schafjet
Osama hunter
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The following article was in the Star Tribune out of MSP.
The five low-fare airlines that serve the Twin Cities are expected to lose money this quarter, proving that few carriers can escape the financial carnage wrought by $50-a-barrel oil.
The losses likely to be incurred by some previously profitable low-fare carriers could force executives to lessen the sting by raising ticket prices, a move that probably would be followed by Northwest Airlines and other major carriers.
AirTran Airways and Frontier Airlines already have warned that they'll lose money in the quarter that ends today, even though it includes the peak summer travel season. Analysts are projecting a loss of 45 cents a share for America West, and Indianapolis-based ATA Airlines is scrambling to slash expenses in order to avoid a bankruptcy filing.
Fuel costs at Sun Country Airlines, based in Mendota Heights, rose 40 percent in August alone, and the company said it may lose up to $1.5 million this quarter.
Analysts also expect profits to be down at industry stalwarts Southwest Airlines and JetBlue Airways, neither of which serves the Twin Cities.
That marks a sharp turnabout for many low-fare airlines, which appeared invincible in recent years while the big carriers, such as Eagan-based Northwest and United, tallied big losses.
"The assumption is they can't lose money, but they can," said Joel Denney, an airline analyst for Piper Jaffray & Co. in Minneapolis.
Low-fare carriers have been making money by flying on high-volume routes with new airplanes and younger labor forces that typically are paid less than many of their counterparts at the big airlines.
"Fuel happens to be a great equalizer," said Joe Hodas, a spokesman for Denver-based Frontier, which saw its fuel costs rise 34 percent, to $1.25 a gallon, in the past quarter.
High fuel prices carry a stiff financial burden for low-fare carriers, most of which are rapidly expanding their fleets and their routes in order to compete more directly with the major airlines.
At Frontier, for example, the spike in fuel prices occurred while it was locked in a bitter fare war with Northwest on new nonstop service between the Twin Cities and Los Angeles. Frontier ended up retreating in the Twin Cities and also reduced new nonstop service between Los Angeles and St. Louis and Kansas City.
August was a particularly brutal month for Frontier. It increased the seat miles it flies by 40 percent in August, but revenue per seat mile dropped by 19 percent.
Michael Boyd, an aviation consultant from Colorado, said that there are several business differences among the five low-fare carriers that provide service to the Twin Cities. But he said the price of fuel is having an adverse effect upon all of them.
Boyd also stressed that high fuel prices aren't the only major culprit in the losses for the third quarter.
"You have a fuel whammy and a consumer aversion to going to Florida," Boyd said. Among the low-fare carriers, AirTran Airways, based in Orlando, was severely hurt by the four hurricanes that hit Florida.
Denney noted that the pain will continue for AirTran and other carriers serving Florida, because many leisure travelers will take vacations elsewhere until rebuilding efforts are completed.
The third quarter typically is a weak one for Sun Country Airlines, which experiences its heaviest traffic between December and April, when Minnesotans are traveling to warm-weather destinations.
Still, escalating fuel costs guarantee a larger-than-expected loss of $1 million to $1.5 million, said Shaun Nugent, Sun Country's CFO. It also lost about $450,000 in the second quarter, after paying 32 percent more per gallon of jet fuel.
On Friday, Sun Country said it would boost fares in some markets to offset the continuing rise in its fuel costs.
Terry Trippler, who operates the Web site Hubcitymsp.com, said he has watched low-fare airlines institute small fare increases in a smattering of markets. But he also has watched fare increases, such as one recently introduced by American Airlines, fall apart when low-fare competitors fail to match and keep raises in place.
Trippler, whose Web site promotes travel on the low-fare airlines serving the Twin Cities, said consumers have benefited from the low fares being offered by all sizes of carriers. But "if airlines continue to sustain losses, the consumer loses in the long term," he said.
The major airlines have been unable to raise fares, largely because of intense competition from low-fare airlines. Once the quarterly losses are revealed at low-fare airlines, Trippler said, "I don't think they'll go very long without raising fares."
But there still is too much seat capacity on the market, Boyd said, and low-fare carriers have new airplanes on order and they'll quickly move to pick up routes that may be dropped by big airlines. For example, AirTran took delivery in June on the first of 50 new Boeing 737s.
