Oil Prices Higher Make Trouble Airlines Industry
January 4, 2009 | Airline Service, Airlines Companies, Aviation, Trading & Market
The 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 for many carriers drew to a close the erosion of demand for seats because of 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 losses that were expected, by one estimate, to total $4 billion for the year.
Several carriers flirted with the idea of consolidation, but the only one to succeed was Delta Air Lines Inc., acquiring 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,” analyst Bob McAdoo said.
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 dropped, plummeting to less than $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. Las Vegas-based Allegiant focuses on flying travelers in small cities, including Fort Wayne, 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.
