Problems mounting for Las Vegas airlines

Tuesday, March 25, 2003 | 10:56 a.m.

The No. 2 carrier at Las Vegas' McCarran International Airport is planning layoffs, and airport officials are keeping a close eye on three bankrupt airlines after having written off $7 million in debt from defunct National Airlines.

Randy Walker, director of the Clark County Department of Aviation, said none of the three airlines operating under Chapter 11 bankruptcy protection -- United Airlines, US Airways and Hawaiian Airlines -- are in arrears, but United no longer has a lease at McCarran and operates at the airport under a permit. Struggling American Airlines, the world's largest airline, also has defaulted on its lease agreement with McCarran.

Meanwhile, America West Airlines, the No. 2 carrier at McCarran, disclosed it is struggling financially and will be laying off employees in the weeks ahead.

Demand for airline tickets is waning. Businesses are curtailing travel because of the sluggish economy and would-be travelers are staying home to watch the war with Iraq or are nervous about traveling to places that could be retaliatory targets of terrorists.

The International Air Transport Association predicts that war jitters will result in a 15 percent to 20 percent drop in the number of international passengers traveling during the war. The organization's sister agency, the Washington-based Air Transport Association, says that if the war drags on, the aviation industry could lose $10.7 billion and that 70,000 people could lose their jobs.

Even without the war, ATA analysts said the aviation industry was on course to lose $6 billion in 2003.

The airline industry is critical to Southern Nevada tourism, since 44 percent of Clark County's 36 million tourists arrived by air in 2002. The Las Vegas Convention and Visitors Authority says gamblers who arrive by plane generally stay longer and spend more money per trip than their contemporaries who arrive by bus, car or recreational vehicle.

United, the third-busiest airline at McCarran with an average 31 flights a day, no longer has a letter of credit on file at the airport, which means it must operate as a permittee instead of a lessee. Walker said that means United no longer has some of the privileges other airlines enjoy.

Walker said as a permittee, United doesn't have guaranteed space at gates or counters and some fees have to be paid for in advance. He said some fees are subject to a surcharge that in effect requires United to pay a higher rate than its competitors for space.

Walker, in Washington D.C. for a legislative conference sponsored by the American Association of Airport Executives and Airport Councils International, said Fort Worth, Texas-based American Airlines, which is struggling to stay out of bankruptcy court, has received a default letter from the airport because the airline's letter of credit has expired.

Walker said Arlington, Va.-based US Airways, which filed for bankruptcy protection in August, and Honolulu-based Hawaiian Airlines, which filed for Chapter 11 last week, have stayed current in their payments to the airport. Both are minor players at McCarran, with US Airways having an average seven flights a day and Hawaiian having one daily flight.

Hawaiian uses McCarran's Terminal 2, which has common-use gates used by several charter and long-haul carriers, including international fliers.

Walker said United is being watched closely, especially after recent disclosures that the airline is cutting 124 flights in April -- 8 percent of its routes -- and needs $2.56 billion in annual wage and benefit concessions to stay afloat.

"We defaulted them out in the event that they go into liquidation," Walker said of Elk Grove Township, Ill.-based United. "If they're in liquidation, we don't want to have leases that could be tied up in Bankruptcy Court."

Bankruptcy court battles are fresh in Walker's mind following the Nov. 6 shutdown of Las Vegas-based National Airlines, which had operated under Chapter 11 bankruptcy protection for nearly two years. National owed several companies millions of dollars, with nearly $7 million owed to McCarran when the doors closed.

Walker said while several airlines have announced cuts in staffing and routes, they've had little effect on the Las Vegas airport so far. Most of the airlines that have experienced the most trouble have been those with some international routes.

Overseas travelers, particularly those from Asia, have been the most skittish about flying during a world crisis. Airlines that have overseas routes -- United, American, Delta and Northwest -- have been most vulnerable.

In addition to reduced demand, airlines are citing the higher cost of fuel as a factor contributing to their woes.

United, the nation's second-largest airline, said it is cutting 20 international flights and 104 domestic flights, many of them feeders for the international routes, beginning April 1. The company has furloughed 3,448 flight attendants and mechanics and is scrapping more than 100 flights.

