Fate of U.S. airlines gets more dire by the day
The combination of the economy and high energy prices is threatening the U.S. airline industry in a way it has not been threatened since crude traded above $100 and pushed jet fuel prices to exorbitant levels.
Jet fuel fell as oil dropped below $40 in the early part of this year, but its price is up at least 50% since then. The economic slowdown has emptied planes of passengers and most of the large companies in the industry are cutting back routes and employees again. That may not be enough to save firms, including American Airlines (AMR) and United Airlines (UAUA), from large and unsustainable losses.According toThe Wall Street Journal, "The recession, plunging travel demand and a tough lending environment are battering U.S. airlines, raising the prospect of a liquidity squeeze that could lead to bankruptcy filings by winter if conditions don't improve." The trouble leaves airlines with very few choices. The first is to seek Chapter 11 protection to cut debt. That path does not guarantee that the companies going into bankruptcy can get access to capital to tide them over until business conditions improve.
The second option is another round of consolidation with the weak carriers being bought by the strong ones. That has worked to a limited extent in the past, but wringing savings out of merged airlines can take months -- months that the industry may not have.
The last option is, of course, an appeal to the federal government for aid, not unlike the one Detroit made late last year. A deeply troubled airline industry could hurt the nation's transportation capacity and put tens of thousands of industry employees out of work. The Administration does not need that headache as it tries to reverse rising unemployment.
It may be that some of the TARP funds will make it to carriers that cannot survive on their own. The risk of huge lay-offs could force the government's hand.
Douglas A. McIntyre is an editor at 24/7 Wall St.