Testimony

Before the Committee on Commerce, Science, and

Transportation

U.S. Senate

United States General Accounting Office

GAO

For Release on Delivery

Expected at 9:30 a.m. EST

Wednesday, October 2, 2002 COMMERCIAL AVIATION

Financial Condition and

Industry Responses Affect

Competition

Statement of JayEtta Hecker

Director, Physical Infrastructure Issues

GAO-03-171T
Page 1 GAO-03-171T Airline Financial Condition

Mr. Chairman and Members of the Committee:

Thank you for inviting us to testify today on the economic state of the

airline industry. Just over a year ago, we testified before this Committee

on guidelines for providing financial assistance to the industry.1

 The

Congress has long recognized that the continuation of a strong, vibrant,

and competitive commercial airline industry is in the national interest. A

financially strong air transport system is critical not only for the basic

movement of people and goods, but also because of the broader effects

this sector exerts throughout the economy. In response to the industry’s

financial crisis generated by the events of last September, the Congress

passed the Air Transportation Safety and System Stabilization Act.2

 Thus,

it is fitting that we now return to this Committee to review the state of the

industry’s financial health and competitiveness.

Over the past several years, we have issued a number of reports that focus

on changes within the airline industry. They include analyses of the

potential impacts on consumers of airline mergers and alliances, carriers’

use of regional jets, and changes in service to the nation’s smaller

communities.3

 Our statement today builds on that body of work and

provides a current overview of (1) the financial condition of major U.S.

commercial passenger airlines; (2) steps taken by airlines to improve their

financial condition; and (3) some public policy issues related to current

conditions and changes in the aviation industry’s competitive landscape.

In summary:

• 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. Such projections

could worsen dramatically in the event of additional armed conflict, if

travel demand drops and fuel prices rise. Several carriers have entered

 1

Commercial Aviation: A Framework for Considering Federal Financial Assistance

(GAO-01-1163T), September 20, 2001.

2

P.L. 107-42.

3

See list of related GAO products attached to this statement.
Page 2 GAO-03-171T Airline Financial Condition

Chapter 11 bankruptcy proceedings. Yet Southwest Airlines, JetBlue, and

AirTran continue to generate positive net income. These low-fare carriers

have fundamentally different business structures than most major U.S.

airlines, including different route structures and lower operating costs.

However, federal security requirements have altered the cost of doing

business for all carriers.

• Carriers have taken many actions to lower their costs and restructure their

operations. Since September 2001, carriers have furloughed an estimated

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, such as substituting “regional

jets” for large “mainline” jet aircraft. In some cases, carriers eliminated all

service to communities. For example, since September 2001, carriers have

notified the Department of Transportation (DOT) that they intend to

discontinue service to 30 small communities. At least two carriers are

modifying their hub operations to use resources more efficiently by

spreading flights out more evenly throughout the day. Finally, to increase

revenues, some carriers have proposed creating marketing alliances under

which the carriers would operate as code-sharing partners.4

 United

Airlines and US Airways announced plans to form such an alliance on July

24, 2002, as did Continental Airlines, Delta Air Lines, and Northwest

Airlines one month later.

• As the aviation industry continues its attempts to recover, the 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. Some changes, such

as extending airline networks to new markets through code sharing

alliances, may increase competition and benefit consumers. Others, such

as carriers’ discontinuing service to smaller communities, may decrease

competition and reduce consumers’ options, particularly over the long

term. 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, while domestic travel has

been the focus of our concern today, there are numerous international

developments—especially regarding the European Union (EU)—that may

affect established international “open skies” agreements between the

 4

In general, “code sharing” refers to the practice of airlines applying their names—and

selling tickets via reservation systems—to flights operated by other carriers.
Page 3 GAO-03-171T Airline Financial Condition

United States and EU member states. Various studies have illustrated the

benefits to both consumers and carriers that flow from liberalizing

aviation trade through such agreements. As international alliances are key

components of major domestic airlines’ networks, international aviation

issues will affect the overall condition of the industry.

The Airline Deregulation Act of 1978 has led to lower fares and better

service for most air travelers, largely because of increased competition.

The experiences of millions of Americans underscore the benefits that

have flowed to most consumers from the deregulation of the airline

industry, benefits that include dramatic reductions in fares and expansion

of service. These benefits are largely attributable to increased competition,

which has been spurred by the entry of new airlines into the industry and

established airlines into new markets. At the same time, however, airline

deregulation has not benefited everyone; some communities have suffered

from relatively high airfares and a loss of service.

