Rising costs fuel worries about US airlines’ heavy debt loads

A scramble by US carriers to fill empty cockpits is fueling cost pressures just as mounting economic worries have cast a shadow on travel demand, sparking concerns about debt-laden airlines’ ability to repair their balance sheets. Even as ticket sales remain strong, investors worry about consumer spending should the economy slip into recession. They fear carriers might be forced to borrow even more money to fund operations and further delay returning cash through share buybacks or dividends. Some have stayed away from investing in the industry despite a rebound from the pandemic-induced slump, believing carriers do not have enough tools to offset cost pressures. “Airline investors would be better off if the Wright Brothers’ plane crashed and burned,” said Act Two Investors Chairman Jeffrey Scharf, who follows the sector but does not currently own stocks in it. “I can’t think of a worse business – high fixed costs, commodity product, worsening service, alienated customers sick of being nickeled and dimed for every amenity.” For the traveling public, it could mean fewer and packed planes as airlines drive up revenue through higher ticket prices. Reducing debt is a priority for an industry that went on a borrowing binge to survive the pandemic. The big three national carriers – American, United, and Delta Airlines – had $85b in net long-term debt at the end of Q2. Airlines need strong and sustained profits to reduce those debt loads, but rising fuel and labor costs are making that difficult, analysts say.<br/>