GAO: Major U.S. Carriers Fall Short Of Cost Reduction Target

Despite a $12.7 billion cut in operating costs since 2001--due primarily to the reduction in labor and commission costs--U.S.-based legacy carriers fell short of the targeted $19.5 billion cost reduction necessary to restore profitability through last year, according to a Government Accountability Office report released this week.

"The decline in business travel, followed by the 2001 attacks caused a significant loss of operating revenue for many airlines," the report said.

The expansion of low-cost airlines since 1998 has exacerbated the condition of the legacy carriers. "Low-cost airlines expanded their presence from 1,594 to 2,304 of the top 5,000 domestic markets and now have a presence in markets that serve about 85 percent of passengers." Although legacy carriers maintained service in those markets, they were met with dwindling capacity, surrendering marketshare to low-cost carriers. The report said low-cost airlines, "which as a group grew 26.1 percent during the last two years," reported modest cost cutting.