Sunday September 18, 2005

The great American airlines disaster

peakoil.com -> thebusinessonline.com :

Hurricane Katrina may have blown itself out in the early days of September but it claimed two new casualties last week. The post-storm spike in the price of oil was the straw that broke the camel's back for Delta Air Lines and rival Northwest. When prices jumped 25% in the days after the storm, Delta and Northwest were pushed over the edge. The airlines - long hobbled by high fuel costs, relentless competition and heavy debt which was causing them to burn millions of dollars each day - join the 140 US carriers which have sought Chapter 11 since 1978.

Fuel now gobbles up a quarter of the global industry's $400bn turnover and will push it to a collective loss of $7.4bn for 2005. The final toll could be even higher, however; each $1 increase in the price of a barrel of oil adds $1bn to the industry's cost base.

Rock-bottom operating costs due to fewer staff and quicker turnaround times at airports mean the budget operations can undercut the majors on ticket price. Southwest has even taken the precaution of hedging against the high cost of oil until 2008. Northwest and Delta, like most of their American competitors, have no such financial protection against surging oil prices. Their high debt and low credit capacity means they are not able to hedge against high oil prices even if they want to; if the price of jet fuel shoots up, they must immediately pay more in cash. At one time, the majors would have passed on the extra cost to passengers. But severe pricing pressure from low-cost carriers means they are no longer able to do this.

(2005-09-18 12:54:47 SGT) [Biz] Permalink

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