Cash Cushion Helps Big Airlines, for Now
April 4th, 2008
Two ATA Airlines planes are shown idle as a Southwest Airlines passes by at Oakland International Airport in Oakland, Calif., Thursday, April 3, 2008. ATA Airlines shut down operations and stranded thousands of travelers Thursday when an unexpected loss of key charter flights and soaring fuel costs forced the carrier into bankruptcy. Once the nation's 10th-largest air carrier, ATA entered bankruptcy for the second time in just over three years. (AP Photo/Paul Sakuma)
By JOSHUA FREED – 9 hours ago
A slowing economy and high fuel prices appear to have killed off tiny ATA Airlines, Aloha Airlines, and Champion Air. A big pile of cash will keep the big airlines from that same fate, for now. It’s not that the big carriers aren’t buffeted by the same forces that shut down ATA on Thursday and Aloha on Tuesday. Champion Air, a Minnesota-based charter airline, will stop flying by May 31.
But the nation’s biggest airlines have hoarded some $19 billion in cash as of the end of 2007, according to a tally by Calyon Securities analyst Ray Neidl. Even if fuel stays at today’s levels and revenue drops 2 percent, they would still have $14.7 billion in cash at the end of 2009, under Neidl’s estimate.
That’s less cash than the 10 percent of revenue they like to keep, but enough to hold off a crisis, analysts say. The only carrier in Neidl’s analysis with less than 5 percent of revenue in cash at the end of 2009 would be Frontier Airlines, which would have just $4 million by then.
He believes the older hub-and-spoke airlines “and most of the low-cost carriers will survive the weak economic environment and high fuel prices over the next two years, though with not much room to spare,” he wrote in a note on Saturday.
Tags: air, ata