USA Today: Airlines Emerge from Profit Killing Oil Slick

• United's decision to end free meals on certain flights – including on some trans-Atlantic routes – appears to have struck a chord with frequent-fliers. United sent a memo to its workers Monday detailing the changes, which included the elimination of free meals for coach-class customers flying between United's Washington Dulles hub and Europe. Also eliminated: complimentary meal service in domestic business class.
  
• "With so much bad news breaking lately, travelers have become pretty inured to the next fee, the next service cut, the next frequent flier devaluation, the next flight cancellation," Winship says. "In that context, any response at all is noteworthy. And the reaction so far to United's suspension of meal service on some international flights has been vociferously negative."
• "This is not necessarily new, just the latest in a long line of claw-backs of services and amenities that were once complimentary."
• "I am furious and outraged with United's change," says Emil Amato, of Los Angeles. Amato says he's ready to change to a new primary carrier, adding that he's already contacted other airlines to see if they'll match the 100K status that he currently holds in United's Mileage Plus frequent-flier program.
• Premier Executive- Mileage Plus member Michael Berman of Monroe, Wash., is another who says the move doesn't make sense. "It boggles my mind to think that they are not going to be serving meals in coach on trans-Atlantic flights," he says. "As far as the removal of meals in domestic business class, United seems to be intent on alienating its loyal, most profitable customers with this nickel-and-diming. I'm fed up enough to be very seriously considering switching my loyalty to Alaska."

• In early July, U.S. airline stocks were so battered you could buy one share each of five big airlines for less than the cost of checking a single bag. With oil prices then approaching $150 a barrel and air travel demand sinking, Wall Street's view was that most of the USA's airlines were destined for bankruptcy reorganization — some for liquidation — when their cash ran out within 18 months. One or two, the thinking went, would be toast by spring.
• ....conventional wisdom about airlines' survivability is changing rapidly, thanks in large measure to a $30-plus drop in the price of a barrel of oil. Don't get too excited yet — airlines' financial health is notoriously volatile. But a combination of factors could help most, maybe even all, of the USA's big airlines dodge the bankruptcy filings and liquidations so widely predicted only a few weeks ago.
• Over the last five months airlines have laid in deep capacity cuts, boosted fare prices by unprecedented amounts, and begun generating lots of new revenue by charging fees for services that used to be included with the ticket price.
• They've also refinanced debt, sold assets, and issued new stock to build up extra cash in hopes of surviving long enough for one or more of their competitors to fail — an event that presumably would greatly improve the surviving carriers' health overnight. Airlines, however, may not have to wait for one of their number to fail in order to get healthy financially.
• And though most carriers still can't turn a profit at existing jet fuel prices, they're getting close to the break-even point. Another $10 to $15 drop in the price per barrel, which some oil experts now say is possible, will have most of them back in the black. Analysts at both Morgan Stanley and JPMorgan Chase even are suggesting that the haggard industry could be profitable in 2009.
• JPMorgan analysts Jamie Baker and Mark Streeter told investors in an Aug. 12 report that the "industry today is a significantly different one than that which gave us pause last March." The carriers' recent capacity cuts, decisions to ground old, fuel-inefficient planes and to boost revenue via higher fares, and the imposition of new and larger fees are likely to be long-lasting changes, Baker and Streeter wrote.
• Millions of travelers remain steadfastly loyal to their airlines, King says, don't seem to be fazed much by rapidly rising fares, and will continue flying almost no matter what. That means airlines will continue to have large, predictable streams of revenue that will be highly valued by lenders and creditors, even when revenue doesn't cover operating costs. (doesn't make sense to me, but hey lenders have shown a lot of foresight the past half decade... what's that? Oh. Nevermind) Those lenders and creditors would rather keep airlines flying and generating cash than repossess collateralized assets such as airplanes that would be idled for months, or even permanently, by a repossession. (the parallels to the housing market are striking - but this would explain why lenders are constantly changing the terms of their convenants with the homebuilders when I assumed at least 2 major names would be bankrupt by now)
• Lower fuel prices and the carriers' recent dramatic operational and financial maneuverings have helped ease the crisis, but it has not entirely passed. Delta and US Airways are moving close to what Neidl calls the bankruptcy/liquidation danger zone based on their cash and short-term investments at the end of June as a percentage of their revenue over the previous 12 months. The danger zone, he says, is a ratio of 10% or less. Delta's cash-to-revenue ratio on June 30 was 16.1%, while U.S. Airways' was 17.4%. Both are addressing that issue.
• United, though, remains the closest to Neidl's danger zone, with a 14.1% ratio of cash to revenue. That ratio will rise a few points after United picked up $600 million in cash in July by renegotiating its affinity credit card deal with Chase Bank. Neidl's also concerned that United's projected cash burn for the coming winter will be larger than at most other airlines.

STRONGEST
28. 5%: Southwest

LIKELY SURVIVORS
21.6%: AMR
27.4%: Alaska
23.2%: Continental
16.1%: Delta
24.5%: Northwest

STRUGGLING
19.5%: AirTran
29.1%: JetBlue
14.1%: UAL
17.4%: US Airways

• Shares of UAL (UAUA), United's parent, have risen nearly 350% in five weeks, while shares of Continental (CAL) and AMR (AMR), American's parent, have gone up about 150%.