Financial problems continue to mount for the US low fares airlines, with the new Pan American World Airways warning that it is short on cash and could face bankruptcy.

Frontier Airlines also reported big losses in the third quarter, but faces improving prospects with the demise of rival Western Pacific Airlines. The airline also plans a change of direction by opening the door to alliances and starting a first-class service.

In a filing with the US Securities and Exchange Commission, Pan Am warns that it could face failure unless additional loans are secured. Although the cashflow problems have yet to affect flight operations, Pan Am admits that it has been served with lease default notices from aircraft lessors totalling about $4 million. The airline says that it is in talks with the lessors, including International Lease Finance, to defer and restructure payment of the aircraft leases.

Airline Reporting, which handles travel agency sales and refunds, is also demanding $3.3 million of additional security deposits, which were due on 23 February. Pan Am says that it does not have the funds.

The airline adds that it is at "various stages of discussions with several parties" over new financing. NationsBank, which is already owed $20 million, loaned Pan Am a further $5 million in December.

Pan Am, which absorbed struggling Carnival Air Lines last year, has made heavy losses since its start up. Latest figures for the first nine months of 1997 show losses of $53 million. Over the past few months, the airline has been through a senior management overhaul and it suspended its New York-Los Angeles flights to concentrate on a north-south route network.

Meanwhile, Frontier hopes that its problems may now ease following the final closure of Western Pacific earlier this month.

WestPac, the descent of which into bankruptcy in September 1997 was prompted by Frontier's withdrawal from a planned merger, had been waging a war on ticket prices and added a "glut of excess flight capacity" on to Frontier's home market in Denver, Colorado, says president Sam Addoms.

He blames the discounting which followed for Frontier's latest poor financial results. The airline posted an $11.5 million loss for the December quarter, the third in its financial year, but competition may now ease.

Frontier contested more than two-thirds of its route network with WestPac, says Addoms, although it still faces tough competition from United Airlines, the major carrier at the Denver hub.

Frontier remains upbeat, however, unveiling plans to seek marketing alliances with other airlines and charter companies, and to introduce first-class seating on its fleet of Boeing 737s. Frontier now operates seven 737-300s and seven smaller 737-200s.

The market for premium traffic was highlighted by the results coming from Midwest Express. The independent business airline saw net profits rise by nearly 15%, to just under $25 million, in 1997. Passenger yields and load factors edged up over the year, growing strongly in the final quarter, marking a stark contrast with the recent performance of its no-frills counterparts. Midwest plans to add five more aircraft to its fleet this year.

Source: Flight International