Which airlines have the most financial staying power?
— -- The recent plunge in oil prices has brought airlines some relief, but they're still facing serious financial pressure from near-record jet-fuel prices and a weak economy. A new surge in oil prices would worsen their losses and force them to spend their cash faster or sell assets to raise money to stay in operation.
USA TODAY airline reporter Dan Reed produced this analysis of the 10 largest U.S. airlines' financial conditions as of June 30, drawing on interviews with industry analysts and the airlines' financial reports. Revenue is for the 12-month period ended June 30, 2008. Debt figures, also as of June 30, are adjusted to include off-balance-sheet leases on aircraft.
Gauging an airline's survival
Unrestricted cash and short-term investments as a percentage of an airline's revenue from the preceding 12 months is a common tool used by financial analysts. They use it to evaluate a carrier's liquidity and to determine how close an airline is to running out of cash. Calyon Securities analyst Ray Neidl considers a ratio of 10% or less to be the danger zone and ratios in the low and mid-teens worrisome. Neidl provided the ratios illustrated below, based on financial data as of June 30.
•STRONGEST
28. 5%: SouthwestThe industry's discount leader is No. 7 by revenue, but it's No. 1 in profitability.FinancialsRevenue for latest 12 months: $10.5 billionDebt: $3.2 billionUnrestricted cash and short-term investments: $3 billionUnrestricted cash as a percentage of revenue for latest 12 months: 28.5%StrengthsStrongest balance sheet in the industry, with lots of cash and ready access to capital marketsSterling brand image; highly rated for customer service despite its no-frills approachBest hedged against high fuel prices through 2012WeaknessesCost pressures rising as growth slowsHigh fuel prices are pushing fares higher, threatening to send price-sensitive travelers — Southwest's core customers — to their cars.Potential cash sourcesBanks and others will gladly lend to only U.S. carrier with an "A" credit ratingEquity in its fleet of 540 Boeing 737s that could be posted as collateral on loans.
•LIKELY SURVIVORS
21.6%: AMRThe world's largest airline company, with broad global reach, AMR is the parent of American Airlines and American Eagle.FinancialsRevenue for latest 12 months: $23.5 billionDebt: $14.8 billionUnrestricted cash and short-term investments: $5.1 billionUnrestricted cash as a percentage of revenue for latest 12 months: 21.6%StrengthsMost cash in the industryIn U.S., strong hubs at Dallas/Fort Worth, Chicago and Miami, strong positions in New York and Los Angeles markets; leading carrier between U.S. and Latin America, one of largest between U.S. and London's Heathrow Airport WeaknessesMiddle-of-the-pack costs would be much lower but for high labor and fuel costsPoor and deteriorating labor relations, especially with pilotsMostly old, fuel-inefficient fleet of 960 mainline and regional planes inflates costs; will take years to replace.Potential cash sourcesAirplanes: Many could be sold and leased back to raise cashOther assets: World's biggest aircraft maintenance operation; American Eagle regional airline; the AAdvantage frequent-flier program
