By ANN News Editor Tim Kern

US Airways is in Chapter 11 bankruptcy; United's stock is at 1950s prices, as it slides toward Chapter 11; AMR's saying it's going to be many years before record losses are made up; Boeing Credit is looking at $1.2 billion in UAL's debt, possibly about to become "non-performing" -- Where will it end?

September 11 changed the world. For one thing, it reduced the amount of air travel that people wanted to get themselves into. For another, it changed the regulatory climate that surrounds aviation.

It didn't start in September.

It's not as though the airlines were having a great time, even before September 11. Most large, full-fare ("premium") carriers were either trying to sell themselves, or buy someone else, to cut duplicative overhead and gate fees. As we followed last year's merger rumors, just about every old airline was paired up as a prospective partner with just about every other old airline. In other words, it wasn't just TWA/American; or even US Airways/United. It was KLM/BA, SAS/Iberia -- you name it.

Governments, always concerned about their power (and masking it in the cloak of "protecting competition"), played the power games, and thwarted any number of smart (and not-so-smart) ideas. [Whether the ideas were "smart" or not isn't really the governments' problem; and the meddling cost all parties a lot of money, when things were already tight.] Whether a particular merger "hurts" competition is also something governments have been profoundly unable to understand, anyway. US Airways and United, for instance, would have been a "bad" union for the competition, because UAL was already the parent of the world's largest airline. TWA/American, though, was "good," because it created the world's largest airline. Only a politician could make that line of reasoning sound sincere. As it turns out, both US Airways and United now could soon be crow's food, increasing American's size advantage: the exact opposite of "promoting competition."

Anyway, it's not just the governments that caused the problems for airlines. Far from it: for many years, premium airlines have been building their hub-and-spoke systems, counting on greater throughput at their hubs, and faster turnaround of the airplanes. People who lived in a hub city (New York, Chicago, Atlanta, Dallas, Minneapolis, Los Angeles, Denver, Charlotte -- even St Louis) had a pretty easy time of things, especially if they were headed to another hub; but America's demographics are changing, and the hub system isn't as convenient as point-to-point.

Brand loyalty overcame lots of operational faults.

The inconvenience factor was long-recognized as a threat to the airlines' bread and butter; so they developed a tactic that supported brand loyalty. The premium airlines created a dependence on them, in the form of perqs.

Frequent flier mileage programs were a brilliant marketing tool, that kept overpaid business travelers coming back, ever willing to spend a little more of the company's money, because, after 20,000 miles, they could fly free somewhere. Think what you will about the intrinsic value of the programs; they worked. Travel agencies were steered away from lower-cost carriers by the (maybe 5%) implied discount of the free flights their customers wanted; corporate travel departments were eager to get their little gifts at their end, for recommending the more-expensive trips. Low-cost competitors couldn't gain a foothold in secondary-market cities, their natural realm. The premium airlines held a tight grip on business travelers.

Until September 11. After that day, business travelers didn't want the free trips; they actually preferred to stay at home, rather than even fly free. Frequent flier perqs didn't have the same allure. Meetings that could be attended over telephone lines didn't generate plane tickets any more. Nobody actually feels safe on an airliner; not after September 11.

Security: another stone in the life preserver

Since the public understood full well that airline security wasn't breached on September 11 (all the hijackers' tools were legal-carry at the time), the public's faith in the government that made all the safety rules plummeted. Rather than let airlines compete to offer the best security that people were willing to pay for (in other words, "protecting competition"), government, which rules had already proven inadequate, decided to eliminate competition altogether, and take over the system.

Results were predictable: longer lines, greater costs, more hassles, enhanced idiocy. These additional negatives were about all the public could take. No longer was a vacation airline trip something to be treasured. The dread of going through endless lines, of waiting two hours for every flight -- these kinds of thoughts took the casual traveler right out of the picture. Business travelers -- those who simply couldn't avoid those meetings -- opted to take their cars, on trips of as many as five hundred miles. [At three hundred miles, it's generally a no-brainer: the car wins. Beyond that, and up to about five hundred miles, it's more a matter of taste. After five hundred miles, the airlines clearly have the edge, even now --TK]

Added to the hassles of security were the additional costs. Airlines had always figured the costs of their security into their ticket prices. Under the new socialized program, not only were travelers paying an extra fee for every leg; taxpayers who didn't even fly were paying the salaries of $150,000+ "airport czars," most of whom were already drawing fat government pension checks. And security didn't get better -- just more-intrusive, and more publicly-stupid.

The allure of the airliner is gone.

So, what's the future?

Not too surprisingly, the only big airline in the USA that made money all along was Southwest. It's arguably the best-managed big airline in the world; and it serves as the model for virtually all the world's other money-making jet airlines. Southwest keeps its overhead low, and its management flat. It doesn't need to join other airlines, to consolidate its overhead functions. It doesn't try to match every second-string airline that comes onto its routes; it doesn't have to -- they don't see why they should compete with an already-low-cost provider. The [late] Vanguards of the world don't see Southwest's routes as attractive -- that's why they jump on the high-bucks, premium-only routes. [And that's why they get their head kicked in, as the premium airlines use their other routes to subsidize their Vanguard-matching fares in selected towns, and their perqs to keep their regulars, until the little airline is simply drained, and leaves... or dies.]

Now, though, the premium airlines will have to change. Lower overhead (when was the last time you had a meal to complain about, on a major airline?), lower executive salaries, a "don't-just-roll-over" attitude toward union demands, ever-earlier retirement ages, more internet ticketing (ask travel agents who's their friend, now) -- there are many ways they've already begun. There's a long, long way to go.

Airliner manufacturing

Airliner-builders will have to change, as well. If Airbus and Boeing are going to offer something the airlines can use for short-haul work, it will have to be one quick-turnaround, low-maintenance little bird. The 717 comes to mind, as do offerings from both Brazil and Canada. (Airbus, with its common platform idea taking precedence over route-tailored design, may have missed the opportunity, at the 100-seat level.) At the other end of the scale, where thousands of miles separate the "from" and the "to," the 777s, 747s and possibly even the A380s have a chance. On these routes, driving is not an option. However, the sheer numbers of travelers, and especially new travelers, that huge airliners require, may halt growth in that sector. Standard airliners (from 727s and A300s to 767s and A340s) will have plenty of trans-continental work to do; but there is no anticipated growth there, either.

Simply put, fewer people want to fly. Until more actually need to (and with communications' improving everywhere, every day, the importance of the face-to-face meeting may decline anyway), fewer people will.

Even if airlines all could lower their fares, trim their operations to the bone, and offer on-time flights -- there's still the problem of the wasted time and the hassles at the airports. Nobody wants to get strip-searched by a Rapiscan. Nobody wants to get felt up by a tired, sweaty, bored, irritated federal worker. Nobody wants to waste the time saved by flying slowly evaporate, as the time required for oft-ridiculous "security," increases.

Point-to-point transportation helps; but it necessarily means smaller aircraft. Good cars abound, at low prices, and offer a great alternative to airline tickets, especially for family travelers. The only thing the airlines don't have to fear is any sudden ascendancy of rail -- the government runs that, too.

FMI: www.tsa.dot.gov