Up Next: A Bailout For Airlines?
News today indicates that airlines aren't faring very well in this recession. The International Air Transport Association reports that the U.S. airline industry will lose $11 billion in 2009. What's worse: it will remain deep in the red ink through 2010. The industry will lose $5.6 billion more next year. These are ugly numbers. Clearly, losses of that size aren't sustainable. Could that indicate that the airline industry will be next in line for a Washington handout?
Perhaps, but I doubt it. I've always put the U.S. airlines in the same category as the U.S. auto companies. They're mostly deeply flawed corporations that somehow manage to scrape by each year. Even though we saw an auto bailout, I think we're less likely to see something like that for airlines in the near-term. First, there are many more U.S. airlines than U.S. auto companies, and several are likely to survive. Second, I don't think Washington will be quite as eager to do any more bailouts in this political climate. Finally, a few failing U.S. airlines aren't as systemically vital as, say, a few giant banks.
But the airlines will be in a world of hurt for quite some time. Even though the recession might be over on Wall Street, unemployment continues to hover around 10% nationwide. Until that number comes down significantly, consumers aren't going to be traveling much more than they need to.
As for business travel, one of the reasons why companies are doing significantly better over the past few quarters is because of cost cutting. One large expense for businesses is travel. In 2010, businesses aren't likely to start suddenly throwing their newfound conservative cost structures to the wind. On the contrary: firms hope to finally reap some real profits next year due mostly to those cuts.
I wonder if this economy could begin to bring change to business travel trends. If people get used to traveling less for business, a new paradigm may form. Given the vastly better teleconferencing technology we've got today, business travel seems far less important than it did just a decade ago. Yet, old habits die hard, so up to now business travel continued. I wonder whether a deep recession causing firms to revisit how they spend money is enough to change the long-held notion that it's important to be at meetings and conventions in person.
If business' feeling of necessity towards travel is changing, then airlines are really in trouble. They rely on business travelers as a major segment of income. And even once employment improves, airlines can only squeeze consumers for additional expenses and pricier tickets to a certain point until they begin traveling less by air. Of course, this doesn't even get into the additional problem of fuel costs over the next few decades as oil continues to get scarcer and more expensive. For all of these reasons, it does seem like the future of the airline industry is up in the air. (Sorry, I couldn't resist.)