The airline industry is a complex one that has experienced years of sizable

profits and great losses. The industry’s difficulties since September 11,

2001, do not represent the first time that airlines have faced a significant

financial downturn. In the early 1990s, a combination of factors (e.g., high

jet fuel prices due to Iraq’s invasion of Kuwait and the global recession)

placed the industry in turmoil. Between 1990 and 1992, U.S. airlines

reported losses of about $10 billion. All major U.S. airlines5

 except

Southwest reported losses during those years. In addition, several

airlines—most notably Braniff, Eastern, and Pan Am—went out of

business, and Trans World Airlines, Northwest Airlines, and Continental

Airlines entered bankruptcy proceedings. By the start of 1993, the industry

had turned the corner and entered a period during which nearly all major

U.S. airlines were profitable. The industry rebounded without massive

federal financial assistance.

The events of September 11th accelerated and aggravated negative

financial trends that had begun earlier in 2001. Congress responded

quickly to address potential instability in the airline industry by enacting

the Air Transportation Safety and System Stabilization Act. Among other

 5

For the purpose of this report, major airlines include Alaska Airlines, America West

Airlines, American Airlines, American Trans Air, Continental Airlines, Delta Air Lines,

Northwest Airlines, Southwest Airlines, United Airlines, and US Airways.

Background
Page 4 GAO-03-171T Airline Financial Condition

things, that act authorized payments of $5 billion in direct compensation

(grants) to reimburse air carriers for losses sustained as a direct result of

government actions beginning on September 11, 2001, and for incremental

losses incurred between September 11 and December 31, 2001 as a direct

result of the terrorist attacks. The act provided $10 billion in loan

guarantees to provide airlines with emergency access to capital and

established the Air Transportation Stabilization Board (the Board) to

administer the loan program.6

 The Board is tasked not only with providing

financial assistance to airlines but also with protecting the interests of the

federal government and American taxpayer. The act requires the Board to

ensure that airlines are compensating the government for the financial risk

in assuming guarantees. This requirement defines the loan guarantee as a

mechanism for supporting airlines with reasonable assurances of financial

recovery. In addition to the grants and loan guarantees, the federal

government has also established other ways to ease the airlines’ financial

condition.7

Many major U.S. passenger airlines are experiencing their second

consecutive year of record financial losses. In 2001, the industry reported

a net loss of over $6 billion, even after having received $4.6 billion from

 6

The Air Transportation Stabilization Board is composed of the Chairman of the Federal

Reserve, the Secretary of Transportation, the Secretary of Treasury, and the Comptroller

General. The Comptroller General is a non-voting member.

7

The Air Transportation Safety and System Stabilization Act (Title III) authorized the

Secretary of the Treasury to change the due date for any tax payment due between

September 10 and November 15 to some time after November 15 (with January 15, 2002 as

the maximum extension). The act specifies taxes that may be postponed to include excise

and payroll taxes. Under Title II, (Aviation Insurance), the act also authorized DOT to

reimburse qualifying air carriers for insurance increases experienced after the events of

September 11th for up to 180 days. Funding constraints effectively limited the program to

reimbursing carriers their excess war risk insurance premiums for only 30 days.

Many Carriers Face

Deep Financial Losses
Page 5 GAO-03-171T Airline Financial Condition

the federal government in response to September 11th.8 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. According to industry data, airlines’

revenues have declined 24 percent since 2000, while costs have remained

relatively constant. US Airways and Vanguard Airlines filed for Chapter 11

bankruptcy during this summer. United Airlines officials stated that they

are preparing for a potential Chapter 11 bankruptcy filing this fall.

Furthermore, some Wall Street analysts predict that it will likely take until

2005 for the industry to return to profitability. Attachment I summarizes

the financial condition of major network and low-fare carriers.9

Major airline carriers’ revenues have fallen because of a combination of a

decline in passenger enplanements10 and a significant decrease in average

fares. As figure 1 shows, major carriers’ enplanements increased for every

quarter of 2000 compared to the same quarter of the previous year, but

flattened in the first quarter of 2001 and then dropped, with the steepest

drop occurring in the quarter following September 11, 2001.

