LAT: U.S. Airlines Under a Tax Cloud

EDITORIAL
U.S. Airlines Under a Tax Cloud

February 10, 2005

A $1.5-billion airline tax hike in President Bush's proposed budget is
supposed to fund tougher security measures to protect passengers, flight
crews and those on the ground from terrorists. But it could be a knockout
punch for some airlines already reeling from high fuel costs and cutthroat
fare wars that make it difficult to raise ticket prices.

The federal government was obligated to dramatically strengthen national
security in the wake of 9/11, and airlines should pay a fair share. But air
carriers were already hit disproportionately hard by the Sept. 11 attacks,
and they're in no position now to foot an even larger bill.

Domestic airlines lost more than $9 billion last year and have lost a
cumulative $30 billion since the terrorist attacks. Immediately after 9/11,
Washington offered cash infusions, federally backed loan guarantees and
insurance assistance to keep the troubled industry flying.

Despite that federal largess, two of the industry's largest competitors are
in bankruptcy court and a third is teetering on the edge.

The same fare wars that delight passengers keep the industry from boosting
ticket prices to cover rising costs. Airlines have laid off 125,000
employees. If they can't increase revenue, they'll be forced to cut costs by
laying off more employees and dropping more destinations. Even the nation's
healthiest airlines are ill equipped to deal with another tax increase.

Market forces are likely to shutter some of the weakest airlines, and that's
all to the good because more-efficient carriers will take their place. The
government shouldn't disrupt that process with more bailouts, but it also
shouldn't push airlines prematurely over the brink by increasing taxes they
can't afford to pay.

The marketplace should decide which airlines keep flying.


http://www.latimes.com/news/opinion/...,3287174.story

"Biwah" wrote ...
EDITORIAL
U.S. Airlines Under a Tax Cloud

February 10, 2005
.................................................. ....................
Even the nation's
healthiest airlines are ill equipped to deal with another tax increase.

I suspect they'd deal with one just as they have with those before, passing
the increased tax through.
Increased taxes/fees/etc. have hardly been the source of the airlines'
fiscal pain.

Market forces are likely to shutter some of the weakest airlines, and
that's
all to the good because more-efficient carriers will take their place.

The potential problems from "shuttering" are somewhat different than than
you might imagine, the potential for reduction/curtailment/ababdonment of
service into a number of small and medium markets, all with vocal
Congress(wo)men. WN loves to move into substantial but poorly
developed/ill-served markets, while having no interest in small cities,
other than those located close enough to draw pax from a "big" airport.
USeless Air "pays" contract commuter carriers or subsidizes its own to
deliver potential mainline traffic from many small/medium markets incapable
of generating "big plane" traffic. Shutter USeless, and could you expect CO
to leap to serve all of those markets? What would likely happen is
bloodthirst combat between survivors to cherry pick the best of the un- &
under-served destinations, a mutually destructive competitive course.


.......The
government shouldn't disrupt that process with more bailouts, but it also
shouldn't push airlines prematurely over the brink by increasing taxes
they
can't afford to pay.

Taxes are far less of a problem than marketing ploys, image promotion and
corporate inability to understand and predict competitor actions and their
effect on internal finance.


The marketplace should decide which airlines keep flying.

But if General Motors only built cars in lavender and puce, just as the
legacies seem unable to move beyond imaginary and unrealistic service
models, the "marketplace" would become less the judge than had been
prejudgement based the ineptitude of GM's management. Like many other
corporations, half a century ago, the legacy airlines structured themselves
upon unsupportable compensation and current/potential benefit packages,
along with routes and services based on prestige rather than real fiscal
projections. Who knows how many (certainly a few, since the feed trough is
pretty big and experience may prevent some continued repititon of past
errors) will survive and prosper?

Then there's the entire issue of the down side of laudable anti-trust
regulation which forces airlines into the most expensive transportation
alternatives. My own market would be best served by a couple of flights a
day in 100 pax a/c then with a surface shuttle - operated or contracted for
by a major airline, its fares "sold" as part of a conventional airticket -
every couple of hours from 6AM until 10PM. From rwo and one half to three
and one half hours away from two major "hubs" by ground transport, but with
an actual two hoour time frame by air travel, counting boarding, deboarding
and required terminal transfers, both AA and CO could easily and
successfully market such a service if they "ran" it and could sell combined
travel, now illegal under federal law as I understand it.

TMO

The marketplace should decide which airlines keep flying.

That depends on where you live. If you live in one of the 50 (an
arbitrary number) largest cities, you will always have an airline or
three doing business in your city. But if you live in some tiny city
and the local airline goes out of business, you now must drive to
the nearest city with air service (with Bush trying to eliminate
Amtrak, that will no longer be an option soon). In the old days,
those small cities were subsidized by flyers traveling to larger cities.
Deregulation has a price. I live in a hub city, so I don't really care,
but I would have a different attitude if I lived in a small city.


Casey