Flying Becoming More Expensive

The red ink is mounting for airlines amid soaring fuel costs, leaving them little choice but to further increase ticket prices. As Delta Air Lines and American Airlines reported big second-quarter losses last week, they signaled customers should expect more hits to their checkbooks.

There are signs overall demand for flying within the United States is softening, but industry observers insist that will not stop rising fares, more fees and fewer domestic flights.

"The first thing they have to do is forget about the butts in the seats and worry about the bucks in the till," Minneapolis airline expert Terry Trippler said.

That point was underscored as Atlanta-based Delta Air Lines reported a $1.04 billion loss in the April-June quarter and Fort Worth, Texas-based AMR Corp., the parent of American, posted a $1.45 billion loss for the quarter. One-time charges and unprecedented fuel costs affected both airlines, which saw their shares soar as their results beat Wall Street expectations and oil prices dropped.

The two carriers have posted combined net losses of $9.2 billion since the start of the year.

"Clearly, with fuel at these record levels, there's no question ... airfares need to go up," Delta President Ed Bastian told reporters. "Will there be a tipping point where demand is going to be affected? I think there already is a bit of a tipping point."

According to Department of Transportation statistics, the number of domestic passengers carried by U.S. airlines decreased 3.3 percent in April from a year earlier. Fares have risen more than 20 percent across the country since January, and went much higher in smaller cities, said Rick Seaney of FareCompare.com.

AMR chief Gerard Arpey said high fares in a sluggish economy will cause some people to stop flying.

"We don't believe we're at that point yet, so we continue to believe the industry can sustain - we can sustain - higher prices, so we're raising our prices," Arpey said.

At Minneapolis-St. Paul International airport last week, Mark Davidson of Atlanta said he and his wife and four teenage daughters usually fly twice a year from Minneapolis to Fargo, N.D., to visit family in northern Minnesota. But after pricing those tickets at $700 apiece, he said they probably will fly into Minneapolis and drive the rest of the way next time.

Airlines find themselves in a fight for survival as they furiously try to conserve cash to keep their operations going.

Delta said it expects $2 billion in cost savings by 2012 from its planned acquisition of Northwest Airlines. That is double what it estimated when it announced the deal on April 14. It also said it expects to spend $600 million to integrate the two companies, compared with an earlier projection of $1 billion.

Delta's Bastian said he is looking at unspecified cash-raising opportunities. He told reporters Delta is studying a fee on the first piece of checked baggage. But, he said, "We have no plans to implement it at this point."

Delta's loss for the three months ending June 30 amounted to $2.64 a share, compared with a profit of $1.59 billion a year ago when Delta emerged from bankruptcy protection. It did not provide a per-share figure for the year-ago period.

Excluding one-time items, Delta earned a profit of $137 million, or 35 cents a share, in the second quarter. Analysts polled by Thomson Financial, on average, forecast profit of 10 cents a share. Their estimates usually do not include one-time items.

Revenue rose 10 percent to $5.5 billion.

Delta recorded special charges totaling $1.2 billion in the second quarter, including a $1.1 billion noncash charge, net of a $119 million tax benefit related to the decline in Delta's market value due to record fuel prices.

Delta ended the quarter with $3.3 billion in unrestricted cash and short-term investments. It also has $1 billion under a revolving credit line.

Delta spent $1.68 billion on aircraft fuel and related taxes in the second quarter, compared with $1.11 billion a year ago.

Delta intends to cut domestic capacity by 13 percent during the second half of the year. The company is planning to remove the equivalent of 100 regional aircraft from its system by the end of the year.

American's parent, AMR, said its loss in the second quarter was equivalent to $5.77 a share, compared with a profit of $317 million, or $1.08 per share, a year ago.

Excluding special charges to write down the value of its fleet, AMR said it would have lost $284 million, or $1.13 per share. The company's revenue rose 5.1 percent to $6.18 billion.