Dallas-based American, the world's largest airline, but only No. 5 at McCarran, is cutting 6 percent of its schedules to Europe and Latin America and is laying off 2,300 flight attendants and 1,100 mechanics and is closing a maintenance base in Indianapolis.

Delta Air Lines, Atlanta, the third-largest U.S. carrier and the No. 4 airline at McCarran, said it is reducing flights by 12 percent, cutting both domestic and international routes. Cuts begin March 27 for U.S. flights and in April for service to and from Europe.

Eden Prairie, Minn.-based Northwest, the nation's fourth-largest airline and the seventh-busiest at McCarran, is cutting its schedule by 12 percent and laying off 4,900 workers, citing a drop in bookings.

Hawaiian Airlines is somewhat of an aberration, in that it doesn't have any international routes. However, it ran into trouble and landed in Bankruptcy Court when it couldn't renegotiate terms of its leases on its brand new fleet. Hawaiian recently replaced its aging DC-10 jets with fuel-efficient twin-engine Boeing 767s.

Only one airline has announced substantial service reductions to and from Las Vegas. Singapore Airlines, which inaugurated nonstop flights between Hong Kong and Las Vegas last summer, announced last week that it is suspending the two-flight-a-week service for two months beginning April 7.

Walker said there have been no other large-scale reductions in service for Las Vegas. Most airlines that reduce service consolidate flights to create one-stop service where a nonstop existed.

Walker said Las Vegas is fortunate that the domestic airlines that have fared the best in today's economy have the largest presence at McCarran. Southwest Airlines, Dallas, which has no international routes, and Tempe, Ariz.-based America West Airlines, which has a handful of flights to and from Canada and Mexico, operate 59 percent of the commercial flights at McCarran between them.

Southwest says it has no plans to reduce routes or employees.

But there's trouble on the horizon for America West, where Chief Executive Officer Doug Parker issued a letter to employees Monday warning that layoffs are likely for the company that has about 1,000 Las Vegas-based employees. The airline, which uses Las Vegas as one of its hubs, operates an average 83 flights a day to and from McCarran.

Parker said he has asked senior management to cut professional and administrative payroll by 10 percent, "which, unfortunately, will result in fewer employees within these workgroups."

Parker explained that the company is attempting to find $100 million in annual cost reductions, excluding fuel, to offset projected revenue reductions.

"I am hopeful that we can achieve our cost-reduction goal without layoffs in other workgroups and without asking anyone to take pay cuts," Parker's letter says. "However, those options will have to be considered in the near future if conditions do not improve."

America West spokeswoman Janice Monahan said the airline has seen no significant reduction in bookings as a result of the war and at present has no plans to cut service to and from Las Vegas.

Walker said the loss of National Airlines in November was a temporary setback for service at McCarran. National represented about 7 percent of the flights and 8 percent of the seat capacity coming into Las Vegas, Walker said. But since National's departure, JetBlue, America West, Allegiant and Spirit airlines have announced new service and AirTran Airways has announced plans for flights later this year.

Walker said the number of flights operated at McCarran daily -- about 421 on average -- is down by just 1.5 percent from November 2001.

Walker said he expects to hear more details about how the government intends to assist airlines during his conference in Washington.

Sen. Harry Reid, D-Nev., said he concurs with several aviation experts that the industry doesn't need a bailout -- it just needs temporary relief from the payment of some fees and taxes.

"We're obviously concerned about the status of the airlines because of their contribution to the tourism economy of Nevada," Reid said. "But a bailout isn't what's needed here. What we need is the suspension of some of the taxes airlines pay."

Reid said he would support the suspension of some ticket and fuel taxes, but probably would recommend against any suspension of payment of passenger facility charges, the so-called PFCs that fund local airport improvements.

"We have to be careful which taxes would be suspended because we don't want to hurt local airports in the process," Reid said.

There was no airline relief package in President Bush's funding proposal for the war, but Senate Majority Leader Bill Frist said today that U.S. airlines would get aid "to some extent" from Congress, either as part of the legislation to pay for the Iraq war or in some other bill.

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