Airlines Face More Uncertainty

In the current environment, ATA's bankruptcy filing may just be the tip of the iceberg. Cordle of Airlineforecasts has predicted that if fuel stays above $45 a barrel, Delta Air Lines (DAL) and Independence Air parent FLYi (FLYI) could follow by the end of this year. Bankruptcy filers next year might include America West Holdings (AWA) and Continental (CAL), he added.

Airlines could secure further concessions from labor under bankruptcy court protection. Last month, a federal judge ordered 21% pay cuts for all of US Airways' union employees who had not yet reached deals with the airline. The order may have been a key factor in the company's pilots' vote to approve a tentative agreement for 18% cuts.

A key variable for the entire industry is what happens at United, according to analysts. If the company is successful at terminating its pension plans and can achieve further reductions in labor costs in bankruptcy court, it could emerge a lean network carrier without the financial burdens of its network rivals.

"That holds the key for what happens to the rest of the network industry," said Swelbar of Eclat Consulting. If United can get significant savings, that would put tremendous pressure on Delta, American, a unit of AMR (AMR), and even Continental and Northwest (NWAC) to cut costs further to remain competitive.

Such a scenario would be no picnic for the low-cost carriers, as the gap between their costs and those of the network companies diminishes.

"If the networks do get costs in place, there won't be six or seven low-cost carriers anymore either," Swelbar said.

Still, no matter how the shakeout plays out, it will be rough, experts said. "The next 18 to 24 months are going to make the last three years look very easy," Swelbar said. "The low-hanging fruit has been picked. In this pricing environment, we haven't gone low enough. The next phase is going to be very difficult, very painful and will disenfranchise a lot of employees. It's disheartening from a people perspective, but it's probably where we have to go."

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