Airlines Need Steeper Prices, a Shakeout, to See Profits

Industry knows crisis management, but future hazy
By Matt Cantor,  Newser User
Posted Jun 8, 2009 10:00 AM CDT
In this file photo taken Feb. 6, 2009, tarmac workers prepare a United Airlines Airbus 320 for departure from a gate at Denver International Airport in Denver.   (AP Photo/David Zalubowski, File)
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(Newser) – The airline industry, an old hand at crisis aversion, is holding its own in the recession by cutting costs, along with fares, the Wall Street Journal reports. But higher prices to consumers—and a major shakeout—would be needed to get even close to profitability. The industry expects to lose $9 billion this year, the AP reports, and international passenger traffic dropped 9.1% in the first 3 months of this year compared to 2008.

The key issue: too little demand. Companies know how to make adjustments, like charging for checked bags even as ticket prices slump, and scoring concessions from staff. But these survival tactics won't work for the long run. "If airlines don't cut enough now, the industry will come out of the downturn with too much capacity to make money in the upturn,” says an analyst.