Turbulence Continues for Airlines

April 23, 2008— -- Fasten your seatbelts: Airlines are in for a bumpy ride as they try to survive skyrocketing fuel prices.

Already, carriers have raised fares eight times since January to try and keep pace with high fuel prices, according to FareCompare.com. In larger markets where there is more competition, fares have increased by as much as $40 round trip. In smaller cities, the scenario is even worse, with some prices increasing by $80.

Even so, the rise in ticket prices is not nearly enough to keep the airlines profitable. Given fuel costs, Delta CEO Richard Anderson said this week that ticket prices would need to jump as much as 20 percent higher than they are today, just for the airlines to break even.

"If fuel continues to go up, this industry cannot survive in current form," said James May, president of the Air Transport Association. "There will have to be significant consolidation. There may well be carriers that stop operations, as has been the case with some smaller ones to date. We simply can't survive these kinds of prices unless we find a way to raise prices or cut capacity."

No doubt that explains why, in order to save money, carriers are also slashing the number of domestic flights.

"This is the new reality," said David Field, U.S. editor of Airline Business Magazine. "The new reality is crowded airplanes, higher fares, fewer flights and, probably, fewer airlines."

As a result, rising fuel costs will mean dramatic changes in the skies for the 2 million passengers who fly every day.

"What that translates to is a 15 to 20 percent shortfall on every single seat that's sold except for the absolute top of the line, you know, $8,000 round trip," Field said. "You don't have enough of those to pay the way, so airlines are looking at a fundamentally different game."

According to aviation analyst Darryl Jenkins, about 95 percent of the routes currently flown in the United States are not profitable. Some analysts say airlines may have to cut one out of every five flights to stay in business.

The Air Transport Association estimates that jet fuel costs so far this year are up 60 percent over the same time last year.

"I think we are suffering the worse economic shock since 9-11 and, potentially, one that is worse," May said.

Indeed, just this week, United, Delta and Northwest airlines have reported losing massive amounts of money already this year. United reported a $537 million first-quarter loss and announced it would cut 1,100 jobs. Delta and Northwest likewise blamed their $6.4 billion and $4.1 billion losses, respectively, on steep fuel prices

Looking ahead, Field said he is worried.

"I really am skeptical of the long-term future of the U.S. airline industry," he said. "Certainly, airlines like JetBlue, airlines like Southwest, they've got a different cost structure, they've got a different rationale, they've got a different model. They will survive, although they probably won't make much money. But big network airlines, legacy airlines — I call them steam-powered airlines — face the worse crisis they have faced since 9-11, since SARS, since the Gulf War."

"It's going to be a miserable summer, and another thing that's going to make it worse is we're going to have incredible congestion and incredible delays," Field said.