A few weeks back, I took Northwest Airlines
Terrorism tops the list of problems. 9/11 sealed the fate of many airlines, particularly United Airlines (OTC BB: UALAQ.OB). While responsibility for the attacks rests on the heads of the madmen who carried them out, they were certainly made easier by lackluster private security firms. This situation has not improved, or at least not enough. Our current "security" doesn't seem much better than a piece of Swiss cheese. Take a look at Annie Jacobsen's article called "Terror in the Skies, Again?" -- which has actually become a miniseries -- and you'll see what I mean.
After 9/11 crippled the industry, things have gotten worse. There are the oil prices. They are well more than $40 a barrel, and given the current geopolitical landscape, I don't see them falling far from current levels. Fuel costs will kill the airlines, unless they raise ticket prices, which they can't because of...
The Internet, which fostered such great competition that ticket prices have plummeted to the point where margins are thinner than ever. That's also created a coming frequent flyer redemption crisis. To attract customers in these lean times, the airlines have been overpromoting ways to collect miles. Mark my words: The day is coming when the airlines will not be able to meet demand for frequent flyer awards without restricting them to the point where the programs become meaningless. Then it's bye-bye, loyalty.
Now management has put itself between a rock and a hard place. To stay afloat, it has been cutting pay and benefits. How long before the employees say "Enough!" and strike? If they do, then it's bye-bye to those airlines, possibly even the extremely well-run ones. The government won't subsidize them indefinitely. The whole system could become regulated again.
Investors have so many other places to put their money. Why put it in a doomed industry?
Fool contributor Lawrence Meyers owns no stocks mentioned in this article.