June 13: Airlines scramble to survive oil run-up

Faced with the threat of a slew of bankruptcies, U.S. airlines are revamping their business plans and doing what they can to attempt to survive a brutal industry shakeout caused by the doubling of oil prices.

US Airways, which has made two trips to bankruptcy court since Sept. 11, 2001, announced Thursday that it will slash its domestic capacity by 6 to 8 percent in the fourth quarter and cut 1,700 jobs.

In an era of increasing fees, US Airways also said it will start charging $2 for nonalcoholic beverages in coach cabins on domestic flights. It also matched American and United airlines, the nation's two biggest carriers, in imposing a $15 fee for the first checked bags for many customers.

In an interview Thursday with CNBC, Delta Air Lines CEO Richard Anderson said that his carrier will cut 12 to 13 percent of its domestic capacity this year -- more than previously announced. He also said Delta will reduce its workforce by nearly 4,000 people through voluntary severance packages -- nearly double the number of volunteers the airline had originally sought.

Anderson is focused on securing approval for a Delta acquisition of Eagan-based Northwest, noting that with record oil prices, the merger makes even more sense than when it was announced in April. He estimated that the combined carrier would generate more than $1 billion in financial benefits, achieved through cost savings and revenue growth.

Previously, Northwest Airlines said that it would shrink its domestic operations by 12.6 percent in the fourth quarter, but more flight cuts are expected.

Northwest on Thursday joined other major airlines in matching a $20 round-trip fuel surcharge that was initiated Wednesday by American for many domestic fares.

He argues that the merged Delta/Northwest, which is positioned to become the world's largest carrier, would be a survivor.

But Maldutis stressed that Delta and Northwest pilots need to successfully negotiate a joint contract with Delta management and resolve the seniority conflicts that surfaced before the merger was proposed. Without that resolution the merger would be at "considerable risk," Maldutis said.

The Northwest pilots' union recently filed a letter opposing the merger with federal regulators. Northwest pilots are upset that Delta signed a four-year contract with pay raises for its pilots -- but the pact does not cover Northwest's pilots. Both pilot groups are represented by the Air Line Pilots Association (ALPA) and many Northwest pilots were angered when John Prater, the union's international president, signed off on the Delta deal.

CEO Anderson, Prater and the chairmen of the two pilot groups met Tuesday night. Delta management "agreed to move quickly to achieve a joint contract," the Northwest union said in a Wednesday update. The union also reported that Delta executives said "their objective is to treat all employees in a fair and equitable manner."

Delta and Northwest pilot leaders received an update on Delta's financial condition this week from management, said Kelly Regus, a Delta pilots' spokeswoman.

"The U.S. commercial aviation industry is in a full-blown crisis and heading toward a catastrophe," according to a report expected to be released today by the Business Travel Coalition and AirlineForecasts, a Washington, D.C.-area consulting firm.

AirlineForecasts estimated that the top 25 U.S. airlines could spend more than $28 billion in added fuel costs this year, and it expects several bankruptcy filings and some liquidations will result.

The Business Travel Coalition, which commissioned the AirlineForecasts study, has joined with 18 other organizations in urging Congress to quickly address oil prices.

The Air Transport Association, which represents Northwest, Delta and other big carriers, and the Business Travel Coalition were among those who signed a letter to the top four Democratic and Republican leaders in the U.S. Senate and House that was delivered Wednesday night.

"This country needs a fair, transparent and balanced energy commodities market, not one that is skewed to benefit speculators and institutional investors," the business, labor and consumer groups wrote.