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Despite expected mergers, airlines face more turbulence

In the same week that US Airways appears to be emerging from bankruptcy through a merger with America West airlines, Delta airlines is entering Chapter 11 protection amid crushing debt, spiraling fuel costs and aggressive competition from lower-cost airlines.

These two actions create a fairly accurate characterization of the turbulence being experienced in the airline industry. The impact of striking mechanics on Northwest Airlines cannot be helping that company's survival strategy.

Together, the airline industry is predicted to lose $7.4 billion this year. Obviously, something has to change.

One likely change is more merger activity, along the lines of US Airways and America West. Beyond that, one or more airline companies might just go out of business, selling off planes and routes and airport gates to the industry survivors.

More consolidation, like the merger of US Airways and America West, is widely predicted. Clearly, some of the airlines now operating will disappear from the scene. Such change would not be new to the airline industry - just think, Braniff, TWA, Pan Am and Eastern airlines.

The airline industry's current crisis - columnist George Will wrote in 2002 that the airlines' normal state is crisis - stems mostly from dramatically higher fuel costs and stubbornly high labor costs, especially at the so-called legacy carriers like United and US Airways.

Passengers have returned, creating an estimated 83-percent load factor. That's the good news. But cost for jet fuel, which a number of years was just 10 percent to 15 percent of an airline's costs, now amounts to close to 30 percent of costs, surpassing labor as the largest category. Since 2003, fuel costs have increased over $10 billion, while ticket prices have remained mostly level.

Fuel costs are, to a large extent, beyond the control of airlines. Southwest Airlines is credited with buying fuel on the futures market to save money and avoid some spikes in fuel prices, but that approach has limited potential to offset the latest jump in prices, which are more than four times higher than they were just a few years ago.

US Airways and America West might be ahead of the curve with their merger. Presuming the US Airways-America West marriage moves forward, there will likely be pressure on other airlines to follow suit.

Industry observers speculate that similar combinations could be in the works for United, Continental, American, Northwest and Delta.

The new airline created in this week's merger will retain the US Airways name, but be mostly run by America West executives who have experience in operating a low-cost carrier. The new airline's headquarters will be in Tempe, Arizona.

People using Pittsburgh International Airport have seen US Airways reduce the number of flights at the airport as the city was dropped from "hub city" status to a "focus city." But, the good news has been that low-fare airlines such as Southwest have stepped in to add flying options for people using the Pittsburgh airport.

Blending the people and cultures of two different companies will be a challenge for America West managers, but everyone using the Pittsburgh airport should hope they succeed in creating a competitive, low-cost carrier that can survive - even thrive - in today's environment.

- J.L.W.III

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