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Dec 31, 2008 10:39 am US/Central
Airlines Close The Books On Turbulent 2008
ATLANTA (AP) ―
The meteoric rise and fall of the price of oil was the
story for the airline industry for much of 2008, but as the year that
brought big losses and hefty stock declines for many carriers drew to a
close the erosion of demand for seats due to the recession was the main
headline.
Airlines cut jobs, made dramatic reductions in
capacity, sold aircraft, raised fares and imposed new fees for checked
baggage and other once-free amenities to stem the bleeding from losses
that were expected, by one estimate, to total $4 billion for the year,
excluding one-time items.
Several carriers even flirted with
the idea of consolidation, but the only one to succeed was Delta Air
Lines Inc., which acquired Northwest Airlines on Oct. 29 to create the
world's biggest carrier.
Despite all the maneuvering, investors
had little reason to cheer during the year -- the AMEX Airline Index
fell about 30 percent in 2008. That compares to a 40 percent drop for
the Dow Jones Total Market Index and a 39 percent drop for the Standard
& Poor's 500 index.
"The stocks got hammered as oil went up
and they have not recovered that much, though they have recovered
some," airline analyst Bob McAdoo of Avondale Partners said in an
interview.
The price of a barrel of oil soared to a record high
of $147 in July, causing a major cash crunch for airlines. Some small
niche carriers folded or filed for bankruptcy. Even some big carriers
were thought to be in danger of bankruptcy before oil prices turned in
the opposite direction, plummeting to under $40 a barrel in the final
days of the year.
But, instead of rejoicing, airlines faced a
new threat in the form of fewer people buying tickets as the global
financial crisis took hold. Carriers also were weighed down by bad bets
they made on the price of fuel when it was sky-high. After locking in
prices that looked reasonable earlier in the year, some finished the
year paying substantially more than market price for a portion of their
fuel.
The news was bad for most airlines in 2008, though there were some winners.
One especially bright spot was Allegiant Air LLC, a subsidiary of
Allegiant Travel Co. Las Vegas-based Allegiant focuses on flying
travelers in small cities to leisure destinations such as Las Vegas,
Phoenix, and Fort Lauderdale, Orlando, Tampa/St. Petersburg, Fla. The
carrier's shares rose more than 51 percent for the year.
Atlanta-based Delta's acquisition of Northwest is expected to result in
significant cost savings for the combined carrier and give it a strong
position in many markets around the world. Relatively quick labor and
seniority pacts involving their pilots was good news, and that is
expected to speed up the integration process, though deals involving
flight attendants and ground workers remain unresolved. Delta shares
fell about 27 percent in 2008.
Southwest Airlines Co. was not
as hard hit by the soaring price of fuel for much of the year because
of aggressive fuel hedging it did in previous years when prices were
low. But as the year ended, even Southwest was feeling the pain from
the weakened economy, and some analysts speculated that it's only a
matter of time before the Dallas-based carrier joins the rest of the
pack in charging fees for first and second checked bags on domestic
flights. Southwest's stock slid about 31 percent for the year.
Meanwhile, American Airlines, a unit of Fort Worth, Texas-based AMR
Corp., and British Airways are seeking antitrust immunity for an
alliance that would let them work together on pricing and scheduling
for flights across the Atlantic, while Houston-based Continental
Airlines Inc. is seeking approval to join a trans-Atlantic partnership
of several airlines including United Airlines, a unit of Chicago-based
UAL Corp., and Lufthansa, which already have antitrust immunity to work
together on trans-Atlantic prices and schedules. AMR shares dropped 26
percent, Continental shares fell 21 percent, and UAL shares plunged 70
percent, in 2008.
Airline analyst Ray Neidl of Calyon
Securities said in a December research note that the major carriers
have sufficient liquidity to enable them to get through what the firm
expects will be a very difficult upcoming six months as demand weakens.
Once the economy improves, demand should strengthen, and if fuel prices
remain low, airlines, thanks to deep capacity cuts, should be able to
start turning profits again.
"We remain cautiously optimistic for 2009 even in what is expected to be a very difficult economic environment," Neidl wrote.
Neidl, who predicted the industry would lose $4 billion in 2008, estimates the airline industry will earn $5 billion in 2009.
McAdoo said airlines are positioned well for 2009.
"It's one of the few groups where earnings estimates are generally
coming up in the midst of an economic slowdown," McAdoo said.
(© 2009 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.)
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