There has long been much grumbling about how the best airport lounges are not in the U.S. (and not operated by any American airlines, either). This is jarringly clear from the past year’s World Airline Awards from Skytrax, whose global survey yielded nary a U.S. traveler’s outpost that was anything other than wholly plebeian. And there’s a good reason for that: U.S. airlines are in trouble – and with the Delta-Northwest union going south, pretty soon there may be a lot more to worry about than cruddy lounges.
U.S. airlines, which seemed last year to have shaken off a half-decade slump, may face a new round of restructuring amid a stumbling economy and spiraling fuel prices.
The turnabout reflects the headwinds that have buffeted the industry as oil prices have risen 75% in the past year and the housing slump has mushroomed into a broader credit crisis, making it hard for many businesses and households to borrow and prompting consumers to cut back on spending. Most economists now think the U.S. has slipped into a recession, and the debate is shifting to how deep the downturn will be.
Other industries, from the nation's beleaguered banks to retailers and auto makers, are facing similar pressures. But the major airlines, many of which have spent long periods under bankruptcy protection in recent years, worry they are especially vulnerable.
Continental Airlines Inc. expects to pay $1.5 billion more for fuel this year than last, Chief Financial Officer Jeff Misner told a J.P. Morgan aviation conference earlier this week. "Maybe we'll throw a recession on top of that...and a weak dollar just to kind of make sure it stays real, real interesting," he added.
Glenn Tilton, chairman and chief executive of United Airlines parent UAL Corp., told workers earlier in the week, "This industry has serious challenges ahead. Continued uncertainty about the overall U.S. economy, with the price of fuel at historically high levels, has put significant pressure on all U.S. carriers."
Consolidation was expected to help insulate the domestic carriers from such difficulties and better prepare them to compete with rich overseas rivals. But a proposed merger of Delta Air Lines Inc. and Northwest Airlines Corp. that was supposed to jump-start the deal making appears to have run aground because the airlines' unionized pilots can't agree on a common seniority system.
Yesterday, Delta's pilots rejected the Northwest pilots' suggestion that they take their dispute to binding arbitration. It isn't clear whether Delta and Northwest are willing to proceed without a pilots deal, or whether they will throw in the towel on the merger.
Doug Steenland, CEO of Northwest, told his employees late last week that the "dramatic, radical" run-up in fuel prices is frustrating the industry. "Our stock has declined precipitously and, as we share this bleaker outlook, we anticipate at least $1.7 billion in higher fuel costs" from what the company foresaw last May when it was preparing to leave bankruptcy-court reorganization, he said.
Merrill Lynch now predicts that the eight largest U.S. carriers will post combined losses of $1.5 billion this year, compared with a previous forecast for a collective profit of $1.7 billion. J.P. Morgan analyst Jamie Baker expects wider industry losses of between $4 billion and $9 billion this year, and a slump in travel demand starting in the second quarter.