 8

The federal government has provided significant amounts of financial assistance under the

Stabilization Act. First, according to data from DOT, as of September 18, 2002, 396

passenger and cargo carriers had received payments totaling $4.6 billion. Second, 16

carriers submitted applications for loan guarantees. The Board approved a loan of $429

million to America West Airlines, and conditionally approved the applications of US

Airways, Inc. for a federal guarantee of $900 million and American Trans Air for a federal

guarantee of $148.5 million. The Board has denied the applications of four airlines. Third,

various airlines have taken advantage of the tax deferment. For example, Southwest stated

that it deferred approximately $186 million in tax payments until January 2002. Finally, the

Federal Aviation Administration provided reimbursements to air carriers for up to 30 days

of increased war risk insurance expense. To date, 188 air carriers have received $56.9

million in reimbursements. We are completing reviews of the $5 billion financial assistance

program and the War Risk Insurance Reimbursement program to ensure that payments

made were in compliance with the act.

9

Network carries are defined as carriers using a hub and spoke system. Under this system,

airlines bring passengers from a large number of “spoke” cities to one central location (the

hub) and redistribute these passengers to connecting flights headed to passengers’ final

destinations. We adopted DOT’s definition of low-fare carriers, which includes AirTran,

American Trans Air, Frontier, JetBlue, Southwest, Spirit, and Vanguard.

10“Enplanements” represents the total number of passengers boarding an aircraft. Thus, for

example, a passenger that must make a single connection between his or her origin and

destination counts as two enplaned passengers because he or she boarded two separate

flights.
Page 6 GAO-03-171T Airline Financial Condition

Figure 1: Major Airlines’ Passenger Enplanements (quarterly) - Percentage Change

from Prior Year

Source: GAO analysis of data from the Air Transport Association.

Over the same period, major airlines have also received lower average

fares. Data from the Air Transport Association indicate that the average

fare for a 1,000-mile trip dropped from $145 in June 2000 to $118 in June

2002, a decrease of about 19 percent (see fig. 2). Average fares started

dropping noticeably in mid-2001 and have not risen significantly since.

Industry data suggest that the decline is due to the changing mix of

business and leisure passenger traffic, and particularly to the drop in highfare business passengers.
Page 7 GAO-03-171T Airline Financial Condition

Figure 2: Average Domestic Airfares for Major Network Carriers, January 2000

Through June 2002

Note: Data are in nominal dollars for 1,000-mile trips on U.S. major airlines (excluding Southwest).

Source: GAO presentation of data from the Air Transport Association.

Through June 2002, all major network carriers generated negative net

income, while low-fare carriers Southwest Airlines, JetBlue, and AirTran

returned positive net income. Like the major carriers, these low-fare

carriers’ passenger enplanements dropped in the months immediately

following September 2001. Attachment II summarizes passenger

enplanements for individual major and low-fare carriers for 2000, 2001,

and the first 5 months of 2002.

Why have some low-fare carriers been able to earn positive net income in

current market conditions, while network carriers have not? The answer

seems to rest at least in part with their fundamentally different business

models. Low-fare carriers and major network carriers generally have

different route and cost structures. In general, low-fare carriers fly “pointto-point” to and from airports in or near major metropolitan areas, such as

Los Angeles, Chicago, and Baltimore-Washington. In comparison, major

network carriers use the “hub and spoke” model, which allows them to

serve a large number of destinations, including not just large cities, but

small communities and international destinations as well. American

Airlines, for example, can carry a passenger from Dubuque, Iowa, through

Chicago, to Paris, France.

Low-fare carriers have also been able to keep costs lower than those of

major airline carriers. For example, 2002 data reported by the carriers to
Page 8 GAO-03-171T Airline Financial Condition

DOT indicate that Southwest’s costs per available seat mile (a common

measure of industry unit costs) for one type of Boeing 737 is 3.79 cents.

For the same aircraft type, United Airlines reported a cost of 8.39 cents—

more than twice the cost at Southwest.

All airlines are now entering an environment in which some of the costs of

doing business have increased. The federal Transportation Security

Administration has taken over responsibility for many security functions

for which airlines previously had been responsible. The Air Transport

Association (ATA) estimated that the airline industry spent about $1

billion for security in 2000.11 Despite the shift in functional responsibilities,

airlines have stated that they continue to bear the costs of other new

federal security requirements. In August 2002, Delta Air Lines estimated

the cost of new federal security requirements that it must bear to be about

$205 million for 2002. This includes the cost of reinforcing cockpit doors,

lost revenues from postal and cargo restrictions, and lost revenues from

carrying federal air marshals.

