Airlines See Slim Chance of Business Taking Off Soon : Recession: The market will not improve much until the economy strengthens and carriers find ways to keep fares at money-making levels, industry officials say.
The nation’s airlines have bled about 78% more money in the last two years than they have earned since the Wright brothers first took off at Kitty Hawk.
The times have been so cruel some carriers have taken to pointing out that frightening bit of trivia.
Many industry executives remain skeptical about whether 1992 will bring a turnaround. If it does, travelers may see slimmer discounts and higher fares as the carriers surviving the slump try to rebuild their profits.
The market will not improve much until the economy strengthens and airlines find ways to keep fares at money-making levels, industry analysts and managers say.
About all some hope for is that 1992 won’t be worse than 1991.
“That’s not saying much,” said Michael J. Durham, chief financial officer of American Airlines. Durham said the industry could even post another loss, depending on some of the uncertainties.
“It’s difficult to tell, not knowing what the economy’s going to do and, frankly, not knowing what’s going to happen to a large segment of our industry represented by a group of carriers in a precarious financial position. Those are the big variables.”
The industry trade group, the Air Transport Assn., predicts that the airlines could earn $300 million for 1992, following a combined 1990-91 loss of about $5.9 billion.
By comparison, the cumulative earnings of the domestic commercial aviation business since its founding days through 1989 was about $3.3 billion, industry figures show.
As for 1992, Dave Swierenga, the ATA’s chief economist, said, “We’re not looking for a grand year in terms of profits, but at least it will be a tremendous relief from the enormous losses we’ve sustained the last year and a half.”
Some securities analysts say the carriers could do even better than that--assuming the economy gains some momentum.
“I think the industry has a chance of rebounding from the $2-billion operating loss that’s likely for 1991, to possibly a $500-million operating profit in 1992,” said Mark Daugherty, who follows airlines for Dean Witter Reynolds Inc. “But that’s predicated on some economic recovery in 1992.”
Some of the big airlines said they would not be surprised to see the industry’s losing streak extend another year. Even if the relatively sound carriers make money, the weak carriers will keep the overall numbers down.
“I think it’s going to be a mixed bag,” said Al Kolakowski, senior vice president of marketing at Delta Air Lines, one of the industry’s strongest carriers.
The devastating times began in August, 1990, when Iraq invaded Kuwait, sending the price of petroleum, including jet fuel, sharply higher. The Persian Gulf crisis then scared many people away from flying, and before long the recession began pounding the airlines even harder.
By keying on price to lure travelers back, the industry effectively deepened its slump.
Although passengers benefit from fare wars, industry analysts call such pricing “suicide fares,” because there is no way to profit from them. Even healthy carriers lose money.
After the death of three airlines--Eastern, Midway and Pan Am--in bankruptcy court, the survivors may establish a more rational pricing structure.
For example, big carriers on Tuesday said they plan a 2% increase in most domestic fares starting Jan. 3. Last week, they raised the price of cheap excursion fares, the non-refundable tickets that require advance purchase and a Saturday night stay, by $20 per round trip. That rate increase was begun by Continental Airlines, which along with America West is still under Chapter 11 protection from creditors.
“Domestically, prices have firmed up,” said John Nelson, executive vice president of marketing at Continental. “There are several reasons for that. One, Eastern’s gone. You have Midway gone. America West has tended to price with a bit more sanity.”
Carriers also showed some restraint when they ignored several price sales offered by Trans World Airlines this fall, Nelson said. TWA plans to enter Chapter 11 early in 1992, but hopes negotiations with creditors will let it quickly emerge.
