Skybus became the latest US airline to close its doors. Over the last week Aloha Airlines and ATA have also shut down. Northwest (NYSE: NWA) announced that it would raise passenger fares in the hope of offsetting rising fuel costs. The move is not likely to work because consumers and businesses will be slowing travel to help deal with the faltering economy. Higher ticket prices will not help that situation.
According to The Wall Street Journal "Skybus said it regretted the decision. "Skybus struggled to overcome the combination of rising jet-fuel costs and a slowing economic environment," the company said in a statement. "These two issues proved insurmountable for a new carrier."
Part of the reason behind the recent merger talks which have included Northwest and Delta (NYSE: DAL), and at one point may have included United (NASDAQ: UAUA), is to cut costs. It is not clear that such combinations actually improve the high expenses of fuel and labor. Some overlapping routes can be eliminated Airline mergers always do cause customer service problems as two large airlines try to put together incompatible reservations systems and IT operations. Frustrated fliers often move to other carriers.
Of the large airlines, AMR (NYSE: AMR), parent of American, may be in the worst shape. It carries a high debt load and cannot afford to see its operating income fall.
Skybus is not the last airline Chapter 11 that investors will see this year.
Douglas A. McIntyre