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Airlines awash in red ink

Hit by rising fuel costs, major carriers may have to shrink services further, say analysts.

SOURCE: Air Transport Association/AP

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To declare or not to declare bankruptcy.

That's the dilemma that may soon face some of the nation's major airlines, which are again losing millions of dollars. This time, much of their cash is draining directly into their fuel tanks because of record high oil prices.

To cope, the carriers have implemented an array of cost-saving and revenue-raising measures from parking older gas-guzzling planes and cutting routes to hiking ticket prices and charging extra for checked luggage. On Wednesday, American Airlines became the first network carrier to announce it will start charging $15 for the first piece of checked baggage, unless you have a level of elite status in their frequent-flier program. If there's not a passenger revolt, analysts say you can expect other carriers to follow suit.

But with the price of oil predicted to go as high as $140 a barrel this year, some airline analysts contend they'll have to do much more to avoid another round of bankruptcies. Top on many analysts' list is cutting the number of flights even more – by as much as twenty percent. That's the equivalent of two good-sized airlines.

That can be done in several ways. One is voluntary: cutting back schedules. American Airlines announced Wednesday that it was cutting the number of scheduled flights by as much as 12 percent.

Another way to trim capacity is not: A handful of smaller carriers have already declared bankruptcy this year and some have even liquidated.
While many analysts believe the major carriers will make it through this year without asking a court for bankruptcy protection, others aren't so sanguine.
"These fuel costs are just killing them," says Richard Gritta, an aviation economist at the University of Portland. "The only solution I see is some carriers going out of existence and some merging, and the Justice Department probably tolerating it because there isn't a viable alternative."


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