Expert View: Fly on a US airline and you'll realise how lucky we are

Delta has slashed 7,000 jobs but is still $20bn in debt. 'There isn't much bone, let alone flesh, to strip away'
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The Independent Online

But the changes wrought by Lord King, Sir Richard and the plethora of low-cost airlines have undoubtedly improved UK air travel hugely.

Just how lucky we are was brought home to me a few weeks ago when I did probably the most stupid thing I've ever done: flying from New York to San Francisco for a one-hour meeting, then on to Boston and then Washington. Being in the grip of the American airline industry over this period was not pleasant.

For US airlines are in crisis. Consider Delta. It has lost more than $9bn (£5.2bn) since 2001, burning cash at a rate of $4m a day. While it has slashed 7,000 jobs and halved the pay of executives, it remains $20bn in debt. The shares are down 90 per cent. As one observer said: "There isn't much bone, let alone flesh, to strip away."

The problems at Delta are typical of all US airlines. They were greatly exacerbated by 9/11 and the recent hike in oil prices, but above all they are structural. As a recent American study showed, there is too much capacity: only 70 per cent of seats are filled and just one US airline, Southwest, regularly reports a profit.

The American air industry also suffers from a variety of labour challenges. The airlines are highly unionised, with complex agreements over issues like outsourcing. In addition, the pension liabilities of these once labour-intensive companies are huge - in Delta's case, some $3.5bn.

A way out of this quagmire seems elusive. The pensions problem is not confined to the US (as the recent discussion of the BA dividend has shown) and would appear to be insoluble. Companies may face a stark choice between oblivion and default.

Other issues could have solutions. As economists in Canada argue, the North American industry is not as open as Europe's. Healthy competition might accelerate the process of killing off the weaker dinosaurs and lead to an injection of Branson-like innovation, improving customer service. India is taking this route, with new entrants such as liquor baron Vijay Mallya aiming to make his Kingfisher Airlines the largest private operator in the country, led by an army of air hostesses in designer red skirts. Sound familiar?

The future is not as exciting for the investor as it is for the customer, for local and national politicians always interfere. Take Ireland's Aer Lingus or Brazil's Varig, both either financially strapped fig-leaves for national pride, or vital public infrastructure.

The effect on individual hinterlands can be dramatic. I visited Ryanair's nascent hub at Lübeck in Germany last week, where the company talks of investing £170m and creating 2,000 jobs. No wonder local communities want to give incentives to airlines.

That ensures the cost of entry stays low and the competition fierce. The current stand-off between Ryanair and the European Commission over compensation for cancelled flights is a vital test case of the budget principal. As with all conflicts between politicians and industry, it is hard to determine where the true interests of consumers and investors lie - or even if they are in the same place.