At America West, spokeswoman Janice Monahan said every penny increase in the price of fuel per gallon translates into a $4.5 million rise in annual fuel expenses. In the second quarter, America West paid an average of $1.16 a gallon for fuel, up 41 percent over the 2003 quarter.
America West, like many of the low-fare carriers, had some hedges in place to guard against huge increases in fuel prices. But the carrier saved only $7.7 million as a result of fuel-hedging transactions in the first half of this year.
Southwest Airlines, the largest low-fare carrier, locked in substantially lower fuel prices on four-fifths of its supply. But even Southwest and JetBlue Airways expect lower profits because they are being hurt by high fuel prices.
Analysts don't expect a return of $20-a-barrel oil. Boyd, for one, doubts that oil will drop below $35 a barrel, and that may not provide much relief to weakened carriers, be they major airlines or low-fare operators.
"Our fundamental outlook for the industry has dimmed for at least the next four to six months," analyst Michael Linenberg said in a Merrill Lynch research report. If that scenario plays out, he wrote, it will be "most problematic for the industry's financially weakest airlines." ATA and Frontier were among the low-fare carriers considered financially "weakest."
ATA Airlines declined to comment on oil prices or the carrier's financial condition. The airline, which offers daily flights between the Twin Cities and Chicago's Midway Airport, posted an operating loss of $32.9 million for the first half of this year, and it has slashed costs to try and fend off a Chapter 11 bankruptcy filing. Its fuel price per gallon rose 28 percent last quarter.
The Air Transport Association, the industry's trade group for the major airlines, has urged federal officials to tap the Strategic Petroleum Reserve, but Boyd predicted that won't occur. The Bush administration has strongly resisted that move and instead has continued to expand the oil reserve.
Sun Country's Nugent isn't focused on what Washington politicians might sponsor. Right now, he's trying to adapt to the financial havoc at his airline. He's not optimistic about fuel prices. "It is getting worse," Nugent said. "In the last two weeks, we've seen an increase of almost 20 cents in our per-gallon cost."
The five low-fare airlines that serve the Twin Cities are expected to lose money this quarter, proving that few carriers can escape the financial carnage wrought by $50-a-barrel oil.
The losses likely to be incurred by some previously profitable low-fare carriers could force executives to lessen the sting by raising ticket prices, a move that probably would be followed by Northwest Airlines and other major carriers.
AirTran Airways and Frontier Airlines already have warned that they'll lose money in the quarter that ends today, even though it includes the peak summer travel season. Analysts are projecting a loss of 45 cents a share for America West, and Indianapolis-based ATA Airlines is scrambling to slash expenses in order to avoid a bankruptcy filing.
Fuel costs at Sun Country Airlines, based in Mendota Heights, rose 40 percent in August alone, and the company said it may lose up to $1.5 million this quarter.
Analysts also expect profits to be down at industry stalwarts Southwest Airlines and JetBlue Airways, neither of which serves the Twin Cities.
That marks a sharp turnabout for many low-fare airlines, which appeared invincible in recent years while the big carriers, such as Eagan-based Northwest and United, tallied big losses.
"The assumption is they can't lose money, but they can," said Joel Denney, an airline analyst for Piper Jaffray & Co. in Minneapolis.
Low-fare carriers have been making money by flying on high-volume routes with new airplanes and younger labor forces that typically are paid less than many of their counterparts at the big airlines.
"Fuel happens to be a great equalizer," said Joe Hodas, a spokesman for Denver-based Frontier, which saw its fuel costs rise 34 percent, to $1.25 a gallon, in the past quarter.
High fuel prices carry a stiff financial burden for low-fare carriers, most of which are rapidly expanding their fleets and their routes in order to compete more directly with the major airlines.
At Frontier, for example, the spike in fuel prices occurred while it was locked in a bitter fare war with Northwest on new nonstop service between the Twin Cities and Los Angeles. Frontier ended up retreating in the Twin Cities and also reduced new nonstop service between Los Angeles and St. Louis and Kansas City.
