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Bankruptcy watch list: Which airlines are safe, unsteady, or in trouble?

SmarterTravel

Most of the major airlines are struggling more than ever, trying to make a profit in spite of across-the-board low fares (particularly on domestic routes), high jet fuel costs, and increasing competition from low-fare carriers.

It can be difficult to keep track of which carriers are in bankruptcy, which are unsteady, and which are financially safe (for now). Use our bankruptcy watch list to see where your preferred airline(s) stands. It’s important to note that bankruptcy does not mean that an airline will go out of business. In the past, several major carriers have successfully reorganized under bankruptcy protection. However, in uncertain financial times for the industry, it seems possible that increased competition may force some carriers to fold or radically change their business models.

Bankruptcy

Aloha entered bankruptcy in late 2004. The bankruptcy process appears to be progressing smoothly thus far, as the airline recently reached a new contract agreement with its pilots union.

ATA filed for bankruptcy in October 2004, and it was the first of the current low-fare carriers to seek Chapter 11 protection. Soon after, AirTran and Southwest battled for control of ATA’s Chicago (Midway) gates, with Southwest emerging as the victor. ATA and Southwest will begin flying codeshare flights in early February, which is seen as a good financial move for both carriers.

Even with the help of Southwest, ATA is not out of bankruptcy yet. The airline recently announced that it would expand from its Indianapolis hub, only to later reduce service to/from the city. When and if ATA will exit bankruptcy remains to be seen as the airline continues to work with bankruptcy court to become profitable.

Hawaiian entered bankruptcy protection in March 2003, and has stated that it cannot exit bankruptcy until all of its unions agree to concessions in new contracts. In a recent setback, one of its unions did not approve a new contract, so Hawaiian is currently in negotiations.

United has been in bankruptcy since 2002. Before the airline can exit bankruptcy, it must secure about $725 million in annual labor savings. As United negotiates with its employees’ unions, the next few months are likely to be rocky. While both the pilots and flight attendants unions have agreed to new contracts, the mechanics union recently refused to ratify a proposed contract, and though talk of a strike has subsided, United will be in serious trouble if it cannot reach an agreement with all of its unions.

US Airways entered bankruptcy in September 2004, and its outlook looked bleak until recently. But, in January, US Airways and its unions agreed on concessions in new contracts, and the airline secured funding from the Air Transportation Stabilization Board. With these positive developments, US Airways could succeed in emerging from Chapter 11 protection by the summer months, provided travelers continue to book and fly with the airline.

Unsteady

Delta was on the industry’s bankruptcy watch list for much of 2004. In November, however, Delta narrowly escaped bankruptcy when its pilots union agreed to concessions that will save the airline about $1 billion annually. Plus, with the arrival of its new SimpliFares fare structure, Delta appears to be aggressively battling its major low-fare competitors, banking on the notion that its new move will put the airline firmly back on the radar of most travelers. Other airlines are being forced to compete with Delta’s new caps on its highest fares, lower change fees, and the end of Saturday-night stay requirements (for some of its fares).

Delta is also expanding Song’s route map, adding flights from New York’s JFK airport to the West Coast, as well as Aruba and Puerto Rico.

Independence Air, the recently launched D.C.-based low-fare carrier, also has a shaky outlook. Many of its planes are flying half-empty, despite the airlines’ low fares. Recently, the airline terminated a lease it had on 10 regional aircraft. Industry buzz reports that Independence Air could be seeking to rejoin United as a regional carrier. There is no guarantee that Independence Air won’t see an increase in bookings and become more profitable in 2005, but it could also be one of the first new low-fare carriers to fail.

Losing money

Don’t worry if your preferred carrier posted losses for 2004. Because of increasing costs for all airlines, most did not make a profit for last year, including Alaska, America West, American, Continental, Frontier, Midwest, and Northwest. Despite millions of dollars in losses, these airlines are not currently seen as being in danger of bankruptcy for 2005.

Safe (for now)

The three financially safe airlines, AirTran, JetBlue, and Southwest, made profits (albeit small profits when compared to past years) for 2004. These three low-fare carriers are likely to continue to make things difficult for the major legacy carriers.

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