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.