Air Travel Gets a New Model

JOE RAEDLE/GETTY IMAGES
Passengers wait to check in at the US Airways counter in Miami

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When the Federal Government set up the Air Transportation Stabilization Board (ATSB) last fall to help prop up the ailing airlines with $10 billion in loan guarantees, many credit-strapped ceos licked their chops in anticipation of yet another big, fat government handout. But this time, at least so far, Uncle Sam hasn't turned into Uncle Sugar. Trying to impose some much needed discipline on the free-spending flyers, the Stabilization Board has required stringent cost-cutting measures as a condition for its help and hasn't been shy about turning down such requests, as it did with National and Spirit airlines last week and may soon do with United (though sources tell Time the board has agreed to let United amend its application with more drastic cost-cutting proposals).

Since Wall Street and private-sector outfits like Texas Pacific Group are willing to step into the breach and provide temporary assistance, many wonder why the government needs to play such a role at all, especially when pro-subsidy European counterparts are letting their failing carriers fail. "The atsb is going to do no one any good in postponing the big bang," says Peter Walsh, an aviation expert at Mercer Management Consulting in Dallas. Not only does Washington seem to be in the curious position of picking winners and losers America West and US Airways, yes; smaller players like National and Spirit, no but the carriers it decides to support may well gain an artificial competitive advantage against their peers. Says Gordon Bethune, CEO of Continental: "I don't need the government giving United $2 billion to beat the crap out of me and inflate my wages."

Keeping dying carriers on life support, critics argue, only deters the industry from undertaking the consolidation it needs to return to health which oil companies and aircraft manufacturers have already done. Pat Murphy, a former Transportation Department official, asks, "Do we really need six major network airlines?"

For the moment, that number isn't likely to change. Bad as things are at US Airways, which has the highest costs in the industry (15.2[cents] per seat mile, vs. around 7.5[cents] for Southwest) and has repeatedly failed to expand much beyond the crowded and competitive Eastern Seaboard, it's probably not going under, at least not yet. The airline has reached agreements with some of its workers to save $550 million this year, and plans to scale back service at less profitable cities, as it did earlier this year in Baltimore. United's challenge may be greater. Many observers believe that its unique, employee-owned corporate structure ensures that labor costs will never go low enough to fix its ailing bottom line. American still has to digest its ill-advised acquisition of TWA; and Delta, whose low-cost Delta Express carrier has been hammered by JetBlue, is said to be close to starting a second low-cost provider. Continental and Northwest have done a better job of reining in costs over the past year.

The industry's overhaul will no doubt bring manifold changes for passengers. Not all have taken shape yet, but here is what industry experts advise:

Bring a Book
If American Airlines' new strategy becomes a flight pattern for the rest of the industry, most passengers can probably expect longer layovers. Today full-service airlines concentrate most of their flights around peak rush hours to keep connection times tight for business travelers. But the airlines "get low productivity for the high convenience of short transfers," says Ray Neidl, an airline analyst at Blaylock & Partners in New York City. Under the new system envisioned by American, the flow of traffic will be spread more evenly over the day.

Discounters and majors alike will provide more direct flights between popular destinations, but the hub system will continue to play a major role because feeding passengers from smaller cities into central hubs is still the only way to move people from Sacramento, Calif., to Sarasota, Fla., or Birmingham, Ala., to Los Angeles at a reasonable price. American says the average layover will increase by 10 to 12 minutes, but many travelers could spend an extra 30 minutes to two hours sitting in the airport bar or browsing the newsstand, especially as airlines cut back the number of connecting flights. "I'm not sure running an airline for operational efficiency at the cost of customer satisfaction is the way to go," says a rival airline executive. But look on the bright side: lines at the ticket counter and security checkpoints should be shorter, and there should be fewer delays and a smaller chance your luggage will get lost.