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Survival of the fittest: airlines struggle to outlast industry slump.

It was a turbulent year for the air transportation sector in 1991.

In fact, on a national level, 1991 resulted in the worst financial performance in industry history.

The Department of Transportation reports that the airline industry will suffer an operating loss of $3.95 billion for the fiscal year ending June 30.

Rising fuel costs, the Iraqi invasion of Kuwait two years ago and recession combined to create bankruptcy, deteriorating profits and a loss in domestic traffic.

The weak got weaker.

As of September 1991, four airlines had filed for bankruptcy protection -- Pan Am World Airways Inc., Midway Airlines Inc., America West Inc. and Continental Airlines Inc.

Eastern Air Lines Inc. ceased operations in January.

One result of this financial adversity was a consolidation of routes, gates and facilities.

Stronger airlines expanded at the expense of weaker ones.

Most industry observers believe this to be a continuation of the wave of mergers and acquisitions that began in 1986.

Some of the major consolidations include:

* the acquisition of Ozark Airlines Inc. by Trans World Airlines Inc. in 1986.

* the merger of Republic Airlines Inc. and Northwest Airlines Inc. in 1986.

* the purchase of Western Airlines Inc. by Delta Air Lines Inc. in 1986.

* the acquisition of People Express and Frontier Airlines to be combined with Continental Airlines Inc. and New York Air in 1986.

* the purchase of Eastern Air Lines Inc. by what was then Texas Air in 1987.

* the acquisition of Pacific Southwest Airlines and Piedmont Aviation Inc. by USAir in 1987.

Better Days Ahead?

With the declining number of carriers, traffic became more concentrated but was still weak.

Passengers benefited. Airlines continued discount pricing that began two years ago.

The first half of 1991 was bleak, but fuel prices fell and industry profits picked up later in the year. That indicates signs of recovery.

The Federal Aviation Administration predicts that domestic airline traffic will increase at an annual rate of 4.1 percent during the next decade.

With an improved economy and stable fuel prices, the outlook for the industry is expected to improve.

Economists are cautious in predicting the fate of those carriers in poor financial shape.
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Author:Fleisch, Shelley
Publication:Arkansas Business
Article Type:Industry Overview
Date:Jun 22, 1992
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