Oil is going to $150 by the end of the summer. Count on it.
The dollar is going to continue to lose its power against other currencies which is the main reason oil is going up - takes more dollars to buy it when your dollar isn't worth as much, basic math.
The credit markets are tighter, harder to get loans for both individuals and businesses, housing market continues to slump...
I don't know if it will become an outright "depression" as Andy thinks it will, but you've got your head in the sand if you don't think it's going to get quite a bit worse before it gets any better...
YMMV.
Lear that is the problem. So many americans have their head in the sand and have no clue about what is going on around them. We have a star struck society. People care more about who Brad Pitt and Jessica Simpson are sleeping with than what is going on in their own backyards.
I think it is human nature to believe that everything is ok and will be ok at your own company. However, given the current fuel prices, it is going to come down to who has the most cash and can hold on long enough to make it through these times. Are we in a recession, technically no. But we have some serious economic issues right now. Will AirTran survive through this economic downturn is anyones guess. Will there be a merger, good question.....but I do know one thing.....things are not rosie!!!!
Airline industry watchers wonder who will fold next
AirTran stock at 5-year low though company says it's strong
By
RUSSELL GRANTHAM
The Atlanta Journal-Constitution
Published on: 05/05/08
Who's next?
That has rapidly become the question on many an airline-watcher's mind as one carrier after another has landed in bankruptcy or turned in its keys in recent weeks.
But while big carriers like Delta, United and Northwest airlines were the ones lining up at bankruptcy court after the 9/11 terrorist attacks sent the industry into a tailspin, this time skyrocketing fuel costs are hitting smaller carriers as well. The price of jet fuel, airlines' biggest expense, has jumped about 60 percent in the past year.
"Everyone is vulnerable. Cash is king," said Ray Neidl, a veteran analyst with Calyon Securities.
He predicted that most big airlines this year will likely avoid a crisis, particularly carriers with diverse markets and large cash reserves thanks to previous bankruptcy restructurings. Southwest, Delta, Northwest and Continental are among carriers that appear in better shape because they have adequate cash, significant fuel hedges that lock in prices or other advantages, according to various industry analysts.
Still, six weaker domestic airlines entered bankruptcy proceedings, shut down or announced plans to stop flying in recent weeks. The largest was Denver-based Frontier, which continues flying under Chapter 11 protection. Other casualties include the all business-class carrier Eos and ATA Airlines, both of which ceased operations in April.
The growing pressure has produced a succession of fare increases, along with fewer travel options as airlines cut capacity. Atlanta-based Delta plans to cut domestic capacity 10 percent this year, and Chief Executive Richard Anderson said last month airlines need to hike domestic fares by up to 20 percent to break even.
There are some bright spots, noted Neidl. Travel demand remains strong and airlines are doing an "excellent job" of controlling costs and boosting revenues, he said.
Still, six weaker domestic airlines entered Chapter 11 proceedings, shut down or announced plans to stop flying in recent weeks. The largest was Denver-based Frontier, which filed bankruptcy but continues flying.
Mix in the threat of a recession and shrinking access to capital, and it's "totally unpredictable" which airline could be next to head to court or the scrap heap, said airline analyst Robert Mann, with R.W. Mann & Co. in Port Washington, N.Y.
Even AirTran Airways, which put its growth plans into hyperdrive and made money amid Delta's struggles in recent years, seems to be in Wall Street's doghouse this time around.
The second-largest airline at the Atlanta airport, AirTran's share price dropped in April to a five-year low, apparently on concerns that it could follow Frontier into bankruptcy. The shares remain depressed despite AirTran executives' protests that the Orlando-based company is in better financial shape than Frontier. AirTran's shares are down about 40 percent over the past month.
Kevin Healy, AirTran's senior vice president, said the carrier's fuel bill has soared from about 20 percent of revenues in 2005 to roughly 35 percent last year, making it difficult to pursue its past growth pace, which sometimes topped 20 percent a year.
AirTran recently suspended growth plans for late 2008 and 2009 and sold aircraft. Last week, it completed the bulk of an offering of stock and related securities to raise $150 million and boost cash reserves to about $500 million.
AirTran is "somewhat more sensitive to fuel" prices, said Healy, but also has among the lowest non-fuel costs in the industry. "We actually are relatively still better positioned than the other carriers," he said.
Analyst Mann called the decline in AirTran's stock price "an overreaction." He said AirTran doesn't appear to be vulnerable to the type of cash crunch that pushed Frontier into Chapter 11. He said AirTran should benefit from capacity cuts and fare increases by Delta.
AirTran's move to shore up its cash reserves creates more breathing room, Mann said, but it also helped depress the airline's stock price by diluting its future earnings over a larger number of shares.
Another reason investors are jittery, said Mann, is because the widening credit crunch on Wall Street helped to precipitate some of the sudden airline shutdowns.
"The biggest single problem right now is the credit markets," he said.
That has put pressure on the hedge funds and private equity investors that have been lifelines for some airlines. Eos, for instance, filed for Chapter 11 protection and stopped flying on April 27 after investors refused to chip in more money.
Neidl, the Calyon analyst, left little room for optimism in a recent report titled "The Perfect Storm Revisits the Industry in 2008." He invoked the Bible's Four Horsemen of the Apocalyse to describe the challenges of "high fuel costs, recession, labor unrest and excessive government interference."
Neidl said the industry will shrink either through mergers or bankruptcies. Delta and Northwest announced plans last month to merge into the world's largest airline. United and US Airways are exploring merger options, and American and British Airways may also be looking at adding Continental as an alliance partner, according to reports. Continental is currently part of the SkyTeam alliance between Delta, Northwest, Air France and others.
"In 2008, we have an industry in crisis" in which airlines are switching to "survival mode," said Neidl.
"We believe that many of the airlines that enter Chapter 11 proceedings in this harsh economic environment will be like checking into the Hotel California where you never check out." said Neidl, referring to the former hit song by the Eagles. "The next bankruptcies will be for real."
