US airlines resume market slide on oil price spike
A record one-day spike in global crude oil prices on Friday pushed the anticipated fuel bill for U.S. airlines up by more than $4 billion, driving down shares and heightening uncertainty about industry prospects.
By Agencies |
WASHINGTON:A record one-day spike in global crude oil prices on Friday pushed theanticipated fuel bill for U.S. airlines up by more than $4 billion, driving downshares and heightening uncertainty about industry prospects.
"Things just got worsefor us today," James May, the top lobbyist for carriers as chief executive ofthe Air Transport Association, told Reuters. Airlines are particularly sensitiveto price increases with carriers spending more on jet fuel than any otherexpense. Domestic airlines are expected to pay more than $61 billion for fuelthis year, $20 billion more than the tab for 2007, the ATA estimates. The figureaccounts for some of the pending capacity cuts, imposed by the biggest airlinesto counter high fuel expense.
May's group estimated thatFriday's $10 jump in crude prices -- if it sticks -- added more than $4 billionto the industry's annual bill. U.S. crude
A handful of smallairlines have gone out of business this year. Frontier Airlines is operatingunder bankruptcy court protection. "I know one thing, people can't afford to flyand so you're seeing a decline in revenue and increasing costs that willprobably result in more bankruptcies in this industry," former Continental chiefexecutive Gordon Bethune told CNBC. Airlines have imposed multiple fareincreases this year to try and offset oil priceincreases.
United Airlines, aunit of UAL Corp, and Continental Airlines Inc this week became the latestdomestic carriers to announce plans for grounding planes and eliminatingthousands of jobs as part of industry capacity reductions to offset high oil andslackening demand due to a weakening economy. Bill Warlick, a senior analyst atFitch Ratings, said liquidity cushions at major carriers are sufficient for nowbut believes another round of capacity cuts could occur later in the year iffuel prices continue to climb this summer.
"Schedule planners are goingto look hard at where they can cut further, if it's necessary," Warlick said.Already depressed shares of the biggest airlines, which rallied modestlymid-week on their capacity reduction plans and prospects for higher fares,resumed their downward slide on Friday. The Dow Jones industry average recordedits worst sell-off in 15months.
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The Dow JonesTransport Average, led by airline declines, fell 4.4 percent. The AMEX AirlineIndex was off 6.9 percent. UAL Corp dropped 14 percent to $8.64; Delta Air LinesInc fell about 8 percent to $6.30; AMR Corp , parent of American Airlines wasoff nearly 9 percent to $7.13; Northwest Airlines Corp dropped nearly 9 percentto $7.34, and Continental was off nearly 9 percent to $13.87. US Airways GroupInc fell about 7 percent to $4.12. Low cost carriers also took ahit.AirTran Holdings Incdropped more than 7 percent to $3.11 and JetBlue Airways Corp fell more than 6percent to $4.04. Industry leader, Southwest Airlines Co was off nearly 4percent to $13.68. Southwest is currently less vulnerable to higher fuel pricesbecause of strong hedges. May blamed this year's unsustained surge in oil priceson market speculators and called on Congress to close trading loopholes.
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