Video: The Future of flight

By Rob Reynolds Washington correspondent
updated 9/15/2005 3:35:21 PM ET 2005-09-15T19:35:21

In and out of bankruptcy the old airlines go, but unlike old soldiers they never fade away.

Legacy airlines have blown $32 billion over the past four years, but the government keeps propping them up, substituting its own version of less-than-intelligent design for the marketplace’s survival of the fittest.

“It provides a disincentive for the companies to do the hard work on their own if they are always going to be helped out by the government,” notes Standard & Poor’s equity analyst James Corridore.

Six airlines received $1.5 billion in post-9/11 government loan guarantees. And the perception that the government will always bail out the big carriers, keeping them from going belly up, encourages private sector lenders to keep loaning them cash.

Free market laissez-faire economists like Peter Van Doren of the Cato Institute say the plug should be pulled:

“What I would like to see is the airlines thought of as no different from pizza parlors,” Van Doren said. “If they need to go bankrupt, then they go bankrupt.”

So what would the industry look like if the government, and private investors, just said no? Three things would happen according to Julius Maldutis, a seasoned consultant and airline industry analyst.

The number of flights and capacity would be reduced, and there would be fewer cheap fares, he says. And “the remaining carriers that survive will make an absolute fortune,” he adds.

There is some history to back up Maldutis’ prediction.

In the early 1990s, Pan Am, Eastern Air Lines and Braniff International Airways all kicked the bucket. And between 1993 and 1999, the airline industry as a whole recorded an after-tax profit of $17.5 billion. Compare that with the hemorrhaging losses they are seeing today.

© 2012 CNBC, Inc. All Rights Reserved


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