It’s no secret that the airline industry has seen better days. But how bad is it this time?
Not as bad as the mainstream media would like us to believe, according to airline analyst Robert Herbst, who publishes the Web site Airlinefinancials.com. And not so good that we shouldn’t be cautious with future bookings, he adds.
In the above chart, you’ll see a few first-quarter numbers for the major airlines as they compare to pre-bankruptcy. None of the airlines are in serious danger of coming close to the dreaded red bar.
Here are first-quarter debt ratios compared to total operating revenue and assets, as a comparison to recent bankruptcies.
Herbert says the problem is simple. Fares are too low.
To me, after reviewing airline industry financials, it is obvious air fares are simply too low to support the on-going fixed and variable costs of one of this country’s most important business sectors. Safety, schedule reliability and customer service comes at a price. These should not be compromised for cheap fares.
How depressed are airfares?
Accepting there is an airline-to-airline variance, as little as a 5% (average) increase in fares would make a significant improvement to every airlines capital structure.
A ~10% increase would help the industry replace an aged and fuel inefficient fleet. This needed fleet replacement will be a challenge due to the weak financial condition of most airlines.
So what does this mean to you?
Based on my analysis, US Airways and United look to have the greatest challenges over the next year.
I would always suggest buying airline tickets using a credit card which provides a refund should that airline cease operations.
So to summarize: The situation is serious, but the industry isn’t exactly circling the drain. A small raise in fares would be enough to save even the weakest carriers.
And if not? Then expect US Airways and United to fly into Chapter 11 in the near future.
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{ 8 comments… read them below or add one }
VISA/MC/AMEX no more. United wants cash/check ONLY for tickets purchased through ARC (Airline Reporting Corp). Agent or website that processes charge cards pay fee to THEIR OWN processor, assuming all liability. Perhaps UA’s CC processor is nervous and wants to hold back more reserves?
FAIL! http://tr.im/qYrj
As much as I don’t like or fly US, I would not like to experience the impact of its failure on my home airport. According to DOT statistics early 66% of flights operating out of CLT are mainline US, and another 15% are US Express.
Oil prices are back on the rise after a record $33 low six months ago. See http://www.nytimes.com/2009/07/06/business/06oil.html. As the major expense after payroll, this does not bode well for an industry already weakened by low demand and excess capacity.
Would not be good for CLT if US doesn’t make it.
And people complain fares are so-called too high or too expensive. Sheesh.
Need a legend explaining those airline abbreviations. Which one is US Airways? The source link has tons more links to lots and lots of data; checking a few of my best guesses didn’t bring up these charts..
Kathy J
DAL = Delta
AMR = American
UAL = United
CAL = Continental
LCC = USAir
JBLU = Jet Blue
ALK = Alaska
AAI = Air Tran
The airline abbrevations used on the graph seem to be their stock quote designation. LCC is US Air, CAL is Continental, ALK is Alaska and AAI is AirTran etc.
No travel agent in his/her right mind would want to get involved in a merchant agreement in order to handle UA tickets. Never, ever pay cash to an airline for tickets…when they go under, you lose everything. This shows the c/c processors are very, very leery of UA and don’t want anything to do with them. If you MUST take UA, book on their website, and use a c/c. I don’t know why they just don’t do as the European LCCs do, even Allegiant here, and have a small “processing” fee attached to the file as partial absorption of the c/c merchant fees…but if you think I am going to pay 3 or 4% more because they take my c/c, forget it. That’s a cost of doing business, and if they haven’t priced their business appropriately, then they should do us all a favor and shut down, letting a more customer-friendly competitor take over. That’s what capitalism and competition is all about. United is a dinosaur whose time has come and gone, and need not be prolonged in its agony for much longer.