To address mounting financial losses and changing market conditions,

carriers have begun taking a multitude of actions to cut costs and boost

revenues. 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.

Further, some carriers, including United Airlines and US Airways, have

taken steps to renegotiate contracts in order to decrease labor and other

costs. A US Airways official stated that its renegotiated labor agreements

would save an estimated $840 million annually.

Carriers have also grounded unneeded aircraft and accelerated the

retirement of older aircraft to streamline fleets and improve the efficiency

of maintenance, crew training, and scheduling. Carriers accelerated the

retirement of both turboprops and a variety of larger aircraft, including

 11The amount that the industry paid for security in 2000 is in question. ATA’s $1 billion

estimate, made in August 2001, included $462 million annually for direct costs, $50 million

for security technology and training costs, and $110 for acquisition of security equipment.

Since then, ATA certified that the industry incurred only about $300 million in securityrelated costs. The amount is important, because the airlines are required to remit an

amount equal to the security costs incurred by the airlines in calendar year 2000 to the U.S.

government, which assumed certain civil aviation security functions through the

Transportation Security Administration. DOT’s Inspector General is examining the

discrepancy between the $1 billion and the $300 million estimates.

Airlines Have Taken

Numerous Actions to

Address Changing

Market Conditions
Page 9 GAO-03-171T Airline Financial Condition

Boeing 737s and 727s. For example, United and US Airways retired the

Boeing 737s used by United’s Shuttle service and US Airways’ MetroJet

system, and the carriers discontinued those divisions’ operations. Industry

data indicate that the airlines have parked over 1,400 aircraft in storage,

with more than 600 having been parked since September 2001.

Although carriers had begun reducing capacity earlier in 2001, those

reductions accelerated after the terrorist attacks. Between August 2001

and August 2002, major carriers reduced capacity by 10 percent. Carriers

can decrease capacity by reducing the number of flights or by using

smaller aircraft, such as replacing mainline service with regional jets,

which are often operated by the network carrier’s regional affiliate and

normally have lower operating costs. For example, American Airlines

serves the markets between Boston, New York (LaGuardia), and

Washington, D.C. (Reagan National) only with regional jet service

provided by its affiliate, American Eagle. Another way carriers have

reduced capacity is to discontinue service to some markets, primarily

those less profitable, often smaller communities. Our previous work

showed that the number of small communities that were served by only

one airline increased from 83 in October 2000 to 95 by October 2001.

Between September 2001 and August 2002, carriers had notified DOT12 that

they intend to discontinue service to 30 additional communities, at least 15

of which were served by only one carrier and are now receiving federallysubsidized service under the Essential Air Service (EAS) program.13

Some carriers are modifying their “hub and spoke” systems. American is

spreading flights out more evenly throughout the day instead operating

many flights during peak periods. American began this effort in Chicago

and has announced that it would expand its “de-peaking” efforts to its

largest hub at Dallas/Fort Worth beginning November 2002. American

officials stated that these changes would increase the productivity of labor

and improve the efficiency of gate and aircraft use. Delta officials said they

are also taking steps to spread flights more evenly throughout the day.

 12 Under 49 USC 41734, carriers must file a notice with DOT of their intent to suspend

service, and DOT is compelled by statute to require those carriers to continue serving those

communities for a 90-day period.

13The EAS program, established as part of the Airline Deregulation Act of 1978, guaranteed

that communities served by air carriers before deregulation would continue to receive a

certain level of scheduled air service, with special provisions for Alaskan communities. As

of July 1, 2002, the EAS program provided subsidies to air carriers to serve 114

communities.
Page 10 GAO-03-171T Airline Financial Condition

Beyond the steps individual carriers are taking to restructure and cut

costs, some carriers are proposing to join forces through marketing and

codesharing alliances in order to increase revenues. Under these proposed

alliances, carriers would sell seats on each other’s flights, and passengers

would accrue frequent flyer miles. Company officials stated that the

carriers would remain independent competitors with separate schedules,

pricing, and sales functions. On July 24, 2002, United and US Airways

announced a proposed codesharing alliance to broaden the scope of their

networks and potentially stimulate demand for travel. United and US

Airways estimated that the alliance would provide more than $200 million

in annual revenue for each carrier. One month later, Northwest announced

that it had signed a similar agreement with Continental and Delta.

