The red ink is mounting for airlines amid soaring fuel costs, leaving them little choice but to further raise ticket prices. As Delta Air Lines and American Airlines reported big second-quarter losses Wednesday, they signaled that customers should expect more hits to their checkbooks.
The airlines said they already see signs of a possible tipping point in terms of demand, but industry observers insisted that will not stop rising fares, more fees and fewer domestic flights.
“The first thing they have to do is forget about the butts in the seats and worry about the bucks in the till,” Minneapolis airline expert Terry Trippler said.
That point was underscored as Atlanta-based Delta Air Lines Inc. reported a $1.04 billion loss in the April-June quarter and Fort Worth, Texas-based AMR Corp., the parent of American, posted a $1.45 billion loss for the quarter. One-time charges and unprecedented fuel costs impacted both airlines, which saw their shares soar as their results beat Wall Street expectations and oil prices dropped.
The two carriers have posted combined net losses of $9.2 billion since the start of the year.
“Clearly, with fuel at these record levels, there's no question …airfares need to go up,” Delta President Ed Bastian told reporters.
He added: “Will there be a tipping point, where demand is going to be affected? I think there already is a bit of a tipping point.”
According to Department of Transportation statistics released last week, the number of domestic passengers carried by U.S. airlines decreased 3.3 percent in April from a year earlier.
Fares have risen across the country since January over 20 percent, and much higher in smaller cities, according to Rick Seaney of FareCompare.com. Oil prices have doubled in the last year.
AMR Chairman and chief executive Gerard Arpey described American's fare and fee increases as moves that are “bumping up against a couple of hard realities.”
“In a sluggish economy, consumers are even more sensitive to price, and when we raise fares we inevitably motivate some would-be travelers to just stay home,” he said in a memo to employees.
Delta said it expects $2 billion in cost savings by 2012 from its planned acquisition of Northwest Airlines Corp. That is double what it estimated when it announced the deal on April 14. It also said it expects to spend only $600 million in cash to integrate the two companies, compared with an earlier projection of $1 billion.
Delta's Bastian said he is looking at unspecified cash-raising opportunities. He said Delta is studying a fee imposed by several carriers on the first piece of checked baggage.
But he said, “We have no plans to implement it at this point.”