Thursday, April 3, 2008

Black Wednesday for Two Airlines

Wednesday proved to be a dark day for airlines on both sides of the Atlantic. In the United States, low-cost carrier ATA Airlines filed for bankruptcy after losing a key contract for its military charter business. "Unfortunately, the cancellation of a critical agreement for our military charter business undermined ATA’s plans to address the current conditions facing all scheduled service airlines, including the tremendous spike in the price of jet fuel in recent months," explained ATA CEO Doug Yakola. ATA has halted all service, informing passengers that it would not honor any standing tickets or reservations. Carrying an average of 10,000 passengers each day, ATA’s cancellation of services is likely to cause some chaos as passengers scramble to make last minute adjustments. ATA’s financial woes also come as a blow to the beleaguered Southwest Airlines with which ATA had a code-sharing arrangement. Southwest has committed itself to giving booking priority to any passengers scheduled to fly within 14 days through their previous arrangement with ATA. Coincidentally enough, this news comes just as Congress begins hearings to investigate the FAA and its apparently cozy relationship with Southwest. Some have argued that this relationship led to undue endangerment of passengers flying on Southwest Airlines due to lax safety inspections.

In Europe, Italy’s Alitalia may have had the proverbial stake driven through its heart. After years of being the industry’s Nosferatu, perpetually rising from the dead, Alitalia’s hopes for a new source of financial lifeblood from Air France-KLM may be extinguished. Late last night, Air France-KLM announced that it was rescinding its offer after Alitalia’s union made proposals which "would involve retaining a number of activities generating large scale losses within the Alitalia group," said Air France-KLM in a prepared statement. The deal, valued at an estimated $1.15 billion, would have given the struggling Italian airline a new lease on life after seeing its operating capital quickly diminish over the last couple of months. While some analysts believe that the deal is officially dead, Alitalia’s unions are still holding out hope that a new agreement may be reached. However, even if the union problem is taken care of, Air France-KLM’s bid still hangs on the outcome of Italy’s upcoming elections. Should Silvio Berlusconi return to power as prime minister, he is expected to block the deal on chauvinistic grounds that Italy’s flag carrier should not fall into the hands of foreigners. A recent government tax break and the selling of its Air France-KLM shares have allowed Alitalia to survive for now. In the meantime, the board of directors has called an emergency meeting to decide what its next move should be in the face of what the airline can only consider to be a disaster.

April 3, 2008 | Permalink | Comments (1) | TrackBack (0)