August was a particularly brutal month for Frontier. It increased the seat miles it flies by 40 percent in August, but revenue per seat mile dropped by 19 percent.
Michael Boyd, an aviation consultant from Colorado, said that there are several business differences among the five low-fare carriers that provide service to the Twin Cities. But he said the price of fuel is having an adverse effect upon all of them.
Boyd also stressed that high fuel prices aren't the only major culprit in the losses for the third quarter.
"You have a fuel whammy and a consumer aversion to going to Florida," Boyd said. Among the low-fare carriers, AirTran Airways, based in Orlando, was severely hurt by the four hurricanes that hit Florida.
Denney noted that the pain will continue for AirTran and other carriers serving Florida, because many leisure travelers will take vacations elsewhere until rebuilding efforts are completed.
The third quarter typically is a weak one for Sun Country Airlines, which experiences its heaviest traffic between December and April, when Minnesotans are traveling to warm-weather destinations.
Still, escalating fuel costs guarantee a larger-than-expected loss of $1 million to $1.5 million, said Shaun Nugent, Sun Country's CFO. It also lost about $450,000 in the second quarter, after paying 32 percent more per gallon of jet fuel.
On Friday, Sun Country said it would boost fares in some markets to offset the continuing rise in its fuel costs.
Terry Trippler, who operates the Web site Hubcitymsp.com, said he has watched low-fare airlines institute small fare increases in a smattering of markets. But he also has watched fare increases, such as one recently introduced by American Airlines, fall apart when low-fare competitors fail to match and keep raises in place.
Trippler, whose Web site promotes travel on the low-fare airlines serving the Twin Cities, said consumers have benefited from the low fares being offered by all sizes of carriers. But "if airlines continue to sustain losses, the consumer loses in the long term," he said.
The major airlines have been unable to raise fares, largely because of intense competition from low-fare airlines. Once the quarterly losses are revealed at low-fare airlines, Trippler said, "I don't think they'll go very long without raising fares."
But there still is too much seat capacity on the market, Boyd said, and low-fare carriers have new airplanes on order and they'll quickly move to pick up routes that may be dropped by big airlines. For example, AirTran took delivery in June on the first of 50 new Boeing 737s.
At America West, spokeswoman Janice Monahan said every penny increase in the price of fuel per gallon translates into a $4.5 million rise in annual fuel expenses. In the second quarter, America West paid an average of $1.16 a gallon for fuel, up 41 percent over the 2003 quarter.
America West, like many of the low-fare carriers, had some hedges in place to guard against huge increases in fuel prices. But the carrier saved only $7.7 million as a result of fuel-hedging transactions in the first half of this year.
Southwest Airlines, the largest low-fare carrier, locked in substantially lower fuel prices on four-fifths of its supply. But even Southwest and JetBlue Airways expect lower profits because they are being hurt by high fuel prices.
Analysts don't expect a return of $20-a-barrel oil. Boyd, for one, doubts that oil will drop below $35 a barrel, and that may not provide much relief to weakened carriers, be they major airlines or low-fare operators.
"Our fundamental outlook for the industry has dimmed for at least the next four to six months," analyst Michael Linenberg said in a Merrill Lynch research report. If that scenario plays out, he wrote, it will be "most problematic for the industry's financially weakest airlines." ATA and Frontier were among the low-fare carriers considered financially "weakest."
ATA Airlines declined to comment on oil prices or the carrier's financial condition. The airline, which offers daily flights between the Twin Cities and Chicago's Midway Airport, posted an operating loss of $32.9 million for the first half of this year, and it has slashed costs to try and fend off a Chapter 11 bankruptcy filing. Its fuel price per gallon rose 28 percent last quarter.
The Air Transport Association, the industry's trade group for the major airlines, has urged federal officials to tap the Strategic Petroleum Reserve, but Boyd predicted that won't occur. The Bush administration has strongly resisted that move and instead has continued to expand the oil reserve.
Sun Country's Nugent isn't focused on what Washington politicians might sponsor. Right now, he's trying to adapt to the financial havoc at his airline. He's not optimistic about fuel prices. "It is getting worse," Nugent said. "In the last two weeks, we've seen an increase of almost 20 cents in our per-gallon cost."
