.

Next Page: The winners -- and the big, big losers

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