Jul 8, 2009, 6:13 a.m. EST
New Airline Price Wars

By 24/7 Wall St.

Airline price wars are back, just when carriers cannot afford them. The price of jet fuel is up. Passenger traffic is down.

Southwest (LUV) is offering fare as low as $30 one way on short flights and $90 on longer ones.

Southwest, which has a strong balance sheet, may be able to afford cutting ticket prices to bring in customers. Larger carriers like American (AMR) and United (UAUA) have huge debt burdens and are actually in the process of raising ticket prices and fees on items like extra baggage to make up for growing losses. A prolonged period of having to match low fares from discount carriers could drive the legacy airlines closer to the bankruptcies some investors already fear.

According to USA Today, Tom Parson, CEO of BestFares.com said "We haven't seen $30 fares in at least 15 years."

The industry has a multi-decade habit of cutting its own throat. Once airline cuts prices to bring in traffic to fill unfilled seats more and more carriers match these to keep their customers. The cost of low fares when combined with low passenger loads undermines revenue. A carrier or two goes bankrupt and then they drop fares more to push up sales to get out of Chapter 11.

The recession is damaging airline prospects. A fare ware will finish them off.

Douglas A. McIntyre

MarketWatch.com Story

 

I've seen this reported all day today ... from TV to print media. I've seen it reported as AirTran, jetBlue, and Southwest who started the fare war. The war was only between LCCs. Now, it appears SWA started it and it's against the legacies. Who knows, maybe all of the reports are correct.

I just think it's interesting that all of these stories have the who's and what's interchanged.

 

They are trying, or acting like they wanted to remove rjs to get you to sign up. What ever you allowed on your scope is what you will have, do not kid yourself.

Mesa Air Wins Ruling Blocking Delta Cancellation (Update2) - Bloomberg.com

 

Yes, we all know that there will be 255 51-76 seaters at DCI.
THEY ARE PARKING LOTS OF 50 SEATERS. They are money losers. Our Mgt. seems to want to make money..... What don't you understand about that?

Hmm, I don't know what you mean by "get you to sign up" for, whatever you say.


The only things I've had to sign up for is a moderate raise and some work rule and retirement improvements in the past year....

 

This coming from a USAPian?

Funny stuff. You can read the facts in the annual reports, but the total number of subcontracted aircraft at Delta has declined from over 800 to 700 over the last 18 months. Furloughs are occuring at ASA, CMR, MAH, Mesa and Republic. The only carrier not at risk is Compass. There are no furloughs at mainline. How about your property?

As to your debt/liquidity comments, LCC ain't in a pretty place. Your adjusted net debt and your fixed charge coverage is the second worst among the majors, and even with your last credit market play your available liquidity is third worst. Of course, you do have your AAA bankruptcy contract to thank for the East's continued pitiful pay, and USAPA to thank for the damages that you'll get to pay looking forward.

Maybe you ought to fix your house first, then worry about ours. Of course, with the great representation that you've bought yourself, you'll probably read about the repairs in the papers first.

 

This is a joke, right. Delta has over $5 billion cash. They are able to hedge up to 100% of their fuel needs and they have financing for the 777's and 737's that are being delivered in the next few months. They are already further ahead on their merger than the LCC merger that occurred three years earlier.

Maybe you know more than Scott Kirby (President of LCC), but according to him, LCC can't find financing for their A-330's, they can't hedge fuel, and they are bouncing off the limits for their exit financing covenants.

United is now mortgaging spare parts and paying 17% interest for the privilege. They are also bouncing off the cash covenants for their credit card processor.

If USAPA had any brains, they would quit the internal fighting and figure out how quickly they can fully integrate so they can get their airline making more money. My guess is they will still be throwing money at their lawyers when they hear their airline is being parted out. Date of hire or nothing will probably lead to nothing.

 

Just curious Alfa, where did you find Mr. Kirby comments? This is not meant as an attack, but I'm trying to learn more about LCC's position as my regional, Air Wisconsin, has all our eggs in their basket.

 

1st quarter conference call and remarks from the investor conference (I think Morgan Stanley) from a few weeks ago. Go to the LCC public website and look for investor relations.

 

U.S. Airways has no plans to cut U.S. capacity | Reuters

 

Justdoinmyjob:

You obviously must be talking to the East pilots at LCC. The West pilots know that the DAL/NWA merger went alot smoother that US Air/AWA. Unforunately, with a company facing liquidation, AWA moved fast, which might have been the stupid thing to do. But than again, I am not management.