According to Northwest, this agreement builds on the alliance between

Northwest and Continental that had been in existence since January 1999.

These alliances would expand both their domestic and international

networks. The Department of Transportation is currently reviewing these

proposals.14

Because a financially healthy and competitive aviation industry is in the

national interest, and because carriers’ and the federal government’s

efforts to address the current situation may affect consumers both

positively and negatively, Congress will be confronted with several major

public policy issues. These policy issues underscore the difficulties this

industry will encounter as it adapts to a new market environment. 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? There is a new aviation

business reality that has increased the airlines’ financial pressures and

which ultimately will be felt by U.S. consumers. Increased federal security

requirements, which are part of this new reality, are adding to the cost of

 14DOT is authorized under 49 U.S.C. 41712 to block the airlines from implementing their

agreements, if it determines that the agreements’ implementation would be an unfair or

deceptive practice or unfair method of competition. Such a determination is analogous to

the review of major mergers and acquisitions conducted by the Justice Department and the

Federal Trade Commission under the Hart-Scott-Rodino Act, 15 U.S.C. 18a.

Critical Public Policy

Issues Are Associated

With the Industry’s

Changing Competitive

Landscape
Page 11 GAO-03-171T Airline Financial Condition

competing in the industry. The cost of these policies will most likely be

borne both by industry, through higher operational costs, and the

consumer, through higher fares. In the current pricing environment,

carriers may not be able to pass on these costs to consumers, and thus

may be bearing their full impact during the short run. On the other hand,

these same security requirements may be helping the airlines maintain

some of its passenger revenue; some portion of the airlines’ current

passengers may be flying only as a result of knowing that these heightened

security requirements are in place. Thus, the question arises about the net

impact of the new market environment and new security requirements on

the carriers and their passengers while the industry restructures.

While understandable from the perspective of an individual airline’s

bottom line, the restructuring activities of individual carriers will

significantly change the competitive landscape. When carriers decrease

available capacity in a market by reducing the number of flights,

decreasing the size of aircraft used to meet reduced demand, or dropping

markets altogether, the net result is that consumers have fewer options. In

doing so, airlines reduce the amount of competition in those markets. As

has been shown repeatedly, less competition generally leads to higher

fares in the long run.

A related issue concerns the industry’s consolidation, whether through

marketing alliances among or mergers between carriers. Because of the

potential that consolidation presents for competition, federal oversight has

been critical. As we have noted before, while alliances may offer potential

consumer benefits associated with expanded route networks, more

frequency options, improved connections, and frequent flyer benefits,

consolidation within the industry raises a number of critical public policy

issues.15 These include increasing potential barriers to market entry, the

loss of competition in key markets, and a greater risk of travel disruptions

as a result of labor disputes.16 Since these alliances and mergers have a

direct impact on the level of competition within the airline industry and

would therefore influence the affordability of air travel to many

consumers, these issues are still relevant.

 15Airline Competition: Issues Raised by Consolidation Proposals (GAO-01-402T),

February 7, 2001.

16GAO has recently initiated an analysis of issues relating to airline industry labormanagement relations conducted under the Railway Labor Act.
Page 12 GAO-03-171T Airline Financial Condition

• How will the federal government’s support of small community air

service be affected? The Congress has long recognized that many small

communities have difficulty attracting and maintaining scheduled air

service. Now, as airlines continue to reduce capacity, small communities

will potentially see even further reductions in service. This will increase

the pressure on the federal government to preserve and enhance air

service to these communities. There are two main programs that provide

federal assistance to small communities: the Essential Air Service (EAS)

program, which provides subsidies to commercial air carriers to serve the

nation’s smallest communities, and the Small Community Air Service

Development Pilot Program, which provides grants to small communities

to enhance their air service.17

As we reported in August, the number of communities that qualify for

EAS-subsidized service has grown over the last year, and there are clear

indications that that number will continue to grow. Federal awards under

the program have increased from just over $40 million in 1999 to an

estimated $97 million in fiscal year 2002.18 As carriers continue to drop

service in some markets, more communities will become eligible for

subsidized EAS service.

In 2002, nearly 180 communities requested over $142.5 million in grants

under the Small Community Air Service Development Pilot Program. DOT

awarded the total $20 million available to 40 communities in 38 states to

assist them in developing or enhancing their air service. The grants will be

used for a variety of programs, including financial incentives to carriers to

encourage either new or expanded air service, marketing campaigns to

educate travelers about local air service, and support of alternative

transportation. We are currently studying efforts to enhance air service in

small communities, and expect to report on these programs early next

year.

