Legacy airlines in
the U.S. have slashed their costs, but a report from the Government
Accountability Office (GAO) shows they still have a long way to go
to return to profitability -- especially given what has happened to
fares and fuel prices -- and to match the costs of their low-cost,
The GAO report
classified Alaska, American, Continental, Delta, Northwest, United
and US Airways as the legacy carriers.
Legacy airlines, as
a group, have been unsuccessful in reducing their costs to become
more competitive with low-cost airlines, the GAO concluded, using
expenses per available seat mile as its measurement of
competitiveness is key to profitability for airlines because of
declining yields, which is the amount of revenue airlines collect
for every mile a passenger travels, the GAO added.
airlines have been able to reduce their overall costs since 2001,
these were largely achieved through capacity reductions and without
an improvement in their unit costs, the GAO report continued.
Meanwhile, low-cost airlines have been able to maintain low unit
costs, primarily by continuing to grow.
from labor and a higher utilization rate for aircraft also
contribute to the low-cost carrier advantage, the GAO said. So do
the massive pension obligations many legacy carriers face under
their underfunded pension plans, which are supposed to have enough
money in them to guarantee the company can afford the monthly
payments when employees retire.
Fuel also is a
major factor. As of June 7, the jet fuel price for 2005 was more
than twice as high as in 2002.
But it is mainly
the low-cost airlines that have fuel hedges -- essentially
prepurchasing oil at a lower price.
Southwest leads the
way with about 85% of its oil hedged at $26 a barrel for 2005,
about half the current per-barrel rate.
hedgers include America West, AirTran, Frontier and
The biggest legacy
exception is Alaska, which is 50% hedged at $30, according to Air
Transport Association figures.
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