Airline Fuel Crisis

Newsweek's Dan Gross explains how record fuel costs are affecting passengers

Hi everybody. You’re watching Money Matters. I’m Dalhit Dhaliwal in New York. Thank you for joining us now.

As we’ve mentioned earlier, record fuel prices are crippling the nation’s airlines. And as a result, some airlines are attempting to a merge. And others are raising fuel surcharges as well as their base fares. So what does it mean for passengers? Here to help us answer that question is Dane Gropes. He’s a senior editor at Newsweek. Now he wrote a column in Newsweek magazine about the future of the airline industry. Hi, Dane, thank you very much for joining us on Money Matters.

Good to be here.

So let’s start with this merger of um Delta and Northwest. Uh, talk us through briefly, what does it mean for passengers?

Well, it shouldn’t mean all that much for passengers. Delta and Northwest do not have a lot of overlapping routes. Uh, they are press released that their only kind of 12 direct routes where they’re over-lapping. Northwest is very strong obviously in the north and the west, the mid-west. Delta’s dominant in the south, the eastern seaboard. So it shouldn’t make a whole lot of difference for your typical travel uh in terms of, uh, the choices they have, the routes they have.

And the, in terms of uh, just the general kind of the mayhem the airline industry is going through right now, what does that mean in terms of the big picture if these mergers start to happen and become more and more frequent?

Well, there are two possibilities here, two potential outcomes. One is that, these airlines, by merging, -- excuse me – will reduce their costs, become more profitable, be able to invest in new planes, improve service generally. That’s the hope of the shareholders of these companies. The second is that they will reduce capacity, in other words, when you have fewer airlines out there, there’s a little less competition, they are gonna take some planes out of circulation. What that means is that, existing planes, existing flights will be a little more crowded. In theory, they should have more leeway to raise fares. That’s part of the hope of some of these mergers – is to take some of the vicious competition that exists out there, reduce it, so that they get a little more breathing room.

And what does that mean to the flying public? I mean, generally, is that a good thing for them or will we have to wait and see?

Well, airline, air, uh, the price rising of course is not a particularly good thing. But I argued in the column in the Newsweek this week that what we need is a little less capacity, you know. One of the things that has made flying so miserable, especially in the New York – Washington - Boston area, is that there are just too many planes, too many planes on the runway, too many planes in the airspace. The airlines have not had the incentive to reduce their capacity. So to the extend, it means there are fewer flights, you know, sitting on the runway at LaGuardia, sitting on the runway at Reagan National. Uh, some of this reduced capacity may make flying more pleasant, if not more cheap.

And, uh, you said an interesting thing in your column, uh, the Money Culture column this week. You talked about how a recession could actually help the industry. How come?

Well, two things happen when you get a recession. One, on the business side, corporations look to slash spending. And one of the things they look to do is cut business travel. There are less deals going out, less transactions, fewer reasons for people to be flying around. And second is that discretionary fliers -- people going on vacation, yes, that’s a big ticket item to get reduce when people are feeling pinched. Some more people will be driving to the beach instead of flying down to Florida. After the last recession, the capacity of airlines nationwide was reduced by 15 percent. In other words, a lot of planes are taken out of circulation, freeing up space, making airports less crowded. I don’t think they will see that much of reduction. But we’ve already, were seeing that last month, the number of flights taken off from American airports was down almost 2 percent from the same month in the year ago. So we’re starting to see fewer planes out there.

And in terms of the general flying public, I mean, in uh, what does the recession mean for them? I mean you’ve talked about what it may possibly mean for corp. of America? I mean, do they then just sit up like tighten their belts and not travel at all or do they find alternative ways of doing the kind of business that they need to be getting on, and especially when they are small business owners?

I think increasingly people will look to alternatives, you know. As you know, and in a round-up to this, jet fuel costs are out of control and airlines are passing that on. They are hitting people with fuel surcharges; they’re charging you the check baggage; they’re charging for food and all sorts of things and so it’s making flying more expensive.