• How will future international developments affect established

agreements between the US and EU member states? There are a

 17Congress created the Small Community Air Service Development Pilot Program under the

Wendell H. Ford Aviation Investment and Reform Act for the 21st Century (P.L. 106-181).

That act authorized $75 million over 3 years. DOT made no awards under the act in fiscal

year 2001, because the Congress did not appropriate any funds for the first year of the

program but $20 million was appropriated for fiscal year 2002.

18Figures in constant 2002 dollars.
Page 13 GAO-03-171T Airline Financial Condition

number of international issues that will influence the domestic aviation

industry’s attempts to recover from financial losses. The European Court

of Justice is expected to reach a decision in the near future on the

authority of individual European Union nations to negotiate bilateral

agreements. This could raise uncertainties over the status of “open skies”

agreements19 that the United States has signed with individual European

Union nations. This is especially critical with regard to negotiating an open

skies agreement with the United Kingdom, our largest aviation trading

partner overseas. Because almost all of the major US carriers partner with

European airlines in worldwide alliances, this decision could potentially

impact the status of antitrust immunity for these alliances, which could in

turn affect alliances established with airlines serving the Pacific Rim or

Latin America. These alliances are key components of several major

airlines’ networks and as such significantly affect their overall financial

status. Various studies have illustrated the benefits to both consumers and

carriers that flow from liberalizing aviation trade through “open skies”

agreements between the United States and other countries.

This concludes my statement. I would be pleased to answer any questions

you or other members of the Committee might have.

For further information on this testimony, please contract JayEtta Hecker

at (202) 512-2834. Individuals making key contributions to this testimony

included Triana Bash, Carmen Donohue, Janet Frisch, Patty Hsieh, Steve

Martin, Tim Schindler, Sharon Silas, Pamela Vines, and Alwynne Wilbur.

 19“Open skies” agreements are bilateral air service agreements that remove the vast

majority of restrictions on how the airlines of the two countries signing the agreement may

operate between, behind, and beyond gateways in their respective territories. DOT has

successfully negotiated open skies agreements with 56 governments, including many in

Europe.

Contact and

Acknowledgement
Page 14 GAO-03-171T Airline Financial Condition

Network carriers Net income (loss) 2000 Net income (loss) 2001 Net income (loss) 2002:2Q

Alaska ($70,300,000) ($39,500,000) ($4,500,000)a

America West $7,679,000 ($147,871,000) ($366,759,000)b

American $813,000,000 ($1,762,000,000) ($1,070,000,000)c

Continental $342,000,000 ($95,000,000) ($305,000,000)

Delta $897,000,000 ($1,027,000,000) ($583,000,000)

Northwest $256,000,000 ($423,000,000) ($264,000,000)

United $50,000,000 ($2,145,000,000) ($850,000,000)d

US Airways ($269,000,000) ($2,117,000,000) ($517,000,000)e

Total $2,026,379,000 ($7,756,371,000) ($3,960,259,000)

Low-fare carriers Net income (loss) 2000 Net income (loss) 2001 Net income (loss) 2002:2Q

AirTran $47,436,000 ($2,757,000) $2,027,000f

American Trans Air ($15,699,000) ($81,885,000) ($53,518,000)g

Frontier(8) $54,868,000 $16,550,000 ($2,935,572)

JetBlue - - $27,590,000h

Southwest $603,093,000 $511,147,000 $123,683,000

Vanguard ($26,031,626) ($30,914,459) ($7,963,262)i

Total $663,666,374 $412,140,541 $88,883,166

Source: Airline annual reports and SEC filings.

Notes: Unless otherwise stated, 2002:Q2 data is for six (6) months ended 6/30/02. Spirit Airline’s data

is unavailable as it is a privately held concern.

a

Three (3) months ended 6/30/02. Alaska Air Group, Inc.

b

America West Holdings Corp.

c

AMR Corporation.

d

UAL Corporation.

e

US Airways Group.

f

AirTran Holdings, Inc.

g

ATA Holdings, Inc. and subsidiaries. Formerly Amtran, Inc.

h

Data reflects Frontier FY 2001 ended 3/31/01; FY 2002 ended 3/31/02; FY 2003:1Q three (3) months

ended 6/30/02.

i

JetBlue Airways Corporation went public on 4/11/2002.

j

Three (3) months ended 3/31/02. Filed Chapter 11 on 7/30/02.

