Flying Low

By ADAM COHEN

Just when Americans were starting to calm down about air travel, Subash Gurung decided to fly from Chicago to Omaha, Neb. The jobless Nepalese man, here on an expired visa, got through security at O'Hare airport last week with five knives, a stun gun and a container marked TEAR GAS/PEPPER SPRAY. After a search at the gate uncovered the weapons, Gurung was arrested but soon released on bond. He was taken into custody only when he returned to O'Hare to pick up another bag, filled with more knives. And in the story's grim punch line, two of the seized knives were later stolen from an open box at the checkpoint, and two security workers were fired in connection with their disappearance. Sit back, relax, and enjoy the flight.

Even before Sept. 11, the airline industry was in trouble. The weak economy was cutting sharply into business travel, whose high-margin tickets account for nearly 80% of industry profits. Costs were skyrocketing, pushed by labor contracts negotiated in flush times. And now travelers, worried about security and wary of delays and hassles at airports, are looking for any excuse not to fly. Upshot: airlines have cut flights 20% from pre-Sept. 11 levels, yet planes still flying are at just 65% of capacity, compared with an estimated 73% before the terror attacks.

Throughout the airline industry these days, red ink is pouring the way champagne once did in first class. United is leading the way down, losing $15 million a day and warning last month it would "perish" without a cash infusion. Even with the government's $15 billion post-Sept. 11 bailout, industry watchers are predicting a shakeout that could ground some big carriers permanently. "It's a horrible picture," says ABN AMRO airline analyst Ray Neidl. "And the fourth quarter will be uglier than the third."

When things go bad at this time of year, they go very bad. Airlines depend on the holidays, slogging through cheerless Octobers, waiting for the full planes, and often full fares, of Thanksgiving and Christmas. But this season, Americans are more reluctant to fly than at any time in recent memory. Would-be flyers are worried not only about security, delays and possible strandings; some also wonder whether the airline they've paid for a Christmas ticket will be in business when it comes time to depart. Here are some of the questions travelers are asking:

HAVE NEW SECURITY MEASURES MADE IT SAFER TO FLY?

As we're constantly reminded, statistically, the drive to the airport is more dangerous than the flight, even when the hijackings of Sept. 11 are factored into the odds. Travel professionals say they have clients who don't want to fly, but even more who are worried about being stranded far from home if the air-traffic system shuts down for days, as it did after Sept. 11. And others don't want to endure long lines at check-in and security.

To be sure, security has improved. Last week the airlines finished installing bars on cockpit doors to keep passengers from assaulting the pilots, as the hijackers did. And President Bush announced last week a 25% increase in National Guard troops, to a total of 9,000, who will be stationed at the country's 420 airports.

But at some of the most critical points in the system, surprisingly little has changed. The flying public is particularly eager to for an upgrade in airport security workers, the folks still failing to spot knives and guns in carry-on bags. "Millions of Americans fly, and we protect them with minimum-wage rent-a-cops," says Association of Flight Attendants spokesman Jeff Zack, who argues that airport security workers should be federal employees. Congress continues to bicker over whether such workers should be government workers or instead be employed as private contractors subject to strict federal supervision. The Senate unanimously called for federalizing the security workers. But the House is balking, with majority leader Dick Armey injecting a nakedly political objection: that federal workers probably would become union members and vote for Democrats.

Congressional squabbles have also slowed progress on another key issue: international-flight manifests. Most airlines transmit passenger lists to U.S. Customs as flights take off, so they can be checked against databases at 24 federal agencies, including the FBI and the INS, and compared with terrorist watch lists. But Saudi Air--where most of the Sept. 11 hijackers came from--has resisted. Attempts to require manifests as a condition of landing in the U.S. have stalled on procedural grounds. Congressional backers say they will keep trying.

Bag checks have also been hotly debated. The rule on most international flights is that every bag is checked for bombs. On U.S. domestic flights, carry-on is X-rayed, but checked luggage generally is not. The industry has resisted mandatory checks, arguing that there is a shortage of machines, the checks are too slow, and they register too many false positives. The FAA planned to phase in a check-all-bags requirement starting in 2009, but after the Sept. 11 attacks, it said it might move that up to 2004.

In the meantime, the agency is about to impose a new requirement that airlines do so-called positive bag matches, which are already common overseas. That means airlines will have to match every bag on a flight with a passenger, to ensure that no one can place a bag with a bomb on a plane and then fail to board it. The FAA move will be over the objection of U.S. airlines, which have argued that such bag matching is impractical in a system that handles 1.4 billion bags a year, and of dubious value in an age of suicide bombers.

