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Industry Losses to Grow as Long as Fuel Prices Remain High
WASHINGTON (Aviation Daily) U.S. airlines are expected to report full-year losses of nearly $3 billion, according to one new estimate, largely due to record fuel prices and the lack of hedging protection at some large airlines. Merrill Lynch yesterday issued a new loss forecast of $2.9 billion, deeper than its previous $2 billion loss estimate. Though less than the 2003 deficit of $5.4 billion, it’s still significant, considering that many industry executives predicted 2004 would bring the start of a slow recovery and possibly some breakeven results. Recovery is not expected for some time: Merrill Lynch projected the industry will post a 2005 net loss of $600 million, compared with its early forecast of a $500 million net profit. “The industry’s inability to pass through a fare increase has exacerbated the impact of higher energy prices,†said analyst Michael Linenberg. “Thus far, only low-cost carriers have been successful in raising fares.†His 2004 estimated industry-wide fuel cost now incorporates an average projected oil price of $39 per barrel; previously, Merrill Lynch was using $35- to $36 per-barrel.
Linenberg’s new second-quarter oil forecast is $41 per barrel versus the previous forecast of $38 per barrel. For 2005, he raises the oil price assumption more then 10% from $31 to $35 per barrel. “As most carriers are only modestly hedged against rising fuel prices, the impact of higher fuel prices to the industry’s bottom line is material,†he said. For every $1 change in the per-barrel price of oil, industry pretax profits swing lower by roughly $450 million. Linenberg also revised the profit and loss outlook for 12 airlines. For some airlines, like Southwest and JetBlue, profit estimates dropped only slightly, but other airlines, such as Continental and Delta, will see widening deficits. “High fuel prices are painful for the industry, but they can be a catalyst for change†he said. It could lead to difficult decisions sooner, rather than later, such as a deal between Delta and its pilots, and this “could mean less capacity than presently planned for the seasonally weaker autumn.â€
WASHINGTON (Aviation Daily) U.S. airlines are expected to report full-year losses of nearly $3 billion, according to one new estimate, largely due to record fuel prices and the lack of hedging protection at some large airlines. Merrill Lynch yesterday issued a new loss forecast of $2.9 billion, deeper than its previous $2 billion loss estimate. Though less than the 2003 deficit of $5.4 billion, it’s still significant, considering that many industry executives predicted 2004 would bring the start of a slow recovery and possibly some breakeven results. Recovery is not expected for some time: Merrill Lynch projected the industry will post a 2005 net loss of $600 million, compared with its early forecast of a $500 million net profit. “The industry’s inability to pass through a fare increase has exacerbated the impact of higher energy prices,†said analyst Michael Linenberg. “Thus far, only low-cost carriers have been successful in raising fares.†His 2004 estimated industry-wide fuel cost now incorporates an average projected oil price of $39 per barrel; previously, Merrill Lynch was using $35- to $36 per-barrel.
Linenberg’s new second-quarter oil forecast is $41 per barrel versus the previous forecast of $38 per barrel. For 2005, he raises the oil price assumption more then 10% from $31 to $35 per barrel. “As most carriers are only modestly hedged against rising fuel prices, the impact of higher fuel prices to the industry’s bottom line is material,†he said. For every $1 change in the per-barrel price of oil, industry pretax profits swing lower by roughly $450 million. Linenberg also revised the profit and loss outlook for 12 airlines. For some airlines, like Southwest and JetBlue, profit estimates dropped only slightly, but other airlines, such as Continental and Delta, will see widening deficits. “High fuel prices are painful for the industry, but they can be a catalyst for change†he said. It could lead to difficult decisions sooner, rather than later, such as a deal between Delta and its pilots, and this “could mean less capacity than presently planned for the seasonally weaker autumn.â€
