Airline profits likely to sink with rising oil prices
The oil price spike is bad news for the US’s airlines at a time when they should be thriving, analysts agree.
The chief economist for the Air Transport Association says it comes at the “worst possible time,” John Heimlich told USA Today
That’s because the fourth quarter is usually the strongest of the year because of holiday traffic.
Analysts say that could lead to reduced flights.
But in the meantime, most airlines were reporting profits.
In its first full quarter after leaving Chapter 11 this summer, Northwest Airlines on reported a $244 million profit, much higher than analysts expected. The nation’s fifth-largest airline flew a smaller but fuller fleet this year. The results showed up on the bottom line.
Other airlines reported similar results.
The biggest US carriers, including AMR, Delta, Continental, UAL and US all reported profits. The move was attributed to the high demand for air travel that has filled planes and help raise ticket prices.
As fuel prices rise, Northwest and its rivals generally have reduced flights and raised prices rather than fly unprofitably. Eagan, Minn.-based Northwest is in a good position because of its fleet of 103 DC-9s, which are paid for, so they can be parked with little damage to profit, reported the AP.
“We have significant fleet flexibility … to further reduce capacity should we see an impact on demand,” Chief Financial Officer Dave Davis said.
On a conference call with analysts, Doug Steenland, chief executive, said Northwest and other airlines should consider ways to unlock value from its frequent-flyer program, including a possible spinoff. Investors have urged US carriers to peel off rewards arms and other ancillary businesses that might generate steadier returns than core airline divisions, especially as fuel costs spiral higher.
“This is worthy of further analysis, and we are undertaking that work,” Mr Steenland.
Report by David Wilkening
David
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