The AAA says travelers are driving short trips they might have flown in the past. Demand for charter planes is up as much as 27% since Sept. 11. And Southern Californians have been slipping over the border to Tijuana, of all places, in search of airline safety. That city's Rodriguez International Airport, which has added more armed guards in its terminals and randomly checks luggage of 1 of every 5 passengers, reports that traffic is up 19% since Sept. 11, with nervous Americans making up much of the increase.

HOW BIG A HASSLE AM I GOING TO FACE AT THE AIRPORT?

Inconvenience and delays on the ground are a near certainty. At some airports, even with the volume of travelers down, long lines at security checkpoints and ticket counters can easily mean spending three hours between getting out at the curb and getting on a plane. The airlines are trying to speed things up. Northwest announced last week that it had streamlined boarding procedures, and it is now advising travelers to arrive 90 minutes before their flights, rather than the two hours it had been recommending.

As a longer-term solution, the travel industry last week proposed creating a national travel ID. The ID, based on "smart card" technology, would allow anyone who voluntarily submitted to an advance background check to move through security more quickly, while agents spent more time on passengers who had not been prescreened. But late last week the White House shot down the idea, with little explanation.

Another common complaint: as airlines jigger their reduced schedules, passengers are being moved to flights hours earlier or later than the one they booked. The airlines have some discretion, but it's not unlimited. After Sept. 11, the Department of Transportation sent around an advisory telling carriers to offer refunds in cases of "significant change in scheduled departure or arrival time."

WILL ANYTHING BE DIFFERENT ONCE WE GET IN THE AIR?

You probably won't notice that your plane is no longer passing within 11.5 miles of a nuclear reactor. But other changes will make flying a lot more like bus travel. Some airlines, like American and United, have cut costs by yanking in-flight magazines and meals. But not all are doing so. "That's taking the cheese off the pizza," says Continental CEO Gordon Bethune. "Glad they're doing it, but we're not going to."

ARE THERE STILL CHEAP FARES AVAILABLE FOR THE HOLIDAYS?

The stretch between Thanksgiving and Christmas is one of the most traveled times of year, and the airlines naturally are emphasizing the attractions of turkey and tearful embraces. But they have also been hauling out a grab bag of inducements, from double frequent-flyer miles to rock-bottom vacation packages. Just after Sept. 11, there were remarkable fares to be had, notably Southwest's money-losing one-way tickets to virtually anywhere in its 58-city network for $34 to $89. "We violated every rule of yield management to get people back," Southwest CEO James Parker told TIME last week.

The price cuts are not as steep now, but there are still plenty of bargains. Late last month US Airways announced round-trip fares as low as $183 from its Charlotte hub to New York City. United, American and Continental have all slashed business fares from 25% to 50% since Sept. 11.

WILL MY AIRLINE BE AROUND WHEN IT'S TIME TO FLY?

That depends on the airline--and how far in advance you've booked. Southwest is now second only to Delta in domestic passengers and, with a $13 billion market cap, is worth more than all the other major airlines combined. In the long run, industry analysts say, every airline will need to mimic no-frills flyers like Southwest and JetBlue to remain competitive.

For now, the industry is being helped by the $15 billion government bailout. But most of the $5 billion in grants has been spent, with little to show for it but a postponed day of reckoning. There's an additional $10 billion available in loans, but at the rate most airlines are losing money, that cash will probably go fast.

That may not be such a bad thing. "Government aid inherently works contrary to the natural Darwinian process of the marketplace," says UBS Warburg analyst Samuel Buttrick. Bankruptcy, he argues, can make it easier for failing industries to get out of untenable labor contracts--airlines' labor costs have soared 79% in the past decade--and unfavorable contracts with suppliers. And inefficient airlines need to shed customers so that efficient ones can thrive.

It's unlikely anyone will be stuck with a ticket on a defunct airline, as some Pan-Am and Midway flyers were. And paying by credit card can diminish the risk further. But think twice before buying stock in the airline you're flying on.

The airlines are staying alive, in part because most top companies have billions in cash or assets to draw on. But the current formula of reduced schedules, high costs, low-priced tickets and government aid isn't a long-run strategy. "We're all throwing cheap fares at people so they'll take the hook and find out flying is just as safe as ever," says Bethune. "Yields will return when the economy returns." And when travelers going through their checklist of concerns decide they're ready to fly. When they do, particularly if it happens during this critical holiday season, the industry will truly have something to be thankful for.

--Reported by Sally B. Donnelly/Washington, David Thigpen/Chicago, Cathy Booth Thomas/Dallas and Jill Underwood/San Diego

With reporting by Sally B. Donnelly/Washington, David Thigpen/Chicago, Cathy Booth Thomas/Dallas and Jill Underwood/San Diego