Airlines hoping to find favor with Republican-led Congress
11/17/2002
URL:http://www.dallasnews.com/sharedcontent/dallas/business/stories/111702dnbusaircong.3d905.html
By ERIC TORBENSON / The Dallas Morning News
Count airline executives among the cheerleaders for the Nov. 5 Republican sweep of Congress, an outcome that the industry sees as a rare chance to push its legislative agenda.
The result "gives us some hope that some of the logjams can be broken" when the new session begins Jan. 3, said AMR Corp. chief executive Donald Carty, who has made lobbying Congress a top priority for American Airlines.
The alternative to the Republican sweep was far more disturbing for airlines, said Ron Ricks, government affairs vice president for Dallas-based Southwest Airlines Co. Had the Democrats kept power in the Senate and won the House of Representatives, Mr. Ricks said, airline re-regulation would have come up for debate, an outcome no carrier wants.
"I think there are a lot of members of Congress who would like to see deregulation fail," Mr. Ricks said.
That's not considered a problem with a GOP-run legislative branch, and the nation's carriers are crafting an airline-friendly agenda for the 108th Congress. Airline executives want Congress to:
• Dramatically change how carriers negotiate with unions by introducing binding arbitration in place of federal mediation, which can end in strikes.
• Allow airlines to buy war risk insurance from the government cheaper than in the private market. The airlines are paying hundreds of millions of dollars more to insure themselves against terrorism since the attacks of Sept. 11, 2001.
• Lower taxes that airlines pay directly to the federal government and the fees they must pass along to passengers in ticket fees.
There are early indications that Congress will be receptive to the requests.
"We'd have to look at what we can do to help them with their critical financial situation and just be aware it could turn further south if there is an act of international conflict," U.S. Rep. John Mica, a Florida Republican who is chairman of the House Aviation Subcommittee, told the Washington Post in September.
Much attention will fall on a bill sponsored by Republican Sens. John McCain of Arizona and Trent Lott of Mississippi that would create a new way for airline unions and management to settle contracts.
The Railway Labor Act governs those talks, outlining the formal and often arduous process that can stretch negotiations over several years. Unions can't strike until the National Mediation Board deems that further talks won't help, a stage the board rarely reaches.
Unions are already upset that President Bush has effectively stripped their right to strike – the strongest bargaining tool they possess – by invoking seldom-used Presidential Emergency Boards in labor disputes. The three-member boards evaluate contract offers from both sides and issue a nonbinding recommendation.
Congress can take those recommendations and force a settlement. Mr. Bush used one of the boards to stop a potential mechanics strike at Northwest Airlines in 2001.
'Final offer' system
The McCain-Lott bill would go further than just stopping airline strikes. It would introduce a "final offer arbitration" system – sometimes called "baseball-style" arbitration – to settle contracts.
Each side would present its last contract offer to a panel. As with arbitration over baseball players' salaries, one side's proposal would win, and there would be no splitting the differences.
"It would effectively gut the Railway Labor Act," said George Hopkins, a history professor at Western Illinois University who specializes in labor law and pilots unions. "If the Republicans put it up for a vote, they're going to go ahead and do it. They won't pass up a chance to stick it to labor."
The unions are gearing up to battle McCain-Lott, which is "a dirty word to pilots," Mr. Hopkins said.
The Association of Professional Flight Attendants at Fort Worth-based American Airlines will "be fighting it tooth and nail," spokesman George Price said.
Airlines are eager to gain the upper hand with labor, which accounts for 38 percent of their costs.
The industry's other legislative issues also affect their bottom lines.
Rising insurance costs
One is war risk insurance, where Southwest Airlines has led a charge to lower the cost of insurance against further terrorist attacks. After Sept. 11, 2001, insurance companies dramatically increased the cost of such coverage or stopped selling it outright.
