U.S. airlines are choking to death.
The industry will have losses of more than $4 billion for 2004, bringing total losses since the Sept. 11, 2001, terrorist attacks to a staggering $25 billion. High oil prices are only partially to blame.
Eleven of the 12 majors have junk-bond corporate ratings. The airlines have amassed more debt than some Third World countries: $100 billion. They can't pay it all back. Attempting to stay airborne, carriers have whacked $13 billion in costs by slashing pay, benefits, firing employees, dumping planes and cutting routes. All without much luck.
UAL, US Airways Group and ATA Holdings are in bankruptcy. Delta Air Lines sits on the edge of Chapter 11. Continental Airlines, American Airlines parent AMR and Northwest Airlines are scrambling. If fuel stays at $50 per barrel, it won't be long before their cash runs low and they must restructure, or worse — stop flying.
What's the big problem? Too many planes chasing too few passengers.
Since 2001, the industry has lost $15 billion in revenue. Industry revenue stands at $91 billion per year. Competition for revenue is fiercer than ever. Low-cost carriers like Southwest Airlines, JetBlue Airways and AirTran Holdings rule. They make up 30 percent of the market, up from 9 percent in 1991.
Vaughn Cordle, a United Airlines pilot who runs Airline Forecasts, an economic forecasting service, says the biggest problem is that revenue per seat mile, or yield, is falling. Yields have dropped 17 percent to 18 percent in the past few years. In 2000, they stood at 13 cents per revenue passenger mile. Now they are at a weighted average of 11.25 cents.
Cordle recently talked to Forbes and came up with ten reasons why the airline situation will grow worse before it gets better.