TIME: Almanac 1995

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<text id=91TT1611> <title> July 22, 1991: Transportation:Get 'Em While They Last </title> <history> TIME--The Weekly Newsmagazine--1991 July 22, 1991 The Colorado </history> <article> <source>Time Magazine</source> <hdr> BUSINESS, Page 49 TRANSPORTATION Get 'Em While They Last </hdr><body> As weak airlines falter, four giant U.S. carriers are picking up the pieces and racing toward global dominance By Janice Castro--Reported by William McWhirter/ Detroit and Don Winbush/Atlanta Think of Delta Air Lines, and the hubs that come to mind are Atlanta, Salt Lake City and Dallas. But now Delta customers can dream of more exotic destinations: Brussels, Vienna, Rome, New Delhi, Moscow. Last week Delta snapped up most of what's left of failing Pan Am, collecting the pioneering carrier's transatlantic routes serving Europe, Asia and Africa, its sprawling Frankfurt hub, its northeastern shuttle and other assets--for just $260 million, about what the shuttle alone would have cost a year ago. Even as Delta was announcing its coup, United Airlines was circling over the remains, negotiating to buy Pan Am's extensive Latin American service to Mexico, Brazil, Argentina and other countries. If that sale is completed, Pan Am, which inaugurated international air service 64 years ago, will consist of little more than desks, computers and debts. Twelve years into the chaos of airline deregulation, which has seen dozens of new carriers enter the business and fail, U.S. airlines are holding their last big sale. The industry lost a record $2.4 billion last year, sending Eastern to the scrap heap and four major carriers--Continental, Pan Am, Midway and America West--into bankruptcy. The last shaky carriers may soon follow. Once dominant TWA and USAir may be forced into mergers or bankruptcy before the end of the year. Swaggering through the ruins, a handful of robust carriers are picking over the choicest goods and becoming worldwide powerhouses in the process. Says Russell Thayer, an airline consultant who once headed Braniff: "Consolidation has reached critical mass in the industry. The big three--American, United and Delta--are going global at a tremendous rate, while Northwest is scrambling to catch up with them. Within a year, we may be down to four or five large carriers." Since last summer, a flurry of crushing financial blows has turned an already brutal culling process into a full-scale rout. The airlines were loaded with debt after a decade of mergers, frantic expansion and multibillion-dollar orders for new aircraft. The approach of the gulf war brought a sharp run-up in oil prices, adding $2 billion, or 12.5%, to the industry's jet-fuel costs. Then, in a desperate bid to fill seats as the recession deepened and war jitters sidelined travelers, U.S. airlines slashed fares. By last April, 95% of all U.S. air passengers were traveling on the cheap, according to the Airline Monitor, an industry-research monthly. Despite a heady 30% increase in its passenger traffic from April to June, Phoenix-based America West was forced to seek bankruptcy protection last month. As struggling carriers have shed weight in their struggle to stay aloft, American, United, Delta and Northwest (combined U.S. market share: 70%) have moved to expand into new markets by snapping up the best parts. American and United are pushing into Latin America. In the transatlantic market, where TWA and Pan Am have steadily lost ground over the years to heavily subsidized European flag carriers, American, United and Delta will present much more formidable competition. One measure of their clout: each airline is larger than all the European carriers combined. As American-based powerhouses, they enjoy another advantage in international markets: U.S. travelers are still the key to the world industry. Traffic originating in the U.S. accounts for nearly half the world business. If the big bruisers from the U.S. succeed in expanding their international market share--and dismayed European and Latin American flag carriers seem to believe they will--the domestic operations of American carriers will grow even stronger as they feed passengers into their route systems. Opportunities also abound in the Pacific, the fastest-growing airline market in the world. But Northwest, which recently gave way to United as the largest U.S. carrier to Asia, is hard pressed to match its stronger rivals. Its parent firm is burdened with heavy interest payments on some $1.5 billion in takeover debt. And the airline lost $62 million on revenues of $1.6 billion during the first three months of this year. While the U.S. may gain in some ways as its big carriers expand their international market share, travelers will see fewer of the rock-bottom prices they enjoyed during the past decade of desperate competition. As smaller regional airlines continue to disappear, the huge carriers may also be tempted to drop service to some of their less profitable destinations. At the same time, though, travelers in some key U.S. markets clearly stand to gain from the consolidation. The northeastern corridor linking Washington, New York City and Boston, for example, has been served for the past few years by two financially shaky shuttle operations. That is about to change. Delta's purchase of the Pan Am Shuttle gives the Atlanta-based airline 52% of that traffic. Now Northwest is negotiating an agreement with Donald Trump's bankers, who have taken over his shuttle as part of his financial restructuring. In the coming months, travelers in the busy corridor probably will have the best vantage point for a fierce new shuttle shoot-out: the discounted seats aboard the planes. </body></article> </text>