Major US airlines are likely to face several more years of distress that a possible liquidation of bankrupt US Airways won't do much to alleviate, industry experts said on Thursday.
US Airways, which sought bankruptcy protection earlier this month for the second time in two years, has only 4 percent to 5 percent of the US air travel market, Ray Neidl, director of research for Calyon, told an airline restructuring conference in New York.
The chief beneficiaries of a US Airways liquidation, which Neidl put at 50-50 odds, would be the low-cost carriers, whose cost base and business strategies have hammered large carriers like US Air in recent years.
"What this industry needs is a couple of liquidations," said Neidl, whose firm is the investment banking unit of Credit Agricole Indosuez.
Low-cost carriers like JetBlue, Southwest Airlines and Spirit Airlines, which have much lower labor and pension costs than large airlines like American Airlines and Delta Air Lines, now account for some 25 percent of the US market. But their market share could rise to up to 50 percent in the next four to five years, said Neidl.
And unless major airlines do even more to cut costs, several more could end up in an airline scrapheap that numbers over 160 since the industry was deregulated some 20 years ago, experts said.
Hit by higher security costs and a decline in air travel after September 11, 2001, major carriers have also had to contend with a near-doubling of fuel costs in the last year. And they also face some USD$20 billion in under-funded pension costs, according to industry estimates.
"Even if the legacy carriers renegotiate labor contracts, they will still operate at a substantial disadvantage to the low-cost carriers," said David Treitel, chief executive of consultancy Simat Helliensen & Eichner.
"They are stuck with a rather depressing outlook," Treitel told lawyers and other restructuring experts at a conference sponsored by American Conference Institute.
The good news for major carriers is that low-cost airlines may face limits to their growth in the next few years, particularly if there is a reduction in the amount of relatively easy capital available to them now, said Michael Cox, managing director of Seabury Group, a major airline consulting firm.
"We believe a shake-out may come to low-cost carriers in access to capital," said Cox. But he said he doesn't see significant revenue improvements until 2007 for the 'legacy' carriers.
