Airline bankruptcies cast doubt across industry

By Kyle Peterson - Analysis

CHICAGO (Reuters) - The failure of four small U.S. airlines in one week has sent a chill through the industry, especially the so-called low-cost carriers in fringe markets, as they grapple with record fuel prices and a softening economy.

Pressures have been squeezing all airlines in recent months, and they finally got the better of Aloha Airlines, Champion Air, ATA Airlines and Skybus Airlines, which all said last week they had ceased flying.

The carriers operated in niche markets where, unlike more diversified rivals, they had fewer options for offsetting fuel bills when the price of oil climbed above $100 a barrel.

Experts say some of the smaller low-cost airlines such as Frontier Airlines FRNT.O and Virgin America must be acutely aware of difficult conditions as they struggle to expand their reaches in domestic markets, battling more entrenched rivals like JetBlue Airways Corp (JBLU.O: Quote, Profile, Research) and Southwest Airlines Co (LUV.N: Quote, Profile, Research).

"It's a shocking series of things that have happened," said Stuart Klaskin at KKC Aviation Consulting. But, so far "we've not yet seen a true, established low-cost carrier fall by the wayside," he said.

Discount carriers like Southwest and JetBlue used their low-cost models and simple point-to-point route structures to poach business from their largest rivals, including AMR Corp's (AMR.N: Quote, Profile, Research) American Airlines and UAL Corp's (UAUA.O: Quote, Profile, Research) United Airlines.

But the smaller discount carriers have started to look vulnerable.

"Carriers that are sort of the fringe market may in fact be weaker," Klaskin said. "You have to start looking at the weaker sisters of the low-cost carriers."