All major U.S. airlines except Southwest reported losses during those years. Many Carriers Face Deep Financial Losses

Many major U.S. passenger airlines are experiencing their second consecutive year of record financial losses. For 2002, some Wall Street analysts have projected that U.S. airline industry losses will total about $7 billion, but this projection may worsen in the event of additional armed conflict, particularly if this results in decreasing travel demand and rising fuel prices. First, many carriers have trimmed costs through staff furloughs. According to the Congressional Research Service, carriers have reduced their workforces by at least 100,000 employees since last September. We are highlighting three of these issues: the effect of airlines’ current financial situation, including new business costs, on industry health and competition; the impact of reductions in service on federal programs designed to protect service to small communities, and international developments that may further affect the domestic industry. How will the carriers’ reactions to current financial pressures affect the industry’s competitive landscape? How will future international developments affect established agreements between the US and EU member states? There are a number of international issues that will influence the domestic aviation industry’s attempts to recover from financial losses. This could raise uncertainties over the status of “open skies” agreements that the United States has signed with individual European Union nations.
Why GAO Did This Study

This testimony discusses the economic state of the airline industry.

What GAO Found

Many, but not all, major U.S. passenger airlines are experiencing their second consecutive year of record financial losses. In 2001, the U.S. commercial passenger airline industry reported losses in excess of $6 billion. For 2002, some Wall Street analysts recently projected that U.S. airline industry losses will approach $7 billion, and noted that the prospects for recovery during 2003 are diminishing. Carriers have taken many actions to lower their costs and restructure their operations. Since September 2001, carriers have furloughed 100,000 staff, renegotiated labor contracts, and streamlined their fleets by retiring older, costlier aircraft. Carriers have reduced capacity by operating fewer flights or smaller aircraft. In some cases, carriers eliminated all service to communities. As the aviation industry continues its attempts to recover, Congress will be confronted with a need for increased oversight of a number of public policy issues. First, airlines' reactions to financial pressures will affect the domestic industry's competitive landscape. Second, airlines' reductions in service will likely place additional pressure on federal programs supporting air service to small communities, where travel options are already limited. Finally, although domestic travel has been the focus of recent concern, there are numerous international developments--especially regarding the European Union (EU)--that may affect established international "open skies" agreements between the United States and EU member states.