I have participated in every forum on this board and I don't recall ever being told that one had to pick one forum and stick with it. I post when I think there is commentary to be said. Yes, I have a bias for DL and I have been harsh on UA for a reason: UA has been blessed with some of the best assets and routes in the industry. Although I don't talk about politics much on this forum, I'm equally as critical of the USA for not using our resources and power for the betterment of the world and for hoarding and wasting so many of the world's resources; I am not a socialist. Those in positions of power and leadership are ALWAYS held to very high standards. ALWAYS. UA has been an industry leader for decades; DL has been an underdog for almost all of its existence.
Let’s be perfectly clear about one thing: UA is not out of bankruptcy yet.
If DL does go into bankruptcy, I expect they will move very quickly to stabilize their finances and right size their airline. It is very likely that they will quickly lower their current legacy segment costs even further, probably to true LCC levels and will at the same time raise revenues by removing excess capacity. Bankruptcy does afford the opportunity to reject leases and DL would probably reject leases on the remainder of their 737 classic fleet, possibly a number of non-ER 767s (24 of them), and possibly some of the 57 leased MD-88s. Of their regional aircraft, about half of the CRJ-100/200s are leased and most of the ATRs. It is anyone’s guess what DL might do with their network but it is certain that a number of aircraft will come out if DL has the opportunity to reject leases.
However, if DL starts a large scale rejection of leases in bankruptcy, it will be because those aircraft cannot be sustainable given fuel prices which may not come down for years. If DL is able to dump much of its less fuel-efficient fleet, AA will find it almost impossible not to start dumping its older aircraft as well; none of the McDonnell Douglas designed or built aircraft compare favorably on a fuel usage basis with competing models exc. possibly for the MD-90 but including the 717 flown by Airtran. 737 classics and older Airbuses also don’t work. UA, US/HP, and CO also may find it necessary to remove the remainder of its 737 classic fleet. NW is in a particularly difficult spot because they do own nearly all of their older aircraft which means they can’t get rid of those aircraft through bankruptcy. I have previously posted fuel specific aircraft CASMs but there are significant portions of every carrier’s fleets that are not viable at $60+ oil prices except for perhaps B6. While labor has born much of the brunt of high costs in other areas, they cannot make up the for the fuel inefficiency of a number of aircraft. As legacy labor costs come down relative to LCCs, the LCCs cannot sustain cost uncompetitiveness in their fleets. It is also not sustainable to fly the current amount of seats in the industry at the 70% load factors that are typical through much of the winter, fall, and spring.
Let’s also be clear that $60 plus oil is not sustainable for any of the network carriers and will not be sustainable for any of the LCCs except for WN since it is the only carrier with hedges going into 2006. However, WN’s hedges do not grow as its fleet grows so even if it takes on new capacity, it is doing it at current fuel prices. Fuel contracts for early 2006 are already being quoted above $60. Some economists are saying that such high fuel prices will push the economy into a recession, which will further harm airlines. Record high fuel prices compounded by falling demand spell doom for the airline industry and for creditors and lessors to the industry.
The long-awaited shakeout in the industry may well be upon us. Given the amount of restructuring that will take place, no airline is safe. And the airlines that end up in bankruptcy – which may include everyone not already there – will be because they didn’t manage their businesses but because the airline industry is not sustainable at current fuel prices.
If DL does file for bankruptcy, it is very likely that they will be just the first of most of it not all other airlines that will also be forced to file. And the airlines currently in BK will have to go back for even more cuts.
