And so it begins...
http://www.ajc.com/business/content/business/stories/2008/03/11/airfuel_0312.html
Skyrocketing fuel prices could hurt Delta's credit rating
By RUSSELL GRANTHAM
The Atlanta Journal-Constitution
Published on: 03/12/08
Zooming jet fuel prices — which hit new records Tuesday — are once again dimming the prospects for Delta and other airlines.
The spot price of fuel rose another 5 cents to $3.17 per gallon, barely eclipsing the previous record levels in 2005 that helped push Delta and Northwest Airlines into bankruptcy. Both carriers emerged from Chapter 11 last year.
DELTA MERGER
• How well have Delta, Northwest served customers?
• Here's how Delta-Northwest might stack up against rivals
• Forum: What do you think of talks and rumors?
• Bios of corporate leadership
• Merger timeline/history
• Another View: Coverage from Northwest's hometown
Latest Headlines:
• More Business News
• Business photo galleries
Credit rating agency Standard & Poor's said Tuesday that the high fuel prices and adverse economic trends are prompting it to review the outlooks on the 10 airlines it follows. A switch to a "negative" outlook for Delta, which now has a positive outlook, could signal that Standard & Poor's will eventually lower its credit ratings if high fuel bills continue to hurt the Atlanta carrier's financial performance. A lower credit rating could reduce Delta's access to capital and increase its borrowing expenses.
Delta Chief Executive Richard Anderson said in a message to employees that the carrier will have to "do what we can" to offset higher fuel bills through fare increases and fuel conservation measures.
"The run-up in fuel prices that we've had in the last three weeks is really unprecedented," he said Friday in the recorded message to employees.
The spot price of jet fuel has risen nearly 16 percent this year. Each penny per gallon increase adds about $25 million to Delta's annual fuel bill, although the airline has also been adding to its fuel-hedge positions to effectively lock in the cost of some of its fuel.
Skyrocketing fuel costs have been a catalyst behind merger talks between Delta and Northwest, which have been on hold while the pilots unions at the two carriers negotiate a related agreement on blending their seniority lists.
The Minneapolis Star-Tribune reported that Northwest's pilots union leaders convened a four-day meeting this week to discuss the status of the merger integration talks. A spokeswoman at Delta's pilots union declined to comment.
In a report Monday, UBS analyst Kevin Crissey said such mergers "may be the only way to soften the blow" from high fuel costs, which typically account for about 30 percent of an airline's operating expense. He said he expects a merger deal between Delta and Northwest "in the near term," possibly followed by a deal between United and Continental.
In an interview Tuesday, Standard & Poor's analyst Philip Baggaley said persistently high fuel prices may prod airlines to ground older, less fuel-efficient jets or find other ways to cut costs and boost revenues.
"I think it may increase pressure to move toward a merger, although realistically, it would take months for the benefits of a merger to unfold, and there are also risks," said Baggaley.
He said rapidly rising fuel bills have increased airlines' costs at the same time that the threat of a recession could soon hem in their ability to raise fares.
Jet fuel is typically an airline's biggest expense.
"The airlines over the last two years have been able to offset very substantial increases in fuel costs" through fare increases, said Baggaley. Over the weekend, most big carriers including Delta increased fuel surcharges by $10 on most roundtrip domestic tickets.
"I think that string of successes may come to an end soon," Baggaley said.
http://www.ajc.com/business/content/business/stories/2008/03/11/airfuel_0312.html
Skyrocketing fuel prices could hurt Delta's credit rating
By RUSSELL GRANTHAM
The Atlanta Journal-Constitution
Published on: 03/12/08
Zooming jet fuel prices — which hit new records Tuesday — are once again dimming the prospects for Delta and other airlines.
The spot price of fuel rose another 5 cents to $3.17 per gallon, barely eclipsing the previous record levels in 2005 that helped push Delta and Northwest Airlines into bankruptcy. Both carriers emerged from Chapter 11 last year.
DELTA MERGER
• How well have Delta, Northwest served customers?
• Here's how Delta-Northwest might stack up against rivals
• Forum: What do you think of talks and rumors?
• Bios of corporate leadership
• Merger timeline/history
• Another View: Coverage from Northwest's hometown
Latest Headlines:
- High fuel prices could hurt Delta's credit rating
- Delta CEO complains about fuel costs and waste
- Pension insurer wants in on Delta-Northwest talks
- Delta, Northwest pilots move toward restarting talks
- Delta, Northwest union leaders meeting in D.C.
• More Business News
• Business photo galleries
Credit rating agency Standard & Poor's said Tuesday that the high fuel prices and adverse economic trends are prompting it to review the outlooks on the 10 airlines it follows. A switch to a "negative" outlook for Delta, which now has a positive outlook, could signal that Standard & Poor's will eventually lower its credit ratings if high fuel bills continue to hurt the Atlanta carrier's financial performance. A lower credit rating could reduce Delta's access to capital and increase its borrowing expenses.
Delta Chief Executive Richard Anderson said in a message to employees that the carrier will have to "do what we can" to offset higher fuel bills through fare increases and fuel conservation measures.
"The run-up in fuel prices that we've had in the last three weeks is really unprecedented," he said Friday in the recorded message to employees.
The spot price of jet fuel has risen nearly 16 percent this year. Each penny per gallon increase adds about $25 million to Delta's annual fuel bill, although the airline has also been adding to its fuel-hedge positions to effectively lock in the cost of some of its fuel.
Skyrocketing fuel costs have been a catalyst behind merger talks between Delta and Northwest, which have been on hold while the pilots unions at the two carriers negotiate a related agreement on blending their seniority lists.
The Minneapolis Star-Tribune reported that Northwest's pilots union leaders convened a four-day meeting this week to discuss the status of the merger integration talks. A spokeswoman at Delta's pilots union declined to comment.
In a report Monday, UBS analyst Kevin Crissey said such mergers "may be the only way to soften the blow" from high fuel costs, which typically account for about 30 percent of an airline's operating expense. He said he expects a merger deal between Delta and Northwest "in the near term," possibly followed by a deal between United and Continental.
In an interview Tuesday, Standard & Poor's analyst Philip Baggaley said persistently high fuel prices may prod airlines to ground older, less fuel-efficient jets or find other ways to cut costs and boost revenues.
"I think it may increase pressure to move toward a merger, although realistically, it would take months for the benefits of a merger to unfold, and there are also risks," said Baggaley.
He said rapidly rising fuel bills have increased airlines' costs at the same time that the threat of a recession could soon hem in their ability to raise fares.
Jet fuel is typically an airline's biggest expense.
"The airlines over the last two years have been able to offset very substantial increases in fuel costs" through fare increases, said Baggaley. Over the weekend, most big carriers including Delta increased fuel surcharges by $10 on most roundtrip domestic tickets.
"I think that string of successes may come to an end soon," Baggaley said.