For Dallas-based Southwest – which before 9-11 wasn't considered a high risk for terrorist attacks because it flies only in the continental United States – premiums have risen 13,875 percent, Mr. Ricks said. Southwest expects to spend $100 million more this year than in 2001 for war risk insurance.
Airlines want to be able to buy terrorism insurance from the federal government, a benefit that other industries such as shipping enjoy. Despite the election results, Southwest doesn't expect any changes early next year in insurance costs, Mr. Ricks said.
The industry may see relief as soon as this week. The lame-duck Congress is considering legislation that would extend government subsidies that help the carriers pay for insurance. The measure is part of President Bush's homeland security bill.
Another cost issue for airlines is how much they'll have to pay for federalized airport security provided through the Transportation Security Administration, or TSA.
Carriers help support the new agency by paying the TSA a sliding annual fee based on the airline's size. Passengers also pick up part of the tab with a $2.50 surcharge on each leg of their flight. But if those fees don't cover the TSA's costs next year, airlines will be assessed for the difference.
The airlines say the flight-leg surcharge hurts their ability to raise fares in some markets. Even an extra $5 on a simple round-trip flight will steer some passengers away, they say.
And airlines are reluctant to increase fares to make up for the surcharge. Average airfares are 11 percent lower today than a year ago, and full-service carriers such as American are facing more competition than ever from low-fare competitors. American says it faces low-fare competition on three-quarters of its routes.
"We simply cannot shoulder a disproportionate share of our nation's war on terrorism," said Michael Wascom, a spokesman for the Air Transport Association, the airline industry's lobby group.
The federal air marshal program has also become a cost issue. The airlines are required to fly the undercover officers free in first class.
Continental Airlines, for one, has complained that it's losing millions by giving away its most profitable seats to the marshals. At the same time, there are fewer open seats as airlines have cut their schedules, making their planes fuller. The average load factor for major carriers was nearly 7 percentage points higher last month compared with October 2001.
Airlines also want relief from the taxes they pay on fuel and the fees they're forced to pass onto customers in the ticket price, such as the 7.5 percent excise tax.
Travelers are dinged for up to nine fees per ticket, and those charges add up to more than $12 billion annually for the federal coffers, according to the Air Transport Association.
As airfares have dropped, the percentage of the ticket value eaten up by taxes has risen. On a $200 round-trip ticket that connects through a hub, taxes make up 25.6 percent of the fare.
Will it help?
The airline industry's legislative agenda for the new Congress isn't much different than in previous sessions, but it should fare better, said Mr. Hopkins, the history professor. And it might be particularly difficult to provide the airlines with tax relief, given the growing federal deficit.
"I don't think there's any question that the Republicans will help their cause," he said.
Not everyone agrees, however, that a pro-business Republican Congress will lend a hand to an industry that's on course to lose more than $7 billion this year.
"I don't know if the election will help airlines at all," said Darryl Jenkins, head of the Aviation Institute at George Washington University. "Congress has never been a friend to airlines, and Republicans and Democrats have been equal opportunity offenders."
The airlines, however, have been leaning Republican over the last decade.
In the 1990 elections, airline industry donations to candidates were split almost evenly between the two parties – 49 percent to Democrats and 51 percent to Republicans, according to the Center for Responsive Politics. This year, 60 percent of industry money went to GOP candidates, the center said.
For its part, Congress has long used air carriers as political piñatas, grilling airline executives during hearings over customer service and occasionally threatening some form of re-regulation.
Mr. Ricks was blunt when asked by analysts on Election Day about Congress' attitude toward the industry. "Generally," he said, "it sucks."
The wild card this session is Iraq. War could cause a spike in oil prices, putting extra pressure on airline finances.
The conflict, however, could put pressure on Congress to ease the airlines' tax and regulatory burden, industry experts say.
"I don't think that even the nuclear power industry is subject to the type of intense regulation that we are," Mr. Ricks said. "Something has to be done in Washington before we can regain our footing as an industry." |
