Airlines have had trouble making money since the industry was deregulated about 30 years ago, and their struggles are intensifying now.
Those difficulties stem from the vicious global recession and credit crisis, which have sent travel demand plummeting and made it difficult for the carriers to borrow. Volatile oil prices haven’t helped.
Now there is serious risk of a liquidity squeeze for the airlines, and bankruptcy could follow by winter, The Wall Street Journal reported.
"Just as the airline industry was not built for $130 (per barrel) oil, neither was it built for an environment of negative global economic growth and non-functioning capital markets," Gerard Arpey, chief executive of AMR, said at an investor conference, The Journal reported.
The recession, plunging travel demand and a tough lending environment are battering the airlines, raising the possibility of a liquidity squeeze that could lead to bankruptcy filings.
The second quarter is usually a strong one for airlines, as travelers emerge from winter hibernation. But that’s not the case this year.
While some low-cost airlines are in better shape, the five traditional carriers are projected to report red ink for the period: AMR (owner of American Airlines), Delta, UAL (owner of United Airlines), Continental and US Airways.
“There are too many airlines and too much capacity and really no pricing power,” Hunter Keay, an airline analyst at Stifel Nicolaus, told The New York Times.
“This is as bad a crisis as the industry’s ever seen.”
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