Thursday, 5 February 2004
US Airways may be liquidated.
Airline news is often unduly alarmist, especially when it comes to safety issues. But recent headlines like, US Airways losing altitude quickly and US Airways in trouble again are for real, and should be taken seriously by US Airways passengers.
US Airways (IATA code "US" -- they bought the code from the USA government a few years back, after changing their name from Allegheny Airlines to escape the "Agony Airlines" sobriquet) was reorganized under bankruptcy protection in 2002-2003. Since the reorganization, they've continued to lose money, and have been operating on loans guaranteed by USA government. US$900 million of these loans come due in June 2004. If US defaults on the loans, it will go bankrupt again. This time, the likely fate would be liquidation, not reorganization.
In a last-ditch effort to meet the loan repayment deadline, US has invited offers to sell off its most valuable assets: the Boston-New-York-Washington shuttle and its hub operations (facilities, equipment, leases, and gate and takeoff/landing "slot" allocations) in Philadelphia, Pittsburgh, and Charlotte. But the offers for those assets reportedly total only US$300 million , which may not be enough to stave off default. And since US Airways has only been able to make money from price-is-no-object business shuttle travellers (and even there has been losing ground to Amtrak's excellent Acela Express service) or from hubs where its dominant position allows it to extort higher-than-average fares, selling those off would leave US even weaker. The result, as with TWA, would be a downward spiral that would only delay, not escape, the eventual "controlled flight into terrain".
Even if US keeps its hubs, its monopoly position won't last. Southwest Airlines has announced that they will start service to and from Philadelphia this May, and US has already admitted that they expect to have to reduce average prices 30 percent to compete with Southwest.
The question is no longer, "Will US Airways survive?" It won't, at least not in anything resmbling its present form. (Since the name itself is a saleable asset, there might be another airline called "US Airways" even if the present corporation is liquidated, as happened with the Pan Am name.)
The real question for travellers is whether some portion of US Airways will be acquired by another airline that willl continue to honor US tickets (as happened when American Airlines bought the last remnants of TWA), or whether it will go out of business like Pan Am, leaving ticket-holders and frequent flyers S.O.L.
I'm not a gambler, and I'm not going to speculate on which fate for US Airways is more likely. But my advice to ticket-holders, potential ticket buyers (don't), and holders of frequent flyer mileage credits (use them up ASAP) is in my FAQ on Airline Bankruptcies . Note especially that the US Federal law requiring other USA-based airlines serving the same route to transport passengers holding tickets on insolvent airlines (under extremely limited conditions) expired entirely in January 2004. Other airlines now have no legal obligation whatsoever to holders of tickets on bankrupt airlines.
[Addendum, 10 September 2004: That law was later extended, but only through 18 November 2004.]Link | Posted by Edward on Thursday, 5 February 2004, 17:12 ( 5:12 PM) | TrackBack (0)