MeetingNews Cover Story: Crisis Among the Carriers

Over a one-week span, passengers on three airlines received the news that their flights had been canceled—permanently. On March 30, Aloha Airlines, Hawaii's second largest carrier, announced that it was discontinuing its interisland and transpacific passenger services, effective immediately. On April 3, Indianapolis-based ATA shut down its flights. And on April 5, Skybus, based in Columbus, OH, declared that it, too, was ceasing operations. Each airline also declared bankruptcy.

Meeting planners, attendees, and affected destinations were on their own. Michelle DeClerck, president of Des Moines, IA-based Conference Event Management was hit with a double whammy. Her incentive group of 50 top producers from an insurance company was packing their bags for a reward program in Maui when she got the news. Most of the group was scheduled to fly on Aloha, so DeClerck and her team immediately began rebooking attendees on other airlines—including ill-fated ATA.

"I was most concerned about the client's budget and being able to accommodate our guests and ensure they were comfortable," she said. While all the attendees made it to and from the island—although some had to fly on separate flights from their spouses—the budget was significantly impacted.

"We planned the trip early in the year, and tickets we originally purchased on Aloha were much lower than the tickets we had to purchase at the last minute with other air carriers," she said, adding that for some flights, "We had no choice but to purchase first-class tickets to get some of the guests home."

Along with the higher fares, she said, "I also incurred more costs due to additional transfers on arrival and departure days due to the split-up of guests on the various flights."

Signs of Distress
Although Aloha, ATA, and Skybus each had mitigating factors that led to closure, all cited rising fuel costs and an unstable economy as key factors in its demise. In late March, crude oil reached an all-time high of $111.80 a barrel; it has since been trading between $100 and $110 a barrel.

In its Chapter 11 filing, Aloha said that predatory pricing from go! Airlines forced the airline to match low prices and thus not allow it to compensate for the increasing cost of fuel (by press time, go! did not answer a request for a response). The 61-year-old Aloha accounted for about 40 percent of interisland Hawaii travel and provided service to six mainland U.S. destinations.

ATA discontinued service after it lost a key military charter contract that accounted for most of its charter business. "Unfortunately, the cancellation of a critical agreement for our military charter agreement undermined ATA's plan to address the current conditions facing all scheduled service airlines, including the tremendous spike in the price of jet fuel in recent months," said Doug Yakula, ATA's chief operating officer. In March, ATA had announced cutbacks to its service in an effort to reduce costs, including discontinuing service at Chicago's Midway Airport. At the time it closed, ATA was serving approximately 10,000 passengers per day.

Skybus, which only began operations in April 2007, stated on its website that it "struggled to overcome the combination of rising fuel costs and a slowing economic environment." Skybus serviced approximately 17 destinations, mostly cities that did not have a lot of direct service from larger carriers.

Other airlines are taking notice, too. Perhaps in an effort to avoid the fate of Aloha, ATA, and Skybus, many carriers are taking steps to offset rising fuel costs and a shaky economy. Northwest Airlines recently announced that it was increasing fuel surcharges on international flights, decreasing its domestic capacity by 5 percent, and putting a hiring freeze on pilots and flight attendants. Delta Air Lines, which has been in negotiations to merge with Northwest, offered a buyout to about 30,000 of Northwest's 55,000 employees in the hopes of cutting its workforce by about 2,000.The airline is also cutting its U.S. capacity by 5 percent.

Picking Up the Slack
In the wake of the shutdowns, airlines like United, US Airways, and JetBlue offered affected passengers deals on their flights, while hotels like Marriott International offered accommodation discounts. Hawaii was hit especially hard, with the losses of ATA, which brought approximately 770,000 passengers a year from the mainland, and Aloha, but local leaders expect airlift to bounce back quickly.

"Other carriers will quickly assimilate, and we'll have plenty of lift to compensate," said Jim Monahan, president and CEO of the Hawaii Visitors & Convention Bureau. Rex Johnson, Hawaiian Tourism Authority's (HTA) president, agreed: "I expect to see some new routes; if there is demand, someone will fly it," he said. Hawaiian Airlines already announced new Oakland-Honolulu service, to replace ATA's route, and Alaska Airlines just added Seattle-Maui service.

Smaller cities serviced by ATA and Skybus, however, could have a rough landing in store. Nicole Learson, director of marketing for the Mississippi Gulf Coast CVB, said that in the four months Skybus had direct service to Gulfport-Biloxi International Airport, it carried 24,000 passengers to the region—a huge plus for an area just now building momentum since Hurricane Katrina.

"It's unfortunate we lost that service," she said. "I anticipate some slowing effect." The silver lining, according to Learson, is that Skybus brought attention to the region.

US Airways now has a flight from Charlotte, and American Eagle created a new route from Chicago. While the destinations remain optimistic, meeting planners continue to worry about fewer choices and increasing fuel surcharges. Just after the airlines shut down, Marriott led a focus group of meeting planners, retail and wholesale travel agencies, and major meetings suppliers. According to Ed Hubennette, vice president, North Asia, Hawaii, and South Pacific for Marriott, the focus group cited fare increases as a top concern. HTA's Johnson noted, "With the airline industry so fragile because of the cost of fuel and current credit markets, prices are going to go up everywhere."

Contact Lori Morris at [email protected]

Originally published April 21, 2008