Low-cost airlines soared this decade with cheap fares and helped push several traditional US carriers into bankruptcy, but their struggles and failures now are providing little relief for troubled bigger rivals.
Aside from fare increases in selected markets, it is unclear how major airlines, now cutting domestic service to stay aloft, would react to additional weakness and unwinding in the low-cost sector.
Smaller airlines most likely to fail are those that depend on discretionary travel, and that market has little appeal for large network carriers courting business travelers, said airline consultant Robert Mann.
"I don't think (legacy airlines) are seeking those customers. So I don't think it affects them directly," he said.
In the past several months, seven small US airlines have stopped operating due to record high fuel prices and softening travel demand. These included Skybus Airlines, ATA Airlines and Aloha Airlines.
While new potential bankruptcies do not appear imminent, analysts have this month amplified their concerns about worsening finances at low-cost airlines, especially for 2009.
"It's no secret that a couple of them are in a much more precarious liquidity position now than their large competitors," said William Warlick, a senior director at Fitch Ratings.
Moody's Investors Service this month downgraded debt ratings for AirTran Airways parent AirTran Holdings, and forecast a "material deterioration" of the airline's cash position unless market conditions improved. Privately held Midwest Airlines, a staunch competitor of AirTran, is cutting flights, reducing its work force by nearly half, and seeking employee concessions.
Frontier Airlines has been in bankruptcy since April.
Warlick, in a report last week, said the industry's current structure is "unsustainable" with fuel prices up more than 50 percent this year and cash flows weak. He said "multiple bankruptcies and liquidations are increasingly likely" in 2009, with credit markets getting tighter than ever. The analysis includes major carriers.
Analysts warn the chances of liquidation are greater now than in the past due to higher fuel prices, softening US economic factors, and generally cloudy prospects for long-term industry investment.
Low-cost carriers -- excluding Southwest Airlines, which reported a USD$321 million quarterly profit on Thursday -- have collectively little impact on overall airline service. They have, however, made trouble for their bigger rivals in selected cities.
For instance, Midwest Airlines controls less than 1 percent of the overall market based on revenue collected per passenger per mile flown, according to industry data compiled by the US Transportation Department. But it controls more than a third of service in Milwaukee, where Northwest Airlines also flies, and 10 percent in Kansas City, which is also serviced by Southwest and American Airlines.
AirTran claims a 2.5 percent overall share but 21 percent of flights at Atlanta, where Delta Air Lines is based, and 12 percent in Baltimore, where Southwest is the largest single carrier.
Frontier claims 1.5 percent of nationwide business but controls 21 percent of flights in Denver, where United Airlines dominates.
Southwest also has ramped up service in Denver, putting pressure on Frontier, and could fill a void if other markets were vacated.
JetBlue Airways and Alaska Airlines parent Alaska Air Group, remain relatively healthy low-cost players, although both reported losses in the most recent quarter after reporting profits in the year-earlier period.