Flying on empty - America's airlines.

Essay by JrzPakiKingUniversity, Bachelor'sA+, February 2006

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Bankruptcy is becoming normal for America's airlines.

OVER the past four years, America's airlines have lost $32 billion, hit by the effects of terrorist attacks, the collapse of the dotcom bubble, the war in Iraq, the SARS epidemic in Asia and fiercer competition from new low-cost carriers. This devastated landscape is now being visited by a sixth horseman of the apocalypse: oil prices. On September 14th Delta Air Lines and Northwest Airlines, America's third and fourth-largest airlines, filed for bankruptcy. With United and US Airways already operating under Chapter 11 bankruptcy regulations, at least half of America's airline industry has now been declared bankrupt. These firms will keep flying on empty, thanks to court protection from their creditors. But a once-proud industry is officially on its knees.

The impact of higher oil prices on the industry was outlined this week by Giovanni Bisignani, the director-general of the International Air Transport Association.

He forecast that this year American carriers' losses would be around $8 billion, some $2 billion more than he had forecast as recently as May, when the price of oil, at $47 a barrel, was already twice that of four years ago. Today the oil price stands at $64. Facing fierce competition from relative newcomers like Southwest and JetBlue, which are still profitable, the older, "legacy" airlines, with their much bigger fixed costs, are unable simply to pass the higher oil prices onto their customers.

Yet earlier this summer there were some signs of light in the skies. Airline passenger numbers were up. Planes were on average 79% full, which was a small improvement. Revenues per seat ("yields") were still falling (1.8% down on the same period in 2004), but that is part of a long-term trend. Thanks to fierce cost-cutting, and with the co-operation of worried unions, there...