Savannah, Ga.- High fuel costs and low fares have put some airlines into bankruptcy, and even standout low-cost carriers such as Southwest Airlines aren’t immune.
All airlines are searching for ways to cope, industry executives said Monday. In an effort to stay in business, some are cutting flights, pensions and jobs.
“Our air transportation system isn’t just hurting; it’s bent to the breaking point,” said James May, president of the Air Transport Association of America, an airline industry group.
“It’s getting harder and harder to find any winners among the nation’s airlines,” May said at a conference organized by the Boyd Group, headed by Evergreen-based consultant Mike Boyd. “All of them are hurting.”
Northwest Airlines filed for Chapter 11 bankruptcy last month, on the same day as Delta Air Lines, after finding it was “running out of cash and running out of time,” said Tom Bach, Northwest’s vice president of network planning and revenue management.
Labor costs were taking a toll, Bach said, as were high crude-oil prices and a high “crack spread” – the cost to turn crude into jet fuel. Jet-fuel prices have more than doubled this year, rising from $48.82 a barrel Jan. 3 to $109.06 a barrel Sept. 29.
Also, airfares fell to their lowest rates since 1999, according to the U.S. Department of Transportation’s first-quarter 2005 statistics, its most recent data.
“Fuel is now the equalizer,” said Robert Fornaro, president and chief operating officer of AirTran Airways.
American Airlines is canceling about 1,800 flights, including several from the Dallas/Fort Worth airport to Denver, as it restructures outside of bankruptcy.
“There’s obviously a lot of work to be done,” said Henry Joyner, senior vice president of planning at American.
United Airlines, the largest carrier at Denver International Airport, plans to get out of bankruptcy protection next year after a three-year journey.
Some at the conference sounded optimistic notes.
“If you take fuel costs out, this industry is not a sick industry,” Boyd said.
Southwest has a temporary advantage from fuel hedges that have been boosting profitability.
US Airways, historically a “legacy” network carrier, emerged from bankruptcy newly merged with America West and sporting a new stock-ticker symbol – LCC, for low-cost carrier.
“They’re spitting out the other end of the grinder with low costs, and we have to be prepared to address that,” said Bob Montgomery, Southwest’s vice president of properties. “Here soon, everybody is going to be a low-cost carrier.”
Competition in the airline industry is fierce and at times seemingly futile.
Fornaro of AirTran said other airlines’ market-share grabs are a factor driving losses.
“Ultimately, the standard can’t be how you do compared to other airlines. You’ve got to compare yourself with businesses that are making real money,” Fornaro said.
Many also pushed for a remedy for higher fares. One factor hurting the airline industry is a decline in spending on air travel as a percentage of gross domestic product.
“Airlines have not been able to raise prices or, if they do, to maintain them for any period of time,” May said.
Low airfares mean other businesses such as hotels and restaurants are getting a higher share of consumers’ travel spending, Fornaro said.
“We are subsidizing everybody else,” Fornaro said.
Although airlines have made about 14 fare increases this year, financial struggles remain, said Northwest’s Bach.
Staff writer Kelly Yamanouchi can be reached at kyamanouchi @denverpost.com or 303-820- 1488.
