Airlines Need a New Approach

Still, those developments aren't enough to change the bleak long-term picture, according to some. "We remain encouraged by recent revenue trends and we believe the summer months will see very strong revenue comparisons (double-digit in August and September), but these revenue gains are not keeping pace with rising fuel costs," Lehman Brothers analyst Gary Chase wrote recently in a research note.

"We cannot analytically justify an assumption that the industry is at the beginnings of a long-term structural revenue recovery," added Chase, who lowered his 2005 and 2006 bottom-line estimates for most major carriers. Most of his estimates are well below the Wall Street consensuses.

Vaughn Cordle, who runs AirlineForecasts, a consulting company based in the Washington, D.C., area., also says Wall Street consensus estimates could be low-balling fuel costs.

With oil at $65, Cordle -- who is also a senior 777 captain at United -- predicts 13 major carriers would lose a combined $3.5 billion in 2006. Only Southwest and JetBlue Airways (JBLU Quote) would be in the black, with Southwest benefiting from hedges capping 65% of next year's fuel needs at a crude equivalent of $32 a barrel.

Pricey Crude

If oil remains at lofty levels, it will obviously force more carriers into bankruptcy protection. Independence Air parent FLYi (FLYI Quote) is getting close, as its cash dwindles. And Delta is struggling to avoid a filing.

Analysts say FLYi would likely liquidate in bankruptcy, providing some relief to pricing on the East Coast, where it had been luring passengers with bargain-basement fares. Still, the benefit would be marginal, says Standard & Poor's airline equity analyst Jim Corridore, noting Independence's small size.

Given that many of Delta's assets are encumbered, the airline would have a tough time restructuring in bankruptcy, analysts agree. Yet Becker and Corridore don't think a liquidation is in the cards anytime soon. Delta's size -- it's No. 3 in the U.S. -- means it would probably be able to attract enough financing to take a stab at reorganization.