Airlines see fuel prices as dire threat
DALLAS » Higher fares and new fees are irritating air travelers, but airlines still cannot raise money or cut flights quickly enough to cover ever-higher fuel prices.
In the view of airline executives and analysts, the industry is facing its toughest challenge yet, with little prospect that carriers can return to profits any time soon.
Even though most of the big airline companies have large cash stockpiles, analysts suggest they could burn through their cash and go bankrupt by early next year.
"This is worse than 9/11," said Ray Neidl, an analyst with Calyon Securities. After the 2001 terror attacks, "at least you knew passengers were coming back. Oil at $130 is unsolvable."
Just a few weeks ago, mergers were the talk of the airline industry. Delta Air Lines Inc. announced it would buy Northwest Airlines Corp., and executives of other carriers met to discuss other deals that analysts said would lead to bigger but more efficient airlines that could survive in a world of high-priced oil.
The price of oil has nearly doubled in the past year, and jumped 13 percent in just the last month, scrapping all those merger calculations and making airlines worry more about hoarding cash.
So airlines are raising fares — nearly a dozen times already this year — and mining other fees, anything to bring in money. American will break new ground next month by charging $15 for the first bag.
American also announced Wednesday it would cut 11 percent to 12 percent of its U.S. flights later this year. Both United and Delta have already announced plans to cut capacity about as much as American, which would reduce their fuel burn and leave travelers fighting for seats on fewer planes.
"Less capacity will inevitably mean higher fares," said Southwest Airlines Co. Chief Executive Gary Kelly. Southwest has also raised fares but, unlike other U.S. carriers, is still growing, though at a much slower pace than a year ago.
Analysts said American's announcement was only a first step toward further cutbacks. Neidl estimated that the major carriers have made only about half the capacity reductions they need to push fares high enough so the airlines can break even.
Others worry that fares could rise so sharply that they will change the nature of air travel.
Herb Kelleher, the iconic co-founder of Southwest Airlines who stepped down as chairman Wednesday, said flying could become something that only business travelers or the affluent can afford, much as it was in the 1950s and '60s.
"You may see a lot less air service across the United States, and that's really a shame," Kelleher said. "We are heading back in that direction."