U.S. airlines cut capacity to battle high fuel
Major U.S. airlines announced further 2011 capacity cutbacks to cope with the dramatic rise in fuel prices, and Delta Air Lines Inc
We're not anticipating any significant moderation from current high fuel price levels, Delta President Edward Bastian told a JPMorgan investor conference on Tuesday.
Carriers have steadily boosted fares this year as $100-a-barrel oil threatens to wipe out the industry's recovery from the 2008 and 2009 economic downturn. Airlines are reporting higher demand, but costs are also rising.
Oil prices rose on Tuesday, reversing earlier losses on more Mideast unrest. NYMEX crude, which is directly tied to jet fuel prices, was up nearly 1 percent at $103.32 in late morning trading.
Delta currently estimates its fuel bill will rise about $3 billion for this year. That will result in a hit to first-quarter earnings. Bastian said the airline expects an operating margin of negative 2 to 3 percent for the period.
On Tuesday, airlines disclosed more plans to reduce flying in the face of uncontrollable jet fuel costs.
US Airways Group Inc
Low-cost domestic carrier Southwest Airlines Co
Delta said many of its capacity actions were focused on the transatlantic market, where revenue was falling short and costs were rising. Though better revenues were expected in that region starting in the spring, capacity will drop markedly in the fourth quarter.
Lost revenue from effects of the March 11 Japanese earthquake will also pressure results in the short term, airlines said.
AMR Corp's
And Delta, which operates more flights to Japan than any other U.S. carrier and generates a bit over $2 billion a year from the Tokyo market, estimated the business impact of the Japanese earthquake, tsunami and their aftermath could range from $250 million to $400 million. It is cutting capacity to Japan by 15 percent to 20 percent through May.
Over the next 2 to 3 months we will undoubtedly see some fairly significant drop-off in demand and drop-off in bookings tied to Japan, Bastian said.
U.S. airline shares were mostly lower in morning trading. The Arca Airline index <.XAL> was down 1.1 percent. AMR fell 2.9 percent to $6.58, Delta was down 1.9 percent at $9.98 and industry leader United Continental Holdings Inc
(Reporting by Karen Jacobs and Kyle Peterson, editing by Gerald E. McCormick)
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