Airline Ills Outlast Last Resort

Maybe bankruptcy isn't so grand after all.

Despite bankruptcy's prevalence in the airline industry and the recent success of US Airways (LCC Quote) -- which filed for bankruptcy protection in both 2002 and 2004 -- it's becoming clear that, largely because of higher fuel costs, the recent round of legacy airline filings aren't yet curative.

First-quarter results reported last week were decidedly mixed for bankrupt carriers. United Airlines parent UAL Corp.(UAUA Quote) -- just months after emerging from three years under bankruptcy protection -- said it's back to the drawing board for $700 million more in annual cuts.

Delta Air Lines(DALRQ Quote) cut its losses and said it will lose just $6 million in March, but performed badly relative to its peers. Northwest Airlines (NWACQ Quote) also cut its losses and, relative to its peers, performed well.

"Bankruptcy may work, but the emphasis is on the 'may,' " says aviation consultant Scott Hamilton. He notes that Continental Airlines(CAL Quote), like US Airways, needed two filings to get it right. And all of the industry's most spectacular financial failures -- the shutdowns of once-mighty Braniff, Eastern and Pan American World Airways -- were also preceded by bankruptcies.

At United, Delta and Northwest, Hamilton says, "The underlying problems are still debt, pension and costs, and it's too early to say whether those have been addressed."

"The bottom line is profitability," says Mike Miller, a consultant at The Velocity Group. "There is no other option. It can't be that we think someone might become profitable."

United reported last week that it lost $306 million in the first quarter, about the same as it lost a year earlier despite a $314 million increase in fuel costs. The second-largest carrier said it needs $400 million in new cost reductions, in addition to the $300 million it previously announced. "If they still need to make cuts, then the bankruptcy was not successful," Miller says.

United's shares closed Monday at $33.83, down 15% from the $40 price they opened for on Feb. 2 on the Nasdaq.

Profiting From Merger Innovations

At US Airways, a fortuitous merger between the old US Airways and America West Airlines led to huge first-quarter increases in revenue per available seat mile (RASM), a result of beneficial comparisons with a year ago because of rising fares and reduced capacity.