A steady rise in travel demand notwithstanding, the airline industry's financial outlook is looking wobbly again, with losses this year now expected to surpass US$2 billion -- about four times steeper than analysts' earlier estimates.
Shares of several large airlines fell Tuesday as investors braced for the release of March traffic and revenue data later this week.
Major carriers such as American and United are struggling on many fronts: expensive jet fuel, fierce competition from budget carriers and tight-fistedness from formerly high-paying business travelers.
Delta and US Airways, meanwhile, face the additional challenge of seeking steep pay cuts from employees.
About the best thing the US airline industry can say for itself right now is that losses are narrowing on a year-over-year basis.
Wall Street analysts are predicting losses this year of US$2.2 billion-US$2.3 billion. That's better than last year's industrywide loss of about US$6 billion, but worse than analysts' earlier expectations of red ink totaling US$500 million-US$600 million.
"The only way out of this problem is for costs to go down," said Thom Nulty, partner in The Corporate Solutions Group, a Monarch Beach, California-based airline consultancy.
That's because the rapid expansion of budget carriers such as Southwest, JetBlue and AirTran, which account for about one-fourth of all domestic flights, has made it extremely difficult for major carriers to increase their revenue.
Major carriers have been matching the low-cost airlines' fares on routes where they compete, although analysts say this is not a viable long-term strategy because the majors cannot profit at these price levels.
"US carriers won't survive for long if they don't aggressively reduce their costs and get out of businesses they shouldn't be in," said Michael Dyment, an expert in low-cost operations at SH&E, an aviation consulting group.
To defend their dwindling market share, major carriers have been increasing capacity, hoping that more frequent flights will appeal to travelers seeking convenience.
In February, domestic available seat miles -- a measure of the industry's carrying capacity -- rose 9.4 percent, while passenger traffic grew 10 percent, according to the Air Transport Association. It was the seventh month in a row that revenue passenger miles -- a measure of demand -- had increased.
Analysts believe airlines are adding capacity too quickly, though, putting additional downward pressure on ticket prices.
The average one-way domestic fare last year was US$276, compared with US$311 in 2000, the highest level in the past decade, according to data published by American Express.
Stingy corporate travelers are a significant force pushing average ticket prices lower, according to American Express, whose data show that last year business fliers bought tickets that cost 51 percent less than the average listed price for business fares.
That loss of potential revenue comes as carriers have been stung by the high price of oil, the raw material for jet fuel.
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