Airlines: The Economy's Ticking Time Bomb?

July 22, 2009— -- While some parts of the economy are showing signs of recovery, the airline industry looks like it is headed for a turbulent ride, ending with at least one major carrier possibly going out of business.

A deathly combination of business travelers staying home, decreased cargo and more flights than there is demand has led the nation's major airlines to spend more money than they are taking in from ticket sales.

Ultimately, consumers will pay the price through higher airfares, more fees and significantly fewer choices.

"The industry is doing worse than we had thought," Ray Neidl, an independent airline analyst, said describing the earnings announcements so far. "With the fuel lower than last year and with the capacity cuts, the thinking was the airlines could return to profitability by spring … That didn't turn out to be the case."

American Airlines reported last week that it lost $390 million in the second quarter, Continental Airlines Tuesday announced a $213 million loss for the same period and Delta, the world's largest carrier, Wednesday morning said it lost $257 million.

Even the good news from the airlines isn't that good. Southwest announced that it had earned $54 million in the April-June period but that was down dramatically from the $321 million earned during the same period last year.

United Airlines parent company UAL earned a profit of $28 million but that was thanks to one-time gains. Last year at this time, the company had a giant loss of $2.74 billion. Analysts consider United's financial position to be the most precarious of all the major carriers.

The only bit of good news came Wednesday from discount carrier AirTran Airways which posted a $78.4 million quarterly profit. Unlike the mainline airlines, AirTran doesn't rely on business travelers but instead focuses on leisure travelers looking for specials to resort destinations.

Thursday by US Airways and Alaska Airlines are expected to report earnings.

"Absent a strong economic recovery this fall -- which isn't going to happen -- the airlines are essentially going to have to cut capacity more," Neidl said. "There is just too much capacity, with too many airlines and too many hubs."