Which Airlines Will Collapse Next?

Fox business.com had a story Friday morning that addressed the question of which airline would collapse next, after the sudden deaths of  Aloha and ATA.  Its expert picks: Frontier and AirTran.

Not quite.  By the end of the day Skybus had bitten the dust.

Not that Frontier and AirTran are looking all that healthy.  The story also suggested that while the Big Six airlines can certainly be expected to last out the year, United may be most vulnerable after that.

Of course, there’s trouble all across the industry, even internationally.  Alitalia is in a deep crisis, losing $1.5 million a day, and its talks with KLM/Air France recently disintegrated.

This is how market forces work under extreme pressure.  Competition has driven air fares to artificially low levels while fuel prices have gone insane.  In the past few months we’ve seen airlines try repeatedly to raise fares only to be forced to roll back many of the the increases when competitors failed to go along.

Unable to raise fares sufficiently to cover their costs, airlines must try to survive massive losses and wait for weaker competitors to collapse.  (There is also the risky strategy of cutting services and raising fees.)  When the herd is sufficiently thinned, fares will go back up, and the remaining airlines should become profitable again.

That’s pretty much how it has always worked.  I expect that’s how it will work this time, too. 


2 thoughts on “Which Airlines Will Collapse Next?

  1. Anonymous

    FOX Business is just plain wrong. Frontier and Airtran are pretty healthy if you look at their cost structure. New, efficient planes, short routes and few if any transcons, no long haul international flights and little reliance on regional jets. Both carriers passenger traffic grew by quite a bit this past month and their load factors climbed. The reason FOX Business says they can’t weather ultra high fuel prices is because they’re comparing them to a legacy carrier. LCC’s generally have smaller fleets and lower costs thus not burning through money as quickly. Also, during a downturn, people like to fly LCC’s because they feel they’re getting more for their money. LCC’s have generally done well during these periods. In the months after 9/11, Southwest changed their business model to entering larger cities, regardless of they were hubs and became more willing to compete. During that time, they grew to become the largest airline in world in passenger volume. Jetblue also did very well during that time.
    The next carriers to go would be small charter airlines as people don’t take as many vacations during an economy downturn. Virgin America is another airline that could fold soon. Their costs are very high and they’re facing a ton of competition. Their load factors are hovering around 60%. They certainly aren’t making money at that level and should burn through cash pretty quickly. Most of their investors likely won’t provide much help as no one stepped up for Skybus and those other airlines. Sun Country would be another carrier that could bite the dust. They’re very small and have to compete with Northwest. Plus, a lot of their money comes from vacation charters and seasonal, vacation destinations. Like Virgin America though, they do have brand new planes [But then again Skybus did too].

  2. Jeanne Leblanc

    I agree that Frontier has been very smart. The Rocky Mountain News reported Saturday a nice uptick in Frontier’s load factor. And Frontier has pulled out of some less profitable long-haul routes — including Denver to Hartford. So I’m not at all sure that the experts quoted by FoxBusiness.com are correct. But I do know that both United and Southwest are putting pressure on Frontier’s Denver hub.


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