Can Airlines Be Too Safe?

The good news for the commercial airline sector: 2010 was the safest year in history for Western-built jet aircraft.  The bad news: federal regulators believe the industry can further reduce accident risks if new rules to reduce pilot fatigue take effect as planned later this year.  Just don't expect much cheering from the airline industry — trimming pilots' work schedules could radically increase operating costs. Last week, the International Air Transport Association said the 2010 accident rate of Western-built jet aircraft (measured in hull losses per million flights) was 0.61 — one accident for every 1.6 million flights.  Not only were those numbers the lowest in aviation history, but the rate in North America was even lower  — just 0.10. But those statistics aren't likely to cause the Federal Aviation Administration to rethink plans to boost safety further. The agency's new rules governing pilot work time, which Congress told the agency to finalize by Aug. 1, aim to ensure that pilot fatigue doesn't impair performance. To curb daily and cumulative fatigue, the regulations would reduce pilots' flight and other duty time to a maximum of 13 hours, compared to the current 16 hours. The issue of pilot fatigue moved to the forefront in the aftermath of the February 2009 crash of Continental Connection Flight 3407 (a code-share flight operated by Colgan Air) near Buffalo, N.Y.  Investigators concluded that pilot fatigue contributed to that crash, which killed all 49 passengers and crew onboard and one person on the ground. Obviously, safety is a critical issue for all stakeholders – airlines, aircraft manufacturers, lawmakers and the traveling public.  But safety enhancements come at a price – and for an industry that already is struggling with shrinking margins due to more expensive fuel, costly new requirements are not exactly welcome.  How big of a hit could airlines take on the bottom line?  It depends on whom you ask.  The FAA says its rules would cost U.S. airlines $1.25 billion over the next decade.  But the Air Transport Assocation, the trade group that represents U.S. airlines, says the agency has seriously low-balled its cost estimates – by a factor of 15. "We are very concerned that the proposed rule reflects a lack of understanding by FAA of how airlines operate," ATA President and CEO James C. May said when the rules were first proposed last November. "Our concerns are validated by the fact that FAA's economic analysis is off the mark by at least a factor of 15 in its impact assessment, making it imperative that this proposal be significantly revised." Predictably, there have been howls of protest from airlines . AMR Corp.'s (NYSE:AMR) American Airlines said the new rules would force it to hire more than 2,300 additional pilots, boosting its operating costs by more than $500 million a year.  Southwest Airlines (NYSE:LUV) believes reducing its pilots' productivity would hamper its ability to compete.  If those numbers are anywhere near right and the FAA makes no changes to the proposal, the earnings of all U.S. carriers – including United Continental (NYSE: UAL), Delta (NYSE: DAL) and U.S. Airways (NYSE: LLC) – could take yet another big hit. As of this writing, Susan J. Aluise did not hold a position in any of the stocks named here.  
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