The industry does not stand out as unique in the financial crisis facing the U.S. economy meaning, as with other businesses it will see tight capital and dropping demand, LECG, LLC’s Dan Kasper told Regional Aviation News. But unlike other sectors of the economy, especially small businesses, the industry was not planning to expand having cut capacity by about 15 percent year over year by the fourth quarter. Indeed, it is like other big businesses relying on consumer demand such as the auto industry, and has been contracting and laying off employees.
“This is unlike a lot of the industry’s crises,” said Kasper, alluding to the unique impacts of 9/11. “They are no different than anyone else. The main impact will be seen in how the financial crises affect the economy. If the economy goes down oil goes down but so does traffic. It is hard to predict what will happen. If credit freezes up, it will affect airlines as it will most other businesses. You can look at the shuttle markets – especially Boston to New York – and see that financially related traffic is way down, about 15 percent, year over year.”
Kasper indicated that the capacity cuts already done put the domestic market in relatively good shape, especially with oil trading $50 below the high reached earlier this year and the fees generating a lot of revenue.
“There is some reason to feel pretty good about the domestic side,” he said. “I worry if demand falls more then they may end up having fare sales. They will be limited in their ability to raise fares but the fees are generating new revenue so it is unlikely they will disappear. A steeper
latecomers to the party when it came to imposing fees with Air Canada demonstrating that unbundled pricing gives consumers a choice and increases revenues.
Fare wars have already popped up but so far have been restricted to highly competitive routes involving low-fare competition. Internet fare watchers report softening fares between Dallas, Los Angeles, Philadelphia, and Phoenix after JetBlue’s expansion. Austin’s fares did not rise as precipitously as others after Air Tran went in while fares between Denver and San Francisco and Denver and San Diego were down 30+ percent
Last week the International Air Transport Association, saying the industry crisis was deepening, predicted the failure of at least 20 more airlines, now at risk of bankruptcy, according to Director General and Chief Executive Giovanni Bisignani, who did not name the carriers. He noted international passenger growth slowed to 1.3 percent in August after the 1.9 percent growth in July, according to the Wall Street Journal. Freight traffic dropped 2.7 percent, down for the third consecutive month. He already forecast a worldwide industry loss of $5.2 billion for 2008 and $4.1 billion next year
On the heels of his speech Russia’s AiRUnion ceased operations last week before the Russian government could take the five-airline company and make it into a nine-airline company, according to ATWOnline.
Some 233 regional jets and 86 turboprops are part of the 1,000+ aircraft coming out of the worldwide fleet, according to Ascend, which said U.S. carriers were taking 776 aircraft, mostly narrow bodies out of the fleet when previous predictions are at 512 aircraft. That means the loss of five percent of the world fleet and 4.1 percent of seats.
Meanwhile, mainlines are chasing liquidity with numerous transaction over the last few months
• UAL’s financing transactions that will add approximately $275 million of cash prior to year end. The company has completed a $125 million aircraft financing agreement, receiving approximately $60 million with the balance coming in October. United has also executed agreements and agreements in principle to sell certain assets for approximately $140 million. The company received approximately $30 million from these assets in the third quarter and expects to receive approximately $110 million in the fourth quarter. In addition, United intends to substitute certain cash collateral with a letter of credit, generating $10 million in net incremental cash in the fourth quarter.

• AMR Corporation: It raised approximately $300 million through the sale of 27.1 million shares of AMR common stock. Net proceeds to AMR were $294 million. Proceeds from the issuance, which AMR intends to use for general corporate purposes, are included in the Company’s expected total cash balance of approximately $4.9 billion, including a restricted balance of approximately $455 million, at the end of the third quarter of 2008.

• US Airways Group, Inc. completed its recent public stock offering. The transaction included the issuance of 19.0 million shares at a price of $8.50 per share as well as the full exercise of 2.85 million shares included in the overallotment option granted by the company. The net proceeds from the offering were approximately $179 million and will be used for general corporate purposes.

• Frontier Airlines Holdings, Inc.is moving forward with an alternate transaction for post-petition debtor-in-possession (DIP) financing. Republic Airways Holdings, Inc., Credit Suisse Securities (through its affiliates), and AQR Capital each a member of the Unsecured Creditors Committee in Frontier's Chapter 11 Bankruptcy cases, are offering Frontier up to $75 million in DIP financing, with an immediate firm commitment and funding of $30 million. This new DIP facility provides Frontier with lower financing costs, less restrictive covenants and greater flexibility to pursue strategic opportunities without being constrained by more restrictive DIP provisions. The alternate DIP facility is subject to bankruptcy court approval and to various conditions.
Frontier also entered into a Letter of Intent with VTB Leasing to sell six of Frontier's 47 Airbus A319 aircraft to VTB Leasing for onward lease to Rossiya Airlines. This agreement amends an earlier agreement where VTB Leasing was to purchase two A319 and two A318 aircraft. Under the revised agreement, VTB Leasing will not take delivery of the originally agreed upon two A318 aircraft to be delivered in August and will instead purchase an additional six A319 aircraft in August. Frontier Airlines has also reached an agreement on other sale leaseback transactions that further supplement its liquidity position. In total, Frontier will realize approximately $80 million in net proceeds from these transactions.

• Continental Airlines completed its public offering of 11 million shares of its Class B Common Stock at a price to the public of $14.80 per share which yielded about $182 million. Continental has granted the underwriter a 30-day option to purchase an additional 1,650,000 shares of common stock to cover over-allotments, if any. Continental expects the issuance and delivery of the shares to occur on June 25, 2008.