Analysts expect high fuel prices, overcapacity and continuing losses to force consolidation among network carriers
US legacy airlines are in desperate need of reform and due for a shake-up, with imminent and much overdue "clearing out" of excess capacity possible this year, warn industry analysts.
Record fuel prices, leveraged balance sheets, overcapacity and low yields continue to cripple any chances of recovery for an "industry that is still depressed", says Raymond Neidl, senior airline and transport analyst at Wall Street broker Calyon Securities.
Speaking at the Speednews suppliers conference in Los Angeles, Neidl said: "Most legacy carriers are trading around bankruptcy level, and it is only the low-cost carriers that I can truly recommend to buy or hold."
Glenn Hickerson, GATX Air advisory board chairman, said: "Most of us remain in shell-shock from what seems to be a continuous US conundrum." American Airlines, Continental Airlines, Delta Air Lines, Northwest Airlines, United Airlines and US Airways had lost $27 billion between them since 2000, he said. This was in spite of record load factors because they have not been associated with an increase in yield.
Neidl said the purging of weaker network carriers could come even earlier due to high fuel prices. "At $56-57 a barrel it will probably speed up the process. It will cause a clear-out of the excess capacity in the system, and we should know by June what will happen to the likes of US Airways and maybe Continental."
With the exception of Continental's "package deal" ordering of Boeing 787s, taking over leases on former American Trans Air 757-300s, and accelerating delivery of six 737-800s, the US network carriers have either reduced or postponed deliveries. However, Continental says it will be forced to cancel its 787 order and other parts of the Boeing deal and may also have to defer all 40 remaining aircraft on order due for delivery beyond 2005 if union agreements are not ratified.
Hickerson echoed Neidl's view that a clear-out is overdue, but said the "survival of the fittest" did not seem to apply to US legacy carriers. "Most everyone agrees there are too many network carriers, most agree seven will reduce to four or five. But when?" He added that the low-cost carrier share of the domestic US market, measured in revenue passenger miles, could be "on its way to 50% within 36 to 48 months [from 30% last year]".
GUY NORRIS/LOS ANGELES
Source: Flight International
