Airlines' post-trauma 
Shape begins to emerge

Editorial by Patrick Totty

The airlines are learning, as Ben Franklin once said, “It is better to hang together than to hang separately.”

For years, U.S. airlines depended on the federal government to insure their profitability through a complex regulatory system that, while it kept ticket prices high, also kept inefficiency, congestion and delay low.

When deregulation arrived in 1978, the airlines shifted to dependence on low-priced mass travel, subsidized by business travelers and controlled by various restrictions. That system was beginning to melt down even before Sept. 11 as mass travelers began tiring of ever worsening service and delays, and business travelers began revolting against the airlines’ price gouging.

The industry is now in freefall, and the government is reluctant to perform a bailout or a return to regulation until it sees which airlines are left standing by 2003. Like the stock market, which is paying for years of delusional thinking, the airline industry is being forced to find a business model that makes economic sense.

With neither the government nor business travelers willing to help them, airlines have begun developing that new model. In late August, Northwest, Delta and Continental airlines announced an alliance that will allow passengers to use each of the airlines on different legs of any route that’s not covered in total by any one of them. For example, a traveler wanting to go from A to D could take Delta from A to C, then Continental from C to D. Under the agreement, Delta would forward the traveler’s baggage to the Continental flight, and also issue a ticket at its counter covering Continental’s leg.

This arrangement is not new – airlines call it a “code-share alliance” – but you can expect to see more of it as airlines try to eliminate any barriers that prevent travelers from choosing them. By connecting with other airlines that fly to places they don’t, airlines involved in these alliances are able to extend their route systems on a virtual basis. Although they don’t receive income from the flight legs handled by the other airlines, they do receive income they would have never otherwise made by being able to offer passengers flights they couldn’t before.

Watch for this kind of cooperation among airlines to expand. Also keep in mind that even as some airlines declare bankruptcy, that doesn’t automatically mean they’ll cease existing. Federal bankruptcy laws give big companies ample room to try and work their way out from under debt. All those frequent flyer miles you’ve accumulated on United won’t disappear.