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Analysts Says Fuel Costs May Sack More Carriers

Legacies Could Follow Smaller Airlines Into Chapter 11

So far, rapidly rising fuel costs have caused several small airlines to shut down or file for bankruptcy protection. The Dallas Morning News reports industry experts say if the high fuel costs continue, bankruptcies will become the rule rather than the exception, and air travelers will awake to a very different 2009.

United, American and Continental Airlines have all trimmed their fleets and schedules starting later this year. Even AirTran, Southwest and JetBlue -- which have been doing well by current industry standards -- have announced plans to scale back capacity from earlier plans.

Finance professor Harlan Platt at Northeastern University in Boston tells the paper he expects oil prices to drop, but isn't sure they'll drop enough to save the airlines.

"If you don't have an oil price of about $75 or $80 a barrel, at the end of 2009, you'll have most of the airline industry on the financial ropes," he said. "They will have run out of cash or virtually run out of cash."

Morgan Stanley analyst Ole Slorer doesn't share Platt's optimism. Slorer predicts unprecedented Asian demand will keep pushing oil prices higher, to $150 a barrel by the US July 4th holiday weekend.

Platt responds, "If that happens and if that price holds... They'll need to file for bankruptcy protection. And by 'they,' I mean most of the airline industry."

What will this mean for ticket prices? Tom Parson of says a family traveling from Dallas to Tampa around Christmas, after the announced capacity reductions take effect, could pay 524 to 977 dollars per passenger on American Airlines.

Parsons says other effects will include continued service on successful routes, but cuts in marginal markets, and some small markets will lose service altogether. Those which keep service will see service catering to business fliers, not to families on tight budgets.

Leisure destinations, where airlines have to cater to price-conscious leisure travelers, will see fewer flights. Parsons says cities such as Las Vegas, with 100-thousand hotel rooms to fill each night, will suffer.

"The travel industry is going to be hurt a lot, not just the airlines," he said.

So, what's a vacationer to do? Wait till after summer. Parsons says demand is likely to fall after Labor Day, with fares to Europe down $300 to $500 from their summer peak. By that time, most of us may even to also be able to afford to drive our cars to the airport.



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