Air Service Expected To Decline

July 20, 2008
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GRAND RAPIDS — Delta Airlines is severing service to and from Lansing’s Capital Region International Airport at the end of August and will discontinue passenger service to and from Toledo Express Airport effective Sept. 2. United Airlines will cease operations at the Kalamazoo/Battle Creek International Airport on Nov. 2. Northwest Airlines — Michigan’s largest passenger air carrier — is cutting 2,500 frontline and management jobs and will begin charging passengers $15 for their first checked bag. Both Delta and Northwest have added fuel surcharges to their frequent flyer award tickets.

All three airlines cite unprecedented fuel costs as the reason for the changes.

What will it all mean for Michigan air travelers?

“I think the consumer should anticipate less service and more cost, unfortunately,” said Cliff Maine, chair of the aviation law group of Barnes & Thornburg’s Grand Rapids’ office. “If the legacy carriers reduce capacity too much, the door will be open for some lower cost carriers to come in, but the dial will still be higher for consumers.”

The airlines are facing an almost perfect storm of economic problems, Maine pointed out: Fuel costs are rising, demand is decreasing because the economy is weak, and there’s an overcapacity in the industry. Fuel makes up somewhere between 25 to 40 percent of the total cost of a flight, depending on the airline, he observed. That means the airlines have to do everything they can to lower costs and increase revenues.

Seven airlines have gone out of business since January, and Express Jet will be the eighth to fold when it ceases operation in September. These are very tough times for all of the airlines, Maine said. Most airlines, he said, are trying to handle layoffs in the most humane way possible: They’re negotiating with their unions and employees for voluntary retirements. Some airlines will offer incentives for early retirement, but most of the layoffs will occur through natural attrition because the airlines will just stop hiring, he said.

Along with employees, the airlines are going to lay off airplanes. Reduced flights to and from smaller airports will mean increased flights to and from larger hub airports, where the airlines can charge more per ticket, according to Maine.

“With the layoffs, reduction of flights and number of airlines that have gone out of business, we’re really looking at a contraction of the airline business. That will likely be the case until the economy picks up and we get some type of a handle on fuel costs,” Maine said.

He noted that research is being done in the area of synthetic fuel for airplanes but actual development is years down the road.

Chuck Cox, president of Northern Air and its subsidiaries, Northern Jet Management and The Company Jet, said that over the the next six months the airlines will likely go through their biggest change since deregulation in 1978.

“The impact of  fewer flights and higher air fares is going to be significant on the flying public,” Cox said. “It’s a shame, but there are going to be some big changes this fall and winter.”

Aviation Attorney Peter Tolley, of Foster Swift Collins & Smith, believes the legacy carriers have mismanaged their businesses for a long time. Direct flights are the most expensive: The more stops and layovers, the cheaper the ticket, but that’s not good air service, Tolley said. Northwest and a lot of the other carriers are taking their older, less fuel-efficient airplanes out of service, and the airlines are flying very high load factors, but their pricing is so fractured that they can’t figure out where to set it, he said. But fewer pilots, fewer aircraft and fewer support personnel translates into less service. Tolley foresees a continued decline.

“I think you’re only going to see regularly scheduled air service in this state within the next year, probably in Detroit, Grand Rapids, Traverse City and Marquette, and that might be about it,” Tolley said.

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