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Bad Fundamentals In The Airline Industry
Vaughn Cordle, CFA / August 12, 2005
Key Points:
United Airlines filed for bankruptcy protection in December 2002, Hawaiian Airlines in
March 2003, ATA Airlines on 27 October 2004, and Aloha Airlines on 30 December 2004.
US Airways was reorganized under bankruptcy protection after 11 September 2001, and
was released from bankruptcy on 31 March 2003, but filed for bankruptcy protection for the
second time on 12 September 2004.
Vaughn Cordle, CFA / August 12, 2005
Key Points:
- Too much capacity (capital) in the industry given the cost of that capital and
revenue that it generates. - Big unions will want their "investment" in concessions back as soon as the
industry makes a profit. - The probability of consolidation increases the longer fuel costs remain high. The
NYMEX forward curve and EIA estimates are suggesting high fuel prices through
2006. - Delta, NWAC, and Independence Air file bankruptcy before Oct 17th.
- Expect lots of domestic capacity reductions by airlines in bankruptcy.
- 51.5 % of the top 12 major airlines' capacity will be in bankruptcy this year
because of high fuel costs and low yields. - Incoherent government policies protect the weak and hurt the strong by
encouraging excess capacity and low fares.
United Airlines filed for bankruptcy protection in December 2002, Hawaiian Airlines in
March 2003, ATA Airlines on 27 October 2004, and Aloha Airlines on 30 December 2004.
US Airways was reorganized under bankruptcy protection after 11 September 2001, and
was released from bankruptcy on 31 March 2003, but filed for bankruptcy protection for the
second time on 12 September 2004.
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