Airlines Need a New Approach

United's more than two-and-a-half-year run in Chapter 11 has shown that a carrier can keep flying for a long time in bankruptcy. Still, new bankruptcy rules going into effect Oct. 17 could speed up the Chapter 11 process if airlines file after that date.

The rules limit to 18 months the exclusivity period for bankrupt companies before other parties can file takeover plans.

The bottom line, however, is that big airline bankruptcies don't lead to liquidations that would remove weak players from the industry, along with all of their capacity.

That's unfortunate, say many analysts, because a capacity reduction resulting from a disappearing airline could improve pricing for the rest of the industry, at least for a while until other carriers stepped in to fill that lost capacity.

Rethink the Hubs

But Roger King, airline analyst at CreditSights, an independent New York research firm, offers a slightly different view. A liquidation is exactly what the industry needs, but not because it would reduce capacity. King maintains that overcapacity is not the real problem -- overhead is.

The exit of one large airline like Delta would eliminate that airline's fixed costs, which he contends are duplicative of other carriers. Competitors would eventually fill the void by boosting flights, but the industry's total overhead would have been reduced significantly.

"US Air has a hub in Philadelphia," he notes. "Continental has one in Newark. US Air has a hub in Charlotte, and Delta has one in Atlanta. All the overhead in Philadelphia and Charlotte is a waste of money to the entire industry. We have way too many hubs. If we got rid of an airline and you kept the planes going under other airlines, with the same costs of flying those planes, but more passengers per airline, you'd end up with a profitable system."

But for an industry that thought US Airways would be out of the picture by now -- it was saved by its merger with America West (AWA Quote) -- hoping for a big airline to go away anytime soon may be overly optimistic.