Fuel costs, economy down 3 airlines

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The loss of three airlines in little more than a week is prompting warnings from financial analysts that the worst is not over for the industry or its passengers.

Rising fuel prices and a slow economy mean higher expenses but fewer passengers. ATA Airlines, Aloha Airlines and Skybus Airlines all succumbed recently to that fatal combination.

The next airline expected to go belly up is Champion Air, a Bloomington, Minn., charter service that operates 14 Boeing 727 aircraft.

"Unfortunately, our business model is no longer viable in a world of $110 oil, a struggling economy and rapidly changing demand for our services," Chief Executive Officer Lee Steele said in announcing the airline's planned May 31 closure.

Although major airlines are unlikely to go out of business this year, "cash levels would be at alarming levels for the majority of the carriers if current trends continue through 2009," said Ray Neidl, an airline industry analyst for Calyon Securities, in a research note.

Airlines already are starting to raise prices to cover their higher fuel costs — a risky business move that could reduce demand for tickets.

High fuel costs leave them few choices, analysts said.

"If you sat around waiting for $29 fares, you're going to sit around a long time before you see them anymore," said Darryl Jenkins, an airline consultant in Marshall, Va. "This orgy of low fares in the past is over with. Welcome to the new world of airlines, where the price has to cover the cost."

Mr. Jenkins estimates that 90 percent of U.S. airline routes are not profitable. Major hub routes, such as flights between Chicago and the Washington area, are exceptions.

Any immediate disruptions for passengers from the announced shutdown of ATA, Aloha and Skybus are confined to the routes they served, airline officials said.

"The shutdown of those carriers has no impact whatsoever on American Airlines' schedules," said Tim Wagner, American Airlines spokesman.

ATA and Aloha flew primarily along the West Coast and to Hawaii.

"Airline operations have been normal at BWI," said Jonathan Dean, spokesman for Baltimore-Washington International Thurgood Marshall Airport. "There has been minimal, if any, impact to customers here."

Major carriers, like Northwest Airlines and Delta Air Lines, are stepping in to absorb some of the defunct airlines' routes.

The closing of Columbus, Ohio-based Skybus, which started its low-fare business last May, is having only a nominal effect on passengers. When it closed last week, it was flying 13 aircraft to 17 secondary markets.

In a bankruptcy filing Monday in U.S. Bankruptcy Court for the District of Delaware, Skybus Chief Financial Officer Barry Barnard said his airline failed largely because of high fuel prices and a "recession" that reduced demand for flights.