Moldy Peaches

The second, third and fourth largest airline carriers in the United States are now officially bankrupt. Northwest has joined Delta and United (US Airways is also in protection) in filing for bankruptcy protection. Both have cited the recent spike in jet fuel costs - further exacerbated by Hurricane Katrina - which have soared nearly 20 percent since June 1, as prime reasons for seeking protection from creditors under Chapter 11 of federal bankruptcy laws. It is, however, more than just about the cost of fuel.

The American airline industry, similar to the Canadian one, was in bad shape and living on borrowed time before September 11, 2001. This event through the whole industry into massive chaos, even with the billions in bailouts that flowed from Congress. Most carriers slowly adjusted to that, but now have been hit with rising fuel prices. Most of the major carriers don't bulk purchase fuel - unlike Southwest Airlines - so ever increase hits hard. Also, the American industry has a elephant in the room with unfunded pensions.

Unlike their Canadian counterparts at Air Canada, most American carriers have been unsuccessful in securing concessions from all labour unions. Each carrier has got a single deal here and there, but not enough to obtain significant cost savings.

Now, nearly half of the American industry's capacity is now on carriers operating in Chapter 11, according to an estimate from Bear Stearns. In Chapter 11, a company is protected from creditors while it keeps operating and tries to cut costs and reorganize.

There have been only a few profitable quarters for a few of the major airlines since the beginning of 2001, when a downturn in business travel eight months ahead of the Sept. 11 attacks started the red ink flowing. The Air Transport Association estimates that from 2001 though 2004, the industry posted net losses of $32.3 billion, even with the profits made at lower-cost carriers such as Southwest Airlines and JetBlue.

Meanwhile in Canada, Air Canada is offering an unlimited North American travel pass for the months of October and November. The pass costs $3,500 per month and allows the traveller to go anywhere Air Canada flies in continental North America from October 1 until November 30. An interesting concept for the business traveller and wealthy grey hairs.

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