Airlines may face precarious ride in fall, winter
DALLAS – Airlines cut fares to get more passengers on planes and salvage the summer travel season, but now their job gets harder heading into the slower fall and winter months.
The nine largest U.S. carriers lost nearly $600 million in the second quarter of this year. Bigger losses are predicted in the third and fourth quarters, and some analysts have raised the possibility of another round of bankruptcies.
The nation’s airlines have been in a defensive crouch for two years. They’ve cut flights and fired workers – first to absorb rising fuel prices, then to ride out the recession. But revenue is down one-fifth or more from a year ago at the four largest carriers.
Because they’ve cut costs, sold new stock and borrowed money, the airlines have plenty of cash for now. But even in good years, airlines build cash during the busy summer travel period to get through the slower months.
Airlines need enough cash to pay employees, buy fuel and pay other bills, including payments on the money they’ve borrowed. If cash falls too low, they can be pushed into bankruptcy protection, as happened earlier this decade with Delta, United, Northwest and US Airways.
United, US Airways and American are often mentioned as the airlines in the most precarious financial positions. They rely on business travelers who pay hundreds of dollars per ticket to sit in first-class. Many of those people are now grounded or flying in cheaper coach seats. Meanwhile, fuel costs have been rising. The spot price of jet fuel has jumped about 70 percent since March.
More mergers are a possibility. Delta and Northwest combined last year, three years after each went through bankruptcy court. Consolidation or liquidations could reduce competition, at least temporarily, leading to fewer flights on the surviving carriers.
“Who gets hurt in consolidation? The customer,” says Morningstar Inc. analyst Basili Alukos, “because prices go up. If anyone has benefited from the airlines’ misery, it’s been customers, because prices have fallen.”