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Archive for Sunday, August 30, 2009

Airlines may have a bumpy ride through fall and winter

August 30, 2009

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— 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, which ends around Labor Day, 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 grounded or flying in cheaper coach seats because of the recession. Meanwhile fuel costs, although lower than last year’s record levels, have been rising. The spot price of jet fuel has jumped about 70 percent since March.

One leading analyst, JPMorgan’s Jamie Baker, estimates that by the fourth quarter, American Airlines parent AMR Corp. will burn more than $11 million a day, while United Airlines’ parent UAL Corp. will be going through $7 million a day.

In most airline bankruptcies, the carriers have kept flying and passengers hardly noticed any difference.

More mergers are also a possibility. Delta and Northwest combined last year, three years after each went through bankruptcy court. The current US Airways is the product of a combination with America West. United and Continental talked but didn’t reach a deal.

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.

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