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Several major airlines roll back weekend increase in fare prices

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FORT WORTH, Texas — All the major airlines could be in bankruptcy by early next year if oil prices stay where they are, a new study predicts.

Other analysts predict the industry is bound to recover at some point and could even evolve into something more friendly for investors and travelers alike.

The grimmest analysis, by the consulting firm AirlineForecasts, was commissioned by the Business Travel Coalition. Its author concludes that the airline industry is in a full-blown crisis "and heading toward a catastrophe."

"There's going to be just three global airlines, and the low cost-carriers are going to become feeders, bringing people into the hubs," predicted Terry Trippler, an airline consultant not associated with the study.

The United States also will probably look a lot like it did 25 years ago, when there effectively were two global airlines — PanAm and TWA — along with a plethora of regional carriers, he said.

The AirlineForecasts study found that if fuel prices remain high:

● The top 25 carriers will spend more than $28 billion more for fuel this year.

● The major airlines could lose up to $9 billion over the next 12 months.

Fares would have to increase 20 percent across the board to compensate for the higher costs, something that "is not possible given the level of uneconomic seat capacity in the system today."

Driving change will be bankruptcies and a sharp reduction in capacity, and the major airlines that are going to survive will have to be smart and bold in cutting their costs. But it's not going to be easy. As a result of bankruptcies after the Sept. 11, 2001, attacks, carriers are already running lean, filling 80 percent of their seats compared with the historical 60 percent.

That leaves little for airlines to trim beyond cutting low-yield routes and more jobs, but those that do make the sacrifice are going to be stronger for it, perhaps by this time next year.

Carriers such as American Airlines, United Airlines, Continental, Delta and most recently U.S. Airways already have taken the first steps toward that end.

Even though airlines have been raising fares aggressively, they've largely sidestepped routes on which they compete against such low-cost airlines as Southwest. The Bureau of Labor Statistics reported that average fares were up about 4 percent during the fourth quarter of 2007, the most recent data available.

"We're in uncharted territory in terms of the magnitude of this," said the AirlineForecasts report's author, Vaughn Cordle. He pointed out that his analysis was "a snapshot of the current situation," and that things could improve if fuel prices decline or the industry makes moves to stem the red ink.

The trick for investors is figuring out which U.S. airlines are likely still to be around 18 months from now. So far this year, the global airline industry has been shaken by 24 bankruptcy filings, including several smaller American carriers, while mainstay network airlines remain under siege.

Still, the study states, "The airlines and their stakeholders have never faced a darker future."

Roger King of CreditSights, a credit-research firm, places United at the bottom of his list, but with the caveat that this could change.

"They've got the least amount of cash and the highest fuel-cost increase, but that just means they have to raise airfares hard," he said. United also could surprise everyone and issue new securities or take on additional debt, potentially raising the odds of its survival relative to rivals.

"I want to see cash generation," King elaborated, adding that the survivors will be those that concentrate more on meeting fuel costs than fretting about rivals or growth.