Appendix I: Summary of Network and Lowfare Airlines’ Financial Condition, 2000 –

June 2002
Page 15 GAO-03-171T Airline Financial Condition

Network carriers 2000 2001

Percentage

change (2000-

2001)

2002

(Jan to May)

2001

(Jan to May)

Percentage

change

(Jan to May

2001-2002)

Alaska 12,841,367 13,241,705 3.1% 5,067,518 5,570,751 -9.0%

America West 19,989,290 19,432,305 -2.8% 7,506,559 8,484,761 -11.5%

American 69,431,436 62,661,131 -9.8% 31,772,755 27,156,822 17.0%

Continental 37,118,040 35,085,749 -5.5% 13,445,688 15,311,743 -12.2%

Delta 100,389,816 88,928,779 -11.4% 34,372,033 38,791,329 -11.4%

Northwest 49,464,897 45,570,838 -7.9% 17,328,913 19,515,133 -11.2%

United 73,757,167 65,259,307 -11.5% 22,852,094 28,424,896 -19.6%

US Airways 58,035,050 53,806,153 -7.3% 19,428,304 24,287,301 -20.0%

Low-fare carriers 2000 2001

Percentage

change (2000-

2001)

2002

(Jan to May)

2001

(Jan to May)

Percentage

change

(Jan to May

2001-2002)

AirTran 8,014,274 8,306,772 3.6% 3,868,744 3,661,883 5.6%

American Trans Air 6,183,661 6,856,076 10.9% 3,056,609 2,938,045 4.0%

Frontier 3,065,564 2,907,611 -5.2% 1,468,583 1,329,633 10.5%

JetBlue 1,147,761 3,118,096 171.7% 2,055,962 1,131,841 81.6%

Southwest 82,170,284 82,234,829 0.1% 32,570,332 34,679,716 -6.1%

Spirit 2,817,734 3,290,277 16.8% 1,443,537 1,537,719 -6.1%

Vanguard 1,880,257 1,421,062 -24.4% 664,479 587,492 13.1%

Source: GAO analysis of data from BACK Aviation Solutions.

Appendix II: Summary of Network and Lowfare Carrier Enplanements, 2000-2002

(January to May)
Page 16 GAO-03-171T Airline Financial Condition

Options to Enhance the Long-term Viability of the Essential Air Service

Program. GAO-02-997R. Washington, D.C.: August 30, 2002.

Commercial Aviation: Air Service Trends At Small Communities Since

October 2000. GAO-02-432. Washington, D.C.: March 29, 2002.

Proposed Alliance Between American Airlines and British Airways

Raises Competition Concerns and Public Interest Issues. GAO-02-293R.

Washington, D.C.: December 21, 2001

“State of the U.S. Commercial Airlines Industry and Possible Issues for

Congressional Consideration”, Speech by Comptroller General of the

United States David Walker. The International Aviation Club of

Washington: November 28, 2001.

Financial Management: Assessment of the Airline Industry’s Estimated

Losses Arising From the Events of September 11. GAO-02-133R.

Washington, D.C.: October 5, 2001.

Commercial Aviation: A Framework for Considering Federal Financial

Assistance. GAO-01-1163T. Washington, D.C.: September 20, 2001.

Aviation Competition: Restricting Airline Ticketing Rules Unlikely to

Help Consumers. GAO-01-831. Washington, D.C.: July 31, 2001.

Aviation Competition: Challenges in Enhancing Competition in Dominated

Markets. GAO-01-518T. Washington, D.C.: March 13, 2001.

Aviation Competition: Regional Jet Service Yet to Reach Many Small

Communities. GAO-01-344. Washington, D.C.: February 14, 2001.

Airline Competition: Issues Raised by Consolidation Proposals. GAO-01-

402T. Washington, D.C.: February 7, 2001.

Aviation Competition: Issues Related to the Proposed United Airlines-US

Airways Merger. GAO-01-212. Washington, D.C.: December 15, 2000.

Essential Air Service: Changes in Subsidy Levels, Air Carrier Costs, and

Passenger Traffic. RCED-00-34. Washington, D.C.: April 14, 2000.

Aviation Competition: Effects on Consumers from Domestic Airline

Alliances Vary RCED-99-37. Washington, D.C.: January 15, 1999.

Related GAO Products

(544056)