The Wheels Come Off In The Airline Industry (DAL)(UAUA)

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Forget about mergers. The US airline industry just has to stay afloat. Rising fuel costs and a recession that will keep people off airplanes like a SARS epidemic have hit the industry mercilessly in the last two months.

Delta (DAL) has already offered buy-outs to 30,000 of its workers. According to The Wall Street Journal the head of United (UAUA) told employees "This industry has serious challenges ahead. Continued uncertainty about the overall U.S. economy, with the price of fuel at historically high levels, has put significant pressure on all U.S. carriers." He is a master of understatement.

One analysts from JP Morgan expects US airline losses to be between $4 billion and $9 billion this year. With weak balance sheets, some carriers are not in any position to absorb the drop in cash flow which that will cause.

If demand for tickets falls to where it was in 2001, the year of the last big industry slowdown, the bankruptcy courts will have to put on an extra shift. That grim period caused four carriers to file for Chapter 11. There is not reason to believe that it cannot happen again.

Douglas A. McIntyre