Delta Air Lines, Inc. (DAL), United Continental Holdings Inc (UAL), US Airways Group Inc (LCC): Will Airlines Ever Take Off?

What investors can easily understand is that American Airlines, having been placed in bankruptcy court, surely will have no net equity on its balance sheet, which now shows a negative equity of more than $8 billion.

Upon American’s merger with US Airways Group Inc (NYSE:LCC), all these equity losses must be absorbed by US Airways Group Inc (NYSE:LCC), which has only about $800 million in total equity. The result is a new equity hole for the combined company, no matter what kind of debt and cost restructuring can be put in place to narrow the problematic net-asset gap that brought about American’s bankruptcy.

Bleak outlook

The bleak financial situations for all the legacy carriers are the result of the many legacy problems faced by the airline industry. If not much can be saved from their multi-million dollar aircraft, pricey fuels and costly employee pay and benefits, and nothing can be made better with regard to demanding-airport owners and bureaucratic FAA and TSA, the only thing that airlines can have a control over is trying to generate more ticket sales.

But unfortunately, popular talks that dominate among airlines are to reduce fleet capacity so to squeeze more savings from doing less, implying that the size of air- travel revenue is always a given and airlines have to be reactive. Not a winning strategy.

There could be potentially some ways to promote air travel and increase ticket sales. If the performance benchmark for the airline industry is all about revenue per seat per mile flown, why not encourage more group travels, sponsor some event travels or coordinate new lines of air-travel services with other tourist- services organizations on the ground?

Simply waiting for customers to show up by means of periodic price promotion and image ads is not enough, nor it’s acceptable to blame travel slowdowns in business and leisure without having tried to influencing them. While all businesses have to continually update their products and services to grow, airlines seem to be the only industry that hopes to make do without any innovation.

The bottom line

Airlines may be a nice place to work for with their generous pay and benefits, but are the companies working hard for investors? The way airlines are running today, not much, if anything, can be left as investment returns to investors after all the costs and expenses elsewhere.

The article Will Airlines Ever Take Off? originally appeared on Fool.com and is written by Jay Wei.

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