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Soaring oil prices
flashing a red light
Posted By Jerome R. Corsi On 09/16/2005 @ 1:00 am In Commentary | Comments Disabled
Delta Air Lines and Northwest Air Lines, the nation’s third- and fourth-largest airlines, filed for bankruptcy this week, joining United and U.S. Air which are already operating under Chapter 11 protection. The last straw was the dramatic increases in the price of oil – increases that have intensified in the wake of Hurricane Katrina.
Since the 9-11 attacks, the airlines have been under economic attack, with the industry experiencing $32 billion in losses. But with oil hitting prices north of $60 a barrel, airline executives are facing losses this year now estimated at $8 billion – some $2 billion more than anticipated when oil only a few months ago was still below $45 a barrel.
For many industry analysts, the bankruptcy wave sweeping the airline industry was inevitable. Fierce price competition from carriers such as Southwest and JetBlue has changed the economic profile of the industry. The major carriers adapted by lowering fares and shuffling flights, maneuvering to the point where planes were flying 78 percent full. Still, problems abound – soaring labor costs that are resistant to jawboning or downsizing, unfunded pension obligations that cost billions every year, billions in debt that place huge interest-servicing costs on carriers that are in a never-ending price war. Add to this burden soaring energy costs and two more major airlines are grounded in Chapter 11.
The airlines will continue flying under Chapter 11. They may all even be able to restructure and emerge from bankruptcy more profitably than ever. Yet the airline industry will never be the same.
Thousands of airline employees, from pilots to mechanics, may have thought they had a secure retirement, but they are in for a rude awakening. Airlines in bankruptcy tend to stop payments to pension funds. The Pension Benefit Guaranty Corporation is the insurance agency created by the federal government in 1974 to take over pension payments when sponsoring companies fail. With annual losses in the billions, the PBGC itself faces bankruptcy, unless Congress decides to foot the ever-increasing bill. Being a pilot or a flight attendant were once dream jobs. Today, many are considering career changes.
The glory days of flying are long gone. Expect even more crowded airplanes and get used to being herded into your seat like cattle if you want to take to the airways. Just try finding a pillow or blanket on a domestic flight … they’re long gone. Think $5 is too much to pay for a sandwich on a trans-continental coach flight? Your only alternative is going to be to pack your own sandwich, or buy one in advance to carry on board in a brown bag.
Even worse, there is hardly an industry in America that does not depend upon oil, one way or another. The restructuring in the airline industry is only the beginning. Increased fuel costs in all sorts of industries are going to be passed on to consumers. Car manufacturers had better scrap plans for producing new and improved SUVs. With oil prices relatively low and stable since the mid-1990s, SUVs were beginning to look like mini-buses or even tanks. Now, with gasoline at $3.00 a gallon, the resale value of a SUV is approaching nil so fast that the best move may be to trade one in for something smaller as soon as possible.
We will be lucky if soaring oil prices don’t mean a recession is around the corner. The Democrats had better be concerned not to start rubbing their hands in glee at the prospects of a Bush Recession as we approach the 2006 mid-term elections. The public is going to be suffering enough if oil prices don’t come down. The last thing voters will want to see is opposition Democrats gloating and boasting over the suffering we are all going to feel as workers and consumers.
Mid-term elections are generally tough for the party in power. Want to see some really worried faces? Just take a look at Republican senators and congressmen whose terms are up only a few months from now.
Editor’s note: Jerome Corsi’s new book, “Black Gold Stranglehold: The Myth of Scarcity and the Politics of Oil,” with co-author Craig Smith, will be published in October by WND Books.
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