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Tuesday, June 10, 2003

Posted by Jake
Fly Me to the Moon

The latest added $2.3 billion of taxpayer money to cover security costs that should more properly be borne by passengers. Delta led the parade of beneficiaries ($390 million), followed by American Airlines ($361 million), United Airlines ($300 million), and US Airways ($216 million).

Europe's airlines get no such handouts. For example, in the past 16 months British Airways has incurred additional security costs of L100 million for steel cabin doors and other security measures. Compare that with the L135 million in pre-tax profits that the airline earned in the year ending March 31, 2003 and you can see why the difference in government policies places BA and other European carriers at a competitive disadvantage.

America's carriers blame their financial plight on security costs and the fall-off in travel following September 11. But they were bleeding oceans of red ink before the world ever heard of bin Laden, and long before the paucity of merger deals grounded the high-flying Wall Street bankers that filled their first- and business-class cabins.


I am interested in what James has to say about this article (given his much better understanding of the airline business), but the take home that I got was that to save the business we are going to have to let a couple airlines go out of business. This sad realization might be politically unpalatable, particularly to those politicians who need the votes of three powerful unions involved, but it is the only solution besides periodic payouts to the airline industry on a Congressional pay schedule.


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