Credit Suisse: Airlines are in Trouble

5/27 - "Credit Suisse is reviewing its earnings estimates and ratings of airline stocks following the continued surge in crude prices. CS expects most of the industry to remain solvent."

'Contrary to stock performance, the airlines remain solvent, and we expect most will. [translation: Some will go bankrupt]...our contrarian view that the industry would be profitable with crude at $105 to $115 goes to a mostly consensus view that crude at $125+ is problematic for earnings...Double-digit CASM (cost per available seat mile) increases require double-digit RASM (revenue per available seat mile) increases, or fare increases of roughly 15%-25% depending on the airline...if the industry could claw back fares from 2000, it could offset in good part crude prices that are now 354% higher.'

'The pricing power needed may not seem great, but given low cost carrier hegemony, legacy carriers lack the pricing power needed in light of the current capacity backdrop. And although corporate travel and leisure demand still appear strong near-term (relative to reduced capacity), we understand that once corp travel budgets are spent this year, they're unlikely to be replenished...the industry does need to cut 15-20% capacity for starters, but at this point, it's poorly positioned to do so.'

"CS is therefore cutting its rating of US Airways (LCC) to Underperform from Outperform. Southwest (LUV), Delta/Northwest (DAL)/(NWA), JetBlue (JBLU), and AirTran (AAI) remain rated Outperform."