Here we go again another summary of a 3rd party “financial ratings” report on airlines where I have to ask myself “did they actually read the entire report”? CNNMoney.com this time with “Bankruptcies Loom for Airlines” which purports to summarize the latest Fitch Ratings Report entitled “Airline Credit Navigator Summer 2008″. I took the time to read the report this evening cover to cover (all 23 pages — the last 10 of which were piles of financial numbers) and it appears this summary article did a mighty good job of cherry picking the salacious bits — imagine that. Lets breakdown this doom & despondency piece and maybe shed some light on things …

First I am not an airline stock analyst nor do I spend a lot of time looking over liquidity financials for domestic U.S airlines, but as CEO of FareCompare.com I am very aware of airlines comings and goings because my company depends on people shopping for airline tickets — the last thing our employees nor the air travel consuming public needs is one government regulated U.S. airline by the end of 2009.

Second, I expect people to take on my writing when they see fit and I don’t mind taking on a writer when it appears they glossed over some relevant bits …

Fitch basically offers “in depth credit score” reports — in this instance for airlines — rating “credit worthiness & health” based on airlines current balance sheets and forward looking projections (fuel, demand, etc), thus providing a scorecard for potential lenders and/or investors.

The first key quote the CNNMoney summary article is:

“… moving into 2009, multiple airline bankruptcies and liquidation are increasing likely.”

Well this isn’t really shocking, we all are experiencing the pain of fuel costs (as it dropped over $10 a barrel in the past 24 hours) and if it stays this way for a prolonged period of time a lot more than airlines “will be increasingly likely” to fall into bankruptcy and liquidation.

Then we move on to the “prediction” section of the article — you know — the water cooler talk about who will be the next airline to go bust — CNNMoney notes:

Fitch said the airlines that will have the most difficult time generating enough revenue to cover rising costs include United, Delta, US Airways, Southwest, and JetBlue. American Airlines and Continental were listed as “stable.”

I began to scratch my head “Southwest and JetBlue in most trouble … American stable?”

What the author didn’t take the time to recognize is that the Fitch report posts their “most recent ratings” for each airline (along with a page or so of “why”) and guidance (outlook) on what they expect the rating to be in the next “rating period” — (negative foreshadowing a potential downgrade and stable no change in the next cycle).

So here are the ratings from the Fitch Report (worst to best, with their guidance for the next rating period):

• US Airways - Rating CCC, Outlook Negative
• American - Rating B-, Outlook Stable
• United - Rating B-, Outlook Negative
• Continental - Rating B-, Outlook Stable
• JetBlue - Rating B-, Outlook Negative
• Northwest - Not Rated (pending merger)
• Delta - Rating B, Outlook Negative
• Southwest - Rating A-, Outlook Negative

It appears that all things considered US Airways is on the hot seat (assuming Fitch is accurate).

The report goes on to note that “Southwest Airlines maintains its ‘Last Airline Standing’ position” in the potential industry shake out (Guess that tidbit slipped by as Southwest is noted in the group of “strugglers”) and also notes that US Airways & midsize airlines like Midwest and Spirit are at the most risk.

Further they note that if/when one major airline went bust it would shore up other airlines (they would lose a competitor, supply/demand would change dramatically — making it easier for higher prices to stick).

The other thing I noted as I read the Fitch report was there was little mention of the new revenue generated by increases on existing fees (phone reservations, ticket changes etc) nor the new fees for checked baggage and sodas. I can only surmise this report was months in the making or these new “monies” were not deemed to have a major bottom line impact for the rest of the year.

This summary article finishes up with a bold section head “Crash Could Come After Labor Day” — by my count that would be about 7 weeks from now … The quote to support this theory:

“After Labor Day … all the U.S. legacy carriers will see a rapid erosion of cash levels that could threaten their survival in 2009 if adverse fuel trends continue”

Fortunately the section ends withsome backside covering as the article begrudgingly notes “Not all analysts are sure bankruptcy is imminent …”

From my reading lately some analysts are worried the capacity cuts (8-15% depending on airline) are not going to be deep enough by the end of the year.

If the point of the article and the report was to let us know that fuel prices and airline health are inversely proportional, I think most of us who have turned on a radio, watched TV, got an unsolicited email from 12 airline CEO’s or read a paper — have pretty much “gotten the message” …