The turnabout reflects the headwinds that have buffeted the industry as oil prices have risen 75 percent in the past year and the housing slump has mushroomed into a broader credit crisis, making it hard for many businesses and households to borrow and prompting consumers to cut back on spending. Most economists now think the U.S. has slipped into a recession, and the debate is shifting to how deep the downturn will be.
Other industries, from the nation's beleaguered banks to retailers and automakers, are facing similar pressures. But the major airlines, many of which have spent long periods under bankruptcy protection in recent years, worry they are especially vulnerable.
Last week Delta Air Lines announced that it was offering buyouts to 30,000 of its 55,000 employees, hoping 2,000 will leave the company voluntarily. Delta, which also said it will cut domestic flying capacity by another 5 percent, has trimmed 10 routes from Salt Lake City International Airport since January.
Continental Airlines Inc. expects to pay $1.5 billion more for fuel this year than last, Chief Financial Officer Jeff Misner told a J.P. Morgan aviation conference earlier this week. ''Maybe we'll throw a recession on top of that . . . and a weak dollar just to kind of make sure it stays real, real interesting,'' he added.
Glenn Tilton, chairman and CEO of United Airlines parent UAL Corp., told workers earlier in the week, ''This industry has serious challenges ahead. Continued uncertainty about the overall U.S. economy, with the price of fuel at historically high levels, has put significant pressure on all U.S. carriers.''
Consolidation was expected to help insulate the domestic carriers from such difficulties and better prepare them to compete with rich overseas rivals. But a proposed merger of Delta and Northwest Airlines that was supposed to jump-start the dealmaking appears to have run aground because the airlines' unionized pilots can't agree on a common seniority system.
On Wednesday, Delta's pilots rejected the Northwest pilots' suggestion that they take their dispute to binding arbitration. It isn't clear whether Delta and Northwest are willing to proceed without a pilots deal, or whether they will throw in the towel on the merger.
Doug Steenland, CEO of Northwest, recently told his employees that the ''dramatic, radical'' run-up in fuel prices is frustrating the industry. ''Our stock has declined precipitously and, as we share this bleaker outlook, we anticipate at least $1.7 billion in higher fuel costs'' from what the company foresaw in May when it was preparing to leave bankruptcy-court reorganization, he said.
Merrill Lynch predicts that the eight largest U.S. carriers will post combined losses of $1.5 billion this year, compared with a previous forecast for a collective profit of $1.7 billion, although Delta and others are not ready to write off profitable years just yet.
Other industry analysts warn of a slump in travel demand starting in the second quarter.
The airlines have hoarded big piles of cash, estimated at nearly $25 billion at the end of 2007. But with jet-fuel prices around $132 a barrel, those cash piles could shrink fast, putting carriers in danger of breaching debt covenants with lenders.
Bill Warlick, an airline-debt analyst at Fitch Ratings, said if aviation-fuel prices remain constant for the rest of the year, potentially $10 billion or more of the airlines' cash ''could fly out the window.''
Warlick expects cash to get tighter this year if there isn't a pullback in fuel prices or an airline merger. If those stresses continue into 2009, he said some airlines could find themselves cash-strapped enough to file for Chapter 11 bankruptcy protection and some, potentially, could be forced to liquidate.
For now, the situation isn't uniformly grim. Most of the major airlines were profitable in 2007 as a whole, though several slipped into the red in the fourth quarter because of higher fuel costs.
Airlines were successful at pushing through fare increases last year and have negotiated several increases this year, including $60 on round-trip fares by Delta. Travel demand also remains strong, with carriers reporting that 75 percent or more of their domestic seats were filled in January.
It was a reduction in travel demand in early 2001 that presaged a severe downturn for the airlines. That plunge was exacerbated by the Sept. 11, 2001, terrorist attacks and a spike in fuel costs. Since 2001, four big airlines (including Delta) and many smaller ones have been through bankruptcy court and others reorganized under the threat of a bankruptcy filing. Collectively, the airlines laid off 170,000 workers - or about 38 percent of their labor forces - cut wages and benefits, and pared other expenses.
That's left them with scant room to make further cost reductions, said John Heimlich, chief economist for the Air Transport Association trade group. ''Unlike the last cash crunch, it's a lot harder to find things to cut this time.'' Carriers can either cut costs or increase revenue, he said, ''and they're still trying to find the revenue angle.''
If oil had stayed at $50 a barrel, the industry would have been highly profitable. But the price of oil has more than doubled since 2004, and the difference between the cost of a barrel of crude and a barrel of jet fuel - the so-called crack spread - has widened dramatically as refiners have boosted their profit margins on aviation fuel, capitalizing on a lack of refining capacity by charging airlines more.
So when crude-oil prices drop, airlines don't always see immediate relief.
Experts expect the airlines to speed up their domestic capacity reductions, attempt more fare increases where they can, fan out even more of their planes to international routes, force their commuter-carrier vendors to jettison inefficient 50-seat jets, and ground more of their own gas-guzzling aircraft. But shrinking never has proved to cut costs as much as airlines would like because many of their costs are fixed. Thus unit costs - the cost required to fly each seat one mile - can rise even as airlines downsize.
