- The Washington Times - Tuesday, April 22, 2008

CHICAGO (AP) — The airline industry was battered today by worse-than-expected losses and skyrocketing fuel prices, portending a worst-of-times vacation season of jammed planes, delayed flights and higher fares.

The latest bad news came in a gloomy United Airlines earnings report that sent parent UAL Corp.’s shares down 35 percent and slammed other airline stocks as well. UAL posted a $537 million loss for the first quarter.

Crude oil surged close to the once-thinkable level of $120 a barrel, and the CEO of Delta Air Lines said domestic carriers would need to raise fares by 15 to 20 percent just to break even.

“It’s going to be a rough summer,” said Terry Trippler, a Minneapolis-based travel expert. “It’s going to be one where you’ve got to plan another day into your travel schedule” just to prepare for schedule chaos.

Analysts say planes will be fuller and ticket prices significantly higher than in past summers, although just how bad cancellations and delays will be is hard to predict.

Airlines have already tried to raise ticket prices a dozen times across most of their route networks since the start of the year, but most of those attempts were rolled back when competitors refused to join in.

Now, Delta CEO Richard Anderson said higher fares would likely diminish demand for air travel and lead airlines to further reduce their schedules.

Airlines’ recent cutbacks and the shutdowns of a handful of smaller carriers will remove some planes from the skies but won’t solve congestion, and the threat of weather problems and labor strife is ever-present.

Passengers have already had a taste of the possible pandemonium — massive flight cancellations by American Airlines as the Federal Aviation Administration stepped up its scrutiny of airplane inspections after years of more lenient enforcement.

“It’s not like this has come out of the blue,” Trippler said. “It’s getting progressively worse every year. But most summer air travelers are experienced.”

Calyon Securities airline analyst Ray Neidl said carriers will need to continue cutting back on flights and raising prices in order to cope with higher oil prices. That means the flights that are left should be more crowded.

“We’ve got too much capacity and prices are too low,” he said. “Airlines just can’t survive with the current air fares if oil stays this high.”

Neidl said he expects airlines will continue to find ways to charge for added services, such as checking extra bags and more legroom.

So far, fliers seem determined to go regardless of ticket markups. Airlines have said their bookings still look strong, given the iffy economic situation. After all, sky-high gasoline costs don’t look great by comparison.

“People still have the money and they still want to travel,” said Arthur Salus, president of Duluth Travel outside Atlanta. “If someone pays $20, $30, $40 more for a ticket, that’s not going to be a deterrent for them if they have to drive more than four to five hours.”

Eventually, both the airlines and analysts expect business to drop off as fares keep rising.

The likeliest price increases are in markets where companies do not compete head-to-head with budget airlines, such Southwest Airlines Co., or face little competition from other traditional airlines.

For example, in the first week of April, leisure fares from traditional airlines on 280 major routes were up 13 percent from a year earlier, according to data compiled by travel research firm Harrell Associates.

But prices to smaller cities, served by fewer flights, rose even more. Prices between New York and Pittsburgh doubled to $68 one-way, while a ticket from Newark, N.J., to Cleveland rose 80 percent to $124.

For United, as with other airlines, higher fares are only part of the response to what it called an “extraordinarily difficult” operating environment that worsened Tuesday with crude prices rising another $1.89 to a record $119.37.

The nation’s second-largest airline said its revenue growth of nearly 8 percent was more than canceled out by a $618 million jump in fuel costs, which rose nearly 50 percent in a year.

After reporting its biggest loss since emerging from bankruptcy in 2006, the Chicago-based airline said it will trim 2008 spending by $400 million, eliminate 1,100 jobs by the end of the year, cut domestic capacity 9 percent by the fourth quarter and ground 30 of its oldest and least-efficient aircraft.

“The pressure of high energy prices and a weakening economy are a wake-up call that the pace of change must accelerate,” said Glenn Tilton, United’s chairman, president and CEO.

He said financial pressures would require United to “fundamentally overhaul every facet of our business.”

Combining with another carrier could be next, especially in the wake of the proposed merger this month of Delta and Northwest Airlines Corp.

United is known to be in talks with Continental Airlines, although Tilton did not specifically name that airline.

United follows American Airlines parent AMR Corp. and Continental Airlines Inc. into the red for the quarter because of fuel costs. Southwest is the only large carrier to have reported a profit so far.

Among smaller carriers, JetBlue Airways Corp. reported an $8 million loss today that was narrower than expected. CEO Dave Barger said on a conference call that its $138 average fare in March was its highest monthly average ever.

The record fuel prices make it virtually impossible for a low-cost startup airline to enter the market.

Associated Press Writers Dan Caterinicchia in Washington, Emma Vandore in Paris, Adam Schreck and John Wilen in New York and Megan K. Scott in New York contributed to this report.

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