Airline Finance News - North America

AirGuide Business, Jan 14, 2008

Jan 14, 2008

Analysts surveyed by Thomson Financial believe that most major carriers lost money in the fourth quarter - the airlines start reporting those results next week. Prospects for the new year are uncertain. Airlines believe combining will let them eliminate redundant back-office functions, reservations and computer systems. But the real payoff could lie in eliminating overlapping routes and hub airports. If Delta Air Lines and UAL Corp.'s United Airlines combine, Delta could scale back on routes currently flown by both. Airlines might save money from combining, but many experts think it would cost consumers. Some airline mergers appear to have been successful. The 2005 acquisition by America West of US Airways, which created US Airways Group Inc., produced a carrier with the healthiest margin of unit profits over costs in the industry, according to SH&E, an airline consulting firm in Cambridge, Mass. Jan 11, 2008

The airline industry has been pressured by skyrocketing fuel costs as the price of oil hovers near USD$95 a barrel. Carriers have attempted to offset that expense with fare increases and surcharges. Last week, United Airlines initiated a fare increase that was broadly matched by competitors. But some analysts predict carriers will have trouble raising fares if economic weakness erodes travel demand. Jan 11, 2008

Unions may demand higher pay, despite hikes in fuel costs. Labor unions will seek higher pay for airline employees in contract negotiations, but carriers continue to face escalating fuel costs and a slowing economy. Some observers say unions may demand that airlines boost fares to increase pay. Jan 11, 2008

According to a study conducted a few months ago for hedge fund Pardus Capital Management, which was lobbying for a deal, a Delta Air Lines and United Airlines merger would generate synergies of USD$585 million and combine Delta's transatlantic presence and strength in the New York market with United's Asia routes and its position on the US West Coast. The study estimated that a combination with Northwest would net the combined carrier USD$1.5 billion in savings by combining smaller hubs, but it would not expand the network to the same extent as a Delta-United deal. For a deal to succeed, Delta also would have to win over employees, especially its unionized pilots, who helped block US Airways' effort. In September, Delta agreed to protect the seniority rights of its employees in the event of a merger. Jan 10, 2008

Airlines may delay sales of regional units. Low valuations and a lack of buyers may delay plans by Delta Air Lines and American Airlines to sell their regional carriers. Jan 10, 2008

The modest recovery in the US airline industry has begun to flag amid high fuel prices and a sagging US economy. Most major US airlines are expected to post losses for the fourth quarter of 2007 after profits earlier in the year. Mergers are seen as a way to stabilize the volatile and fragmented industry by allowing carriers to cut costs, reduce capacity, and raise fares. Some industry insiders suggest any proposed deal between major carriers would stand a better chance of clearing US antitrust review under the Bush administration, which has approved two big airline mergers, rather than a Justice Department potentially controlled by Democrats beginning in 2009. Jan 10, 2008

US Airline Shares Drop On Oil, Economy. The shares of major US airlines dropped to new lows on Tuesday Jan. 8, led by a 15 percent fall by United Airlines parent UAL, as high oil prices and economic gloom soured investor sentiment. Some of the airline stocks have fallen so far they are trading at less than the per-share value of cash on their balance sheets. In afternoon trading, the Amex airline index was down 6.46 percent. UAL fell USD$4.51 to USD$24.67. AMR Corp, parent of American Airlines, fell 10.08 percent to USD$11.95. Delta Air Lines dropped 12.4 percent to USD$11.73 and Continental Airlines lost 10.87 percent to USD$18.12. AMR, UAL, Delta and Continental all marked new 12-month lows in the course of trading on Tuesday. Jan 9, 2008

Weaker economy, soaring fuel continue to pressure carriers. The slowing economy and soaring fuel prices will continue to put pressure on airlines, the Wall Street Journal's Scott McCartney says that airlines may introduce changes to their frequent-flier programs in 2008, and he predicts that "business class" international flights will continue to expand. Jan 8, 2008

ATA projects $3.5-$4.5 billion 2008 profit, warns of poor credit ratings. US Air Transport Assn. on Friday projected that US airlines will post a collective $3.5-$4.5 billion net profit in 2008, which would mark the US industry's third consecutive profitable year (excluding bankruptcy restructuring-related losses in 2006), a feat not achieved since 1998-2000. ATA VP and Chief Economist John Heimlich predicted that "ongoing passenger and cargo revenue strength, particularly in the international arena, will help offset a sizeable increase in fuel expenses and a modest increase in nonfuel expense, enabling the industry to post" a 2008 profit. Jan 7, 2008