High fuel costs hit airline earnings
STEVE CHIOTAKIS: As earnings season continues, we’re getting a better sense of how airlines are doing these days with high oil prices and a rebounding economy. Low-cost carrier Southwest reported today it eeked out a small profit. But United/Continental and the parent to American Airlines — said they lost money. No matter the result, airlines have been raising fares to offset the steep cost of oil — i.e. jet fuel.
Mary Schlangenstein is an airline reporter for Bloomberg. And she’s with us right now from Dallas. Good morning.
MARY SCHLANGENSTEIN: Good morning.
CHIOTAKIS: I’m curious if the cost of oil get’s any higher, like we’re at what — $110, $112 a barrel now — what happens to these airlines? I mean, it already seems like they’re sort of teetering on the edge.
SCHLANGENSTEIN: Well, the airlines have been putting through fare increases. They put through seven so far this year, and that is helping them to some extent. The other thing that they are doing is they’re all slowing their planned growth for this year. And that of course allows them to burn less fuel. It also allows them to continue to increase fares. And it’s interesting because the executives said today on their conference calls that even though oil is going up and their prices are rising, demand is still strong. And as long as demand is strong, they’re going to continue to increase prices.
CHIOTAKIS: How long od you think demand is going to stay strong? I mean, yeah we’re approaching the summer season right now, but I mean if we’re paying $500 for a small ticket, I mean, what do you think?
SCHLANGENSTEIN: Well, what the airlines are saying is that they feel like they’re in good shape unless the price of oil gets so high that it starts to flow the economy and the economic expansion. That hasn’t happened yet. And they don;t think that businesses in particular are going to cut back on spending, you know, until or if the economy starts to slow. Now JetBlue and Southwest airlines which both care more leisure travelers — both said that they aren’t even seeing any slowing in leisure demand. And particularly going into the summer season.
CHIOTAKIS: What about consolidation? A lot of these airlines are getting together, United Continental, Delta Northwest. How does that play into tough times for the airlines?
SCHLANGENSTEIN: Tough times is kind of what led to a lot of that consolidation because when they consolidate, they’re able to eliminate overlap and cut costs. But the problem now is that the really big guys have already consolidated and SO there’s not a whole lot of consolidation left to be done. U.S. Airways has said that they will combine with one of the big three, which would be Delta, United or American. But I don’t think there’s any expectation that that will happen any time soon.
CHIOTAKIS: Airline reporter for Bloomberg. Thanks.
SCHLANGENSTEIN: Sure thank you.
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