Which airlines have 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%: Southwest
The industry's discount leader is No. 7 by revenue, but it's No. 1 in profitability.
Financials
Revenue 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%
Strengths
Strongest 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 2012
Weaknesses
Cost 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 sources
Banks 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
AMR
The world's largest airline company, with broad global reach, AMR is the parent of American Airlines and American Eagle.
Financials
Revenue 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%
Strengths
Most 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
Weaknesses
Middle-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 sources
Airplanes: 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
Alaska
The USA's eighth-largest airline by revenue is a long-running success story in the West, where bigger carriers largely have been content to leave it alone.
Financials
Revenue for last 12 months: $3.6 billionDebt: $2.8 billionUnrestricted cash and short-term investments: $990 millionUnrestricted cash as a percentage of revenue for last 12 months: 27.4%
Strengths
Strong cash positionLowest costs among the seven conventional network airlinesStrong market position in the Pacific Northwest and West Coast niche market
Weaknesses
Limited assets that can be used to raise cash
Limited geographic market reach
Potential cash sources
Horizon Air regional airline subsidiary
Continental
The fourth-largest U.S. carrier by revenue, Continental is seeking government approval for a new marketing alliance with United Airlines.
Financials
Revenue from latest 12 months: $15 billion
Debt: $2.8 billion
Unrestricted cash and short-term investments: $3.4 billion
Unrestricted cash as a percentage of revenue for latest 12 months: 23.2%
Strengths
Strong cash position for its size
Houston hub serves booming energy market; Newark hub serves huge New York market and is a major access point to Europe
One of the youngest fleets among the big carriers
Weaknesses
Little equity in planes, limiting ability to raise cash through sale/lease-back deals
Minimal presence in major foreign destinations such as London, Paris, Tokyo
Potential cash sources
Airport gates and facilities, and international route rights could be sold or collateralized for cash
Delta
The USA's third-largest airline by revenue emerged from Chapter 11 bankruptcy reorganization last year and is waiting for government approval to merge with Northwest Airlines.
Financials
Revenue for latest 12 months: $20.2 billion
Debt: $10.9 billion
Unrestricted cash and short-term investments: $3.2 billion
Unrestricted cash as a percentage of revenue for latest 12 months:16.1%
Strengths
Operating costs lowered via Chapter 11 bankruptcy in 2005-2007, though still among the highest
Refocused route network to increase international service and reduce domestic flying
Powerful Atlanta hub is complemented by East Coast shuttle, Salt Lake hub and most U.S.-Europe service of any airline.
Weaknesses
U.S. route system still heavily dependent on smaller markets, where revenue often doesn't cover operating costs
Exposure to lower-fare competition from AirTran in Atlanta
Merger with Northwest would create a short-term cash drain before benefits appear.
Potential cash sources
Airplanes: Substantial value in wide-body fleet for sale/lease-back deals
Other assets: Maintenance division, Comair regional carrier subsidiary and equity stakes in other regional carriers, and SkyMiles frequent-flier program
Northwest
The fifth-largest U.S. airline by revenue, it's counting on a merger with Delta to form the world's largest carrier, topping American.
Financials
Revenue for latest 12 months: $13.2 billion
Debt: $9.9 billion
Unrestricted cash and short-term investments: $3.2 billion
Unrestricted cash as a percentage of revenue for latest 12 months: 24.5%
Strengths
A premier U.S.-Asia route system
No. 2 in unit revenue thanks to international network popular with business travelers and strong hubs in Detroit and Minneapolis-St. Paul that face relatively little competition from low-fare carriers
Large fleet of high-capacity wide-body jets
Weaknesses
Highest unit costs among big airlines despite bankruptcy reorganization in 2005-2007
History of difficult labor-management relations; integration with Delta could be contentious
Long-standing reputation for below-average customer service, despite evidence of recent improvement.
Potential cash sources
International route rights
Equity in wide-body fleet
Regional airline and vacation package subsidiaries
STRUGGLING
-AirTran
The No. 10 U.S. carrier by revenue has the second-lowest operating costs in the industry, but reduced growth and debt are problems.
Financials
Revenue for latest 12 months: $2.5 billion
Debt: $2.8 billion
Unrestricted cash and short-term investments: $485 million
Unrestricted cash as a percentage of revenue for latest 12 months: 19.5%
Strengths
Established low-fare niche carrier in large Atlanta market
Young, fuel-efficient fleet
Largest operator of Boeing 717s, which few carriers fly, giving Boeing a vested interest in keeping AirTran afloat.
Weaknesses
High debt load
Exposed to potential increase in competitive pressure from Delta at Atlanta hub
Slowed growth threatens to push operating costs higher
Limited ability to expand without running into fierce competition from rivals
Potential cash sources
Boeing
JetBlue
A onetime Wall Street darling, the No. 9 carrier by revenue, has turned into an underperforming stock due to losses, reduced growth and operational difficulties.
Financials
Revenue for the latest 12 months: $3.2 billion
Debt: $4 billion
Unrestricted cash and short-term investments: $924 million
Unrestricted cash as a percentage of revenue for the latest 12 months: 29.1%
Strengths
Leading discount carrier in the huge New York City market
Lowest operating costs among the 10 largest U.S. carriers
Weaknesses
High debt, with many delayed orders for new aircraft still on its books
Rising costs as a result of slowed growth, air traffic congestion and delays in the New York market
Small market presence outside New York
Potential cash sources
Delivery positions for popular new Airbus and Embraer jets could be sold; LiveTV subsidiary is already on the auction blockLufthansa could increase its 19% stake
UAL
United Airlines' parent, the USA's second-biggest airline company by revenue, emerged from bankruptcy reorganization in 2006.
Financials
Revenue for latest 12 months: $20.6 billionDebt: $11.1 billionUnrestricted cash and short-term investments: $2.9 billionUnrestricted cash as a percentage of revenue for latest 12 months 14.1%
Strengths
Best global service network, with big hubs in Chicago and Denver and a strong position at London Heathrow; a premier network between U.S. and Asia
Recently extended credit card partnership and banking relationships with Chase Bank to raise $600 million in cash and improve liquidity by nearly $600 million more
Weaknesses
Less cash on hand as of June 30 than Delta, Continental and Northwest, all smaller airlines
Aging fleet
Increasingly contentious labor-management relations; pilots union calling for CEO Glenn Tilton's resignation
Potential cash sources
Airport gates and landing rights, and international route rights, can be sold or used as collateral
Company claims more than $1.billion in unencumbered aircraft and other assets
US Airways
The USA's No. 6 carrier by revenue, it is the most exposed to low-cost carrier competition.
Financials
Revenue for latest 12 months: $11.9 billionDebt: $8.3 billionUnrestricted cash and short-term investments: $2 billionUnrestricted cash as a percentage of revenue for latest 12 months: 17.4%
Strengths
Updated, fuel-efficient fleet
Recent climb from worst to first in on-time performance; also big improvements in other customer-service categories
Strong presence in heavily traveled Eastern USA
Weaknesses
Highly exposed to competition from low-cost carriers, especially Southwest at US Airways' Phoenix and Philadelphia hubsSecond-weakest balance sheet among top 10 U.S. carriersFeuding between employees of the old America West and the old US Airways has delayed some of the benefits of 2005 merger and created tense internal relationsSmall international market presence leaves US Airways more exposed to volatile, less-profitable domestic market
Potential cash sources
Could sell some assets, such as takeoff and landing rights or renegotiate loans
Sources: Calyon Securities, the airlines, USA TODAY research