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Record oil deals fresh blow to airlines
By Matt Andrejczak, CBS.MarketWatch.com
Last Update: 2:31 PM ET July 28, 2004
SAN FRANCISCO (CBS.MW) -- The floundering airline industry suffered another blow Wednesday as crude oil prices hit a record high $43 a barrel on the New York Mercantile Exchange.
Continental Airlines , Delta Air Lines , Northwest Airlines and United Airlines are especially vulnerable to the spike in oil because they are the least hedged against rising fuel prices, one analyst said.
Surging oil prices might also jeopardize restructuring at Delta and US Airways Group, which are frantically searching for ways to cut costs to avoid tumbling into bankruptcy.
Shares of the AMEX Airline Index skidded to a 13-month low on the news, slipping 3.15 percent in mid-afternoon trades.
Airlines had expected to improve financially this year with the rebound in travel and cost cutting. But soaring oil prices soured second-quarter earnings at all airlines, even profitable discount carriers like Southwest Airlines and JetBlue Airways.
"Everything they are saving is being given back in fuel costs," said Benchmark Co. analyst Helane Becker.
In the latest quarter, fuel costs rose 54 percent year-over-year at Delta, 42 percent at American, 34 percent at Northwest, and 29 percent at Continental. JetBlue and Southwest reported a 22 percent increase.
For the rest of the year, Southwest is best guarded against exorbitant oil prices. About 80 percent of its fuel costs are capped below $24 a barrel. JetBlue is 45 percent hedged at $25 a barrel, according to the filings with the Securities and Exchange Commission.
By contrast, Northwest is only 25 hedged at prices ranging from $34 to $41 a barrel. Continental is 45 percent hedged between $32 and $40 a barrel.
US Airways, whose fuel hedge positions helped boost its second-quarter results, said it is about 33 percent hedged at prices of less than $26 a barrel.
Delta projects its 2004 fuel costs will be $680 million higher than 2003, while American estimates it will pay $268 million more for fuel.
After the latest round of dismal earnings results, surging fuel prices do not bode well for what is expected to be a challenging third-quarter for airlines. Weak ticket prices and too much capacity is hurting yields at most airlines.
Said BB&T Capital Markets analyst Tony Cristello: "Recovery of any magnitude is pushed off well into 2005."
By Matt Andrejczak, CBS.MarketWatch.com
Last Update: 2:31 PM ET July 28, 2004
SAN FRANCISCO (CBS.MW) -- The floundering airline industry suffered another blow Wednesday as crude oil prices hit a record high $43 a barrel on the New York Mercantile Exchange.
Continental Airlines , Delta Air Lines , Northwest Airlines and United Airlines are especially vulnerable to the spike in oil because they are the least hedged against rising fuel prices, one analyst said.
Surging oil prices might also jeopardize restructuring at Delta and US Airways Group, which are frantically searching for ways to cut costs to avoid tumbling into bankruptcy.
Shares of the AMEX Airline Index skidded to a 13-month low on the news, slipping 3.15 percent in mid-afternoon trades.
Airlines had expected to improve financially this year with the rebound in travel and cost cutting. But soaring oil prices soured second-quarter earnings at all airlines, even profitable discount carriers like Southwest Airlines and JetBlue Airways.
"Everything they are saving is being given back in fuel costs," said Benchmark Co. analyst Helane Becker.
In the latest quarter, fuel costs rose 54 percent year-over-year at Delta, 42 percent at American, 34 percent at Northwest, and 29 percent at Continental. JetBlue and Southwest reported a 22 percent increase.
For the rest of the year, Southwest is best guarded against exorbitant oil prices. About 80 percent of its fuel costs are capped below $24 a barrel. JetBlue is 45 percent hedged at $25 a barrel, according to the filings with the Securities and Exchange Commission.
By contrast, Northwest is only 25 hedged at prices ranging from $34 to $41 a barrel. Continental is 45 percent hedged between $32 and $40 a barrel.
US Airways, whose fuel hedge positions helped boost its second-quarter results, said it is about 33 percent hedged at prices of less than $26 a barrel.
Delta projects its 2004 fuel costs will be $680 million higher than 2003, while American estimates it will pay $268 million more for fuel.
After the latest round of dismal earnings results, surging fuel prices do not bode well for what is expected to be a challenging third-quarter for airlines. Weak ticket prices and too much capacity is hurting yields at most airlines.
Said BB&T Capital Markets analyst Tony Cristello: "Recovery of any magnitude is pushed off well into 2005."
