Influential airline analyst Jamie Baker of J.P. Morgan sounded the warning bell on Monday, predicting the industry will not only lose $7.2 billion this year but bankruptcies and further dealmaking is "a question of when, not if" should fuel prices remain at current levels.
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Baker, an analyst with JP Morgan, said in a note cowritten with credit analyst Mark Streeter that they expect airlines to combine to spend $17.5 billion more on fuel this year than they did in 2007. If the airlines can raise sufficient capital now, then they said a sprint to the courthouse in 2009 may be avoided, otherwise they predict "there will be blood."
Streeter and Baker offered a ranking of bankruptcy risk, from highest to lowest:
- US Airways
- Northwest
- United
- American
- JetBlue
- Continental
- AirTran
- Delta
- Alaska
- Southwest
Raising capital, of course, only buys more time, and does not solve any problems. Over the longer-term fuel prices must come down or airlines will have to collectively cut their flying by as much as 20% (compared to current cuts of about 2%) if they are to reach a point where they can recoup the added expense through higher fares. For now, most airlines have plenty of cash. But Baker and Streeter argue that the high balances can be a bad thing as carriers seem to have "a greater focus on outliving one another than on taking the steps we deem necessary to generate returns and ensure viability."
"If it sounds like we're panicking, it's because few managements appear to be," the analysts wrote. - Lou Whiteman
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