As the airlines’ second-quarter (April through June) financial reports trickle out, there is one question on everyone’s mind: How much longer can this possibly go on? Delta posted a quarterly loss of $1 billion. That’s right, billion. AMR Corp, the parent company of American, saw a $1.4 billion net loss. Continental only lost $3 million.
With airlines practically hemorrhaging money and fuel prices still at extremely high levels (despite a glimmer of relief over the past few days), losses like this may very well continue, as hard as that is to imagine.
Now, you may be asking yourself, “How are billion-dollar losses possible given all the fare increases (15 so far) and new fees we’ve seen this year?” Quite honestly, the answer is that it simply hasn’t been enough. Which likely means we’ll see more of each as the year goes on, even as all the planned capacity cuts (from American, Continental, and several others) take effect later this year. The catch, of course, is that more and more people are keeping their feet on the ground and either vacationing close to home or within driving distance. If fees and fares continue to pile up, it’s likely that fewer people will fly, which could spell doom for particularly vulnerable carriers
Which brings me to my next point: What about bankruptcy? The funny thing (well, not funny “ha-ha”) is that the major airlines aren’t exactly hard-up for cash right now. American has roughly $5.5 billion in cash on hand, while Delta has $4.3 billion. Such reserves would seem to put at least those two airlines on stable ground for the time being, though a few more billion-dollar quarterly losses could change things rather quickly.
We’re still waiting for numbers from the rest of the industry, but Delta’s and American’s huge losses certainly don’t give me a warm and fuzzy feeling. The fundamental truth here is that oil prices are out of control, and none of the airlines (except Southwest) were even remotely prepared to deal with the spike in costs. These losses show an industry under pressure, and paint a clear picture of what we can expect going forward: more fees and more fare hikes—pretty much more of the same.
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