Once again, the aviation industry has reached a pivotal turning point. Unquestionably, fuel costs are punishing all our domestic carriers — in fact, they are quite likely the primary impetus behind the recent announcement of merger negotiations between Delta and Northwest. These costs are depressing a segment of the economy that should be taking off. Passenger enplanements are up, yet forecasts for profits are down. And those profits are projected to decline into the future, despite the continuing increase in passenger traffic. The International Air Traffic Association, an association representing nearly all airlines participating in international air travel, has readjusted its growth estimates from previous industry profits of $7.8 billion in 2008 to a more recent figure of $5 billion — an overall decline of more than one-third! Perhaps most menacing is the potential wave of consolidation that lurks around the corner — the end result of which could be a reduction in the numbers of our legacy airlines and a simultaneous decline in service and choice for the flying public.

Undoubtedly, the challenges posed by unprecedented high costs of aviation fuel are as troubling as they are systemic. In the past month, five commercial carriers have filed for bankruptcy, and exorbitant fuel costs have shattered the bottom line of more than one major airline. Delta and Northwest recently reported losses in the first quarter of 2008 totaling $10.5 billion — almost exclusively due to fuel costs! Some estimates reported the overall cost of fuel this year to be more than 30 percent of operating costs for airlines or $150 billion for the industry — for a 44 percent increase over last year’s fuel bill.

I arrived here in Congress on the eve of the deregulation of the airlines; since that time, I believe the results of that decision have been a mixed bag at best. Less than two years ago, we gathered in this hearing room to debate the merits of a potential consolidation of USAir and Delta Airlines. My feelings on that matter were clearly laid out; competitive fares and consumer choice were on the line for my home state of Maine and a number of other regions of the country. Such a proposal was not in the best interests of my constituents, and the subsequent wave of consolidation precipitated by a USAir-Delta merger could have seriously damaged air service across the country.

I have heard this is a new reality we are facing now; I agree with that assessment. Fuel prices and other market pressures are shaking the industry in ways previously unseen. Is this merger the only way for Northwest and Delta to remain viable commercial carriers, and to maintain the service they provide, particularly at smaller regional airports? Possibly. Yet I continue to have serious reservations regarding this proposed merger. At Bangor International Airport, the combination of Delta and Northwest control more than 60% of service to that airport. What would their merger mean to that community? Improved service, more options for the flying public in the near term. That much is for certain. But how long will the new carrier continue to provide that level of service to small communities like Bangor when the airline can streamline its operations and invest in more profitable international flights? That is my fear, that regional airports where Delta and Northwest, or whichever airline may choose to merge, have an extraordinary market concentration will lose service, and those towns that rely on air service to economic development purposes will be left behind.

Clearly, there can be no one-size-fits-all solution to this complex, multi-faceted problem. Yet we cannot afford to be ill-prepared to accommodate more operations, passengers, and cargo, otherwise we will be left behind by other nations better-suited to meet those demands. That scenario is patently unacceptable, neither is a government bail-out. Such an effort has already been made and only serves as a band-aid solution to a much larger problem. By working together, industry, stakeholders, and Congress can meet the demands part and parcel of a changing world of aviation. There is much work ahead, and at the same time, tremendous promise if we can successfully accomplish the restructuring of our aviation system. With the serious possibility of continuing financial problems casting a pall over the industry, Congress must assert its will, but in concert with industry and in a way that is prudent, wise, and above all, effective for everyone involved.

This entry was posted on Monday, May 12th, 2008 at 5:24 pm and is filed under Politics, Economy/Budget .