Chicago shutdown will cost airlines ‘hundreds of millions,’ analyst says

SHARE Chicago shutdown will cost airlines ‘hundreds of millions,’ analyst says

The national airline crisis caused by an arson fire at the Aurora flight-control center will cost three major airlines “hundreds of millions” of dollars in losses, exposes an “incompetently managed” FAA and could result in higher airline ticket prices in the long term, an aviation industry analyst said Monday.

American, United and Southwest airlines stand to lose millions because they have critically important connecting hubs in Chicago that they cannot use effectively until the situation is resolved, said Mike Boyd, chairman of Boyd Group International, an aviation industry consulting firm in Evergreen, Colorado.

“We are now talking hundreds of millions of dollars” in total costs to those three airlines, he said.

United Airlines accounted for nearly 16 percent of all operations out of O’Hare last year, and American racked up 13 percent. At Midway, Southwest produced 83 percent of Midway’s flights last year, according to U.S. Department of Transportation online statistics.

The airlines are getting hit because they must pay out refunds and swallow canceled bookings; contend with passengers who were inconvenienced; deal with disrupted crew schedules; and move airplanes that were in the wrong places, among other problems, Boyd said.

“It’s very messy,” he said.

Boyd said other major airports have inadequate excess capacity to pick up the slack.

“A lot of money is being lost,” he said. “A lot of traffic and business is being lost.”

“Over a period of time, though not immediately, the cost of air travel could go up nationwide,” Boyd said.

RELATED: Two fires prompt Durbin, U.S. reps to seek probe of Aurora facility

Morningstar analyst Neal Dihora said airlines usually fill 80 to 85 of every 100 seats, so they cannot possibly squeeze more than 20 people onto most of their flights. Despite the lost revenue, Dihora said the airlines won’t take as much of a hit on their profits because the extra passengers per plane require no additional pilots, flight attendants, ground crews or airplane maintenance.

The long-range impact might even help boost airlines’ profits if bumped passengers rebook for vacations in the slower winter months, Dihora said.

“People are going to fly because it’s the fastest way to get from Point A to Point B, even if we hate it,” Dihora said. “We expect that the airlines will treat us like garbage, so we’re willing to put up with some level of indecency” for the convenience.

Though Boyd criticized the Federal Aviation Administration, the federal overseer of the country’s civil aviation system, for what he called “having no backup and no security” in such an incident, analyst Robert Mann of R.W. Mann Co. consulting firm in Port Washington, New York, said the airlines have starved the FAA of operating funds. They’ve done so by reducing their base ticket fares, on which federal taxes are collected, and imposing passenger fees that they can keep for themselves, Mann said.

Mann said airport infrastructure — primarily air traffic control — is funded by a 7.5 percent federal excise tax on the base fare. Since 2008, airlines have deliberately kept fares as low as possible to stimulate travel and have imposed fees they collect in full on items such as checked baggage, overweight luggage, seat selection and priority boarding, he said.

The airlines “must realize they are starving the FAA the money to maintain the system,” Mann said.

Mann said the major airlines can offset some of the expense of the Chicago crisis by canceling the flights of their smaller, regional airline partners, for which they have nearly no cost obligations.

Mann likened the immediate effect of the Chicago crisis to this past winter’s four-day blizzard that canceled more than 4,000 flights up and down the East Coast, but he declined to estimate a dollar-figure impact.

A spokeswoman for the airlines’ lobbying group, Airlines for America, countered that commercial airlines and their customers paid $12.7 billion into the trust fund that covers 90 percent of the FAA’s total budget of $15.2 billion.

Mann agreed that the FAA was left off guard. He said if the FAA were a company, and the CEO and chief information officer had no backup or disaster-response plan, the board of directors would likely fire both top officials.

Boyd said, “It is unconscionable that something as important [as the nation’s airline system] has been flummoxed for days because of one person.”

“The FAA should have had a plan to transfer everything somewhere else from that center” in Aurora, Boyd said. “This was one person who sabotaged the system. We need to plan for other crises. Terrorists could shut down the system with multiple attacks at the same time, for example. It shows how bad our air traffic control system really is.”

The air traffic system is slated for an upgrade by 2020, when the FAA wants to start using satellite-based GPS tracking technology to track and monitor planes instead of today’s ground-based tracking and radars. said such upgrades sometimes disappear, depending on funding, politics and other circumstances. He said a microwave-based landing system proposed in the 1970s and 1980s aimed at making airplane landings and takeoffs quieter in noise-sensitive areas came to fruition only in a few mountainous regions of Colorado. The situation prompted airline executives to start asking themselves why they had installed $500,000 receivers for a system that went virtually unused, he said.

“In this entire [Chicago] episode, the heroes are the controllers and other people who could re-accommodate the workload manually,” Mann said, noting that they had to resort to using 1970s-era procedures. “We cannot expect to rely on that kind of approach for the next one.”

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