Bankruptcy on the horizon for US carriers

Declaring bankruptcy may be one of the few options left for cash-strapped airlines in the United States, as hopes of crucial industry mergers begin to fade. The Guardian reported that despite what had been previously assumed, United Airlines and US Airways have now decided to cancel plans to merge their operations. Most analysts predict that even though only a few weeks ago it appeared as though a string of US airlines were to go through mergers, this now seems entirely unlikely and the only fusion that will probably go ahead as planned is the one between Delta Air Lines and Northwest. Carriers in the US have essentially shifted gears, in order to concentrate all of their efforts on surviving the record high fuel prices, which threaten to derail the entire air travel industry. Earlier this afternoon, the price of a barrel of oil on the world market stood at nearly $128.

Doug Parker, US Airways’ chief executive, reportedly sent out a letter to staff members informing them that a merger would not occur this year “as our industry continues to struggle with how to function in a world with $130 oil prices.” John Armbrust, an industry consultant, noted that it is difficult to determine how carriers can now find a way out of their gloomy predicament. The only options available appear to be continued price increases, as well as a radical trimming down of destinations and flight frequencies, in order to once again make these carriers profitable.

Glenn Tilton, United Airlines’ chief executive, noted that all American carriers are in a very challenging situation, as they now face an extra $20 billion in unanticipated fuel costs, provided that the price of oil remains at its current level on the world market. This, however, appears unlikely, as prices are set to keep rising over the summer. Several consultants are now predicting that if oil costs remain high, another nine or ten small airlines in the US will be forced out of business, while some of the larger brand names will have to file for Chapter 11 bankruptcy protection.

www.united.com