Summary
It seems axiomatic that liquidity will determine how long US carriers can survive, as the referenced article details, but in fact there's more to it than that. The article itself is an excellent piece of airline financial analysis by serious industry professionals rather than bloggers and other observers and as such is worth developing slightly.
Analysis
Which US carrier will fail first? US Airways? American Airlines? United Airlines? Someone else?
Based on what? Speculation, rumor, a bad experience someone once had, or hard financial reality? The article deals with the latter, and is a great example of fact-based analysis rather than agenda-driven podcast blathering.
I first started work analyzing US airlines on October 1st, 1979. It was a Monday. The company was Defense Marketing Services (DMS), formerly of Greenwich, CT, with a UK office in Henley-on-Thames, Oxon, host to the ultra-posh annual Henley Royal Regatta.
Why the trip down Memory Lane? Not just to emphasize longevity and credentials, but to raise the fact that back in those days airlines bought airplanes, aircraft finance was a balance-sheet issue rather than the entire market sector it is today and leasing was something you did with office furniture. No fax machines, no mobile phones, no desktop computers, no internet and, crucially, no profitable US airline industry, give or take the odd year and despite extensive protectionist regulation.
In other words, the US airline industry has long suffered from liquidity issues which are no different from those the space is facing today in the current downturn. Back in the '70s and '80s, it was still possible to fly First Class on a large number of transcontinental US routes, which greatly enhanced the balance-sheets of the bigger players. Not any more.
So, even if liquidity is seen as the determinant today, it was actually ever thus. Airlines aren't charities, and the list of US carriers to have failed or disappeared for ultimately financial reasons in recent decades clearly testifies (off the top of my head, I remember Braniff, Pan Am, TWA, Air Florida, Overseas National, Midway and ValuJet, amongst very many others).
Perhaps the headline should read, Is There a Strong Carrier Amongst US AIrlines Today? Not US Airways, American or United, that's for sure.
Doug McVitie consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
