TBO.com - TBO is Tampa Bay Online

Potential $13 Billion Loss Weighing On Airlines

ADVERTISEMENT

The Associated Press

Published: June 19, 2008

DALLAS - Airline executives are continuing to cut jobs and consider new fees on passengers as they battle high fuel prices that could result in record losses for the nation's carriers.

Executives from United Airlines gave more details on plans to shed up to 1,600 salaried jobs at an investors' conference in New York on Wednesday.

Chief Financial Officer Jake Brace said United will also cut union jobs - pilots, flight attendants and mechanics - once the airline draws up a scaled-back flying schedule for fall and winter.
Delta Air Lines said it would cut domestic capacity an additional 3 percent later this year, on top of a previously announced 10 percent reduction. The carrier said this year's fuel costs would rise $4 billion from 2007.

Continental Airlines, which boasts about still serving meals in coach, is studying whether it will join the chorus of carriers charging to check a first bag, according to its CEO.

The lone profitable big carrier so far this year, Southwest Airlines, still expects to grow modestly through next year - but that's not a sure thing.

"If we have to slow our growth to zero next year, we're obviously prepared to do that," Southwest CEO Gary Kelly said at the investors' conference.

The common threat hanging over all the carriers is the cost of fuel, which has risen for years and nearly doubled in the past 12 months.

On Tuesday, the Air Transport Association, a trade group for the big airlines, warned that the industry could lose a record $13 billion this year.

Forecasts like that have renewed talk that big airlines could face bankruptcy by early next year unless fuel prices fall or fares rise sharply.

Delta provided a speck of encouraging news Wednesday, saying it expects to post a second-quarter profit, excluding one-time items. Delta lost $6.4 billion in the first quarter, although $6.1 billion was an accounting charge to write down the value of its assets. American said it would take a write-down but didn't give a figure.

Fees Up; Number Of Flights Down

Carriers are responding to high oil prices by raising fares nearly two dozen times this year and increasing fees for everything from toting pets on board to changing itineraries.

American took "a little bit of flack" for imposing a $15 fee on the first checked bag, said Gerard Arpey, the CEO of American and parent AMR Corp. But United and US Airways matched it, and Continental is considering it too, although Continental CEO Lawrence Kellner said he worries about boarding delays as customers try to stuff more in their carry-ons.

Airlines also have announced plans to ground dozens of jets and eliminate many flights once the peak summer travel season ends.

Fewer flights should save the airlines money by burning less fuel, paying fewer pilots and mechanics, and giving them power to raise fares.

"That's good news because the cumulative effect of all these steps will be good for the industry and for American in the long run," said AMR's Arpey.

Now, he said, fares and fees aren't high enough to cover American's fuel bill, which figures to be $7.5 billion higher this year than in 2002.

"If we're going to have an airline business, and I'm pretty sure we are, our customers must ultimately compensate us for the costs that we incur flying them around the United States and the world," Arpey said.

People Still Want To Travel

Despite higher fares and fears of a weakening economy, demand for travel appears to be holding up. In a regulatory filing Wednesday, AMR said its revenue per mile flown by passengers would rise 5.9 percent to 6.9 percent for the second quarter.

Kevin Crissey, an analyst for UBS, said this was better than the 5 percent gain he expected. Still, it did little to improve his bearish view of the company or the industry.

The longer jet fuel prices remain high, "the more concerned about liquidity we become" for nearly all U.S. airlines, Crissey said. Even though AMR has a lot of cash and can raise more by selling assets and mortgaging planes, "cash is draining."

Share this:

Loading Comments...

Email Print

ADVERTISEMENT