As each day passes, the financial plight of the airline industry gets worse. Falling passenger traffic due to the recession, and moderately high fuel prices due to $70 per barrel oil, are squeezing margins into the red at debt-laden carriers. Japan Airlines said, on September 15th, that it would cut 6,800 workers as it looks for a carrier partner in the U.S. or Europe to give it a desperately needed cash infusion.
The International Air Transportation Association (IATA) put a specific number to the industry's woes in its new survey of the sector; airlines will lose an aggregate $11 billion this year, according to the group. That figure is $2 billion more than IATA's last forecast. The association added, "Industry revenues for the year are expected to fall by US$80 billion (15%) to US$455 billion compared with 2008 levels." The impact of falling traffic over the last two years is greater than that of 9/11, the IATA's chief said.
The U.S. will be particularly hard hit, with the region likely to lose an estimated $1 billion to $2.6 billion for the year. That re-opens the discussion about the possibility of more mergers in the industry, or possible Chapter 11 filings by one or more carriers by the end of the year. Chapter 11 events are fairly common among U.S. carriers, which use the process to cut debt and pressure labor unions into concessions.
If the current passenger levels do not improve, it is a sign that there simply may be too many airlines in the U.S. A number of industry analysts have questioned whether Continental (CAL) or US Air (LLC) can stand on their own, or whether they may have to merge with a larger company like American (AMR).
Be it through bankruptcy filings or M&A events, the U.S. airline landscape is very likely to look different by early next year. If holiday traffic is poor, it will be the last nail in the coffin.
Douglas A. McIntyre is an editor at 24/7 Wall St.