Fuel price hike hits US airlines hard

29 April, 2008:

Rise in the prices of fuel and a slowdown in global economy are considerably harming airlines in the United States.

Delta Air Lines and Northwest Airlines of the United States have recorded multi-billion-dollar losses for the first three months of 2008, BBC has reported.

A week ago, the two airlines had agreed to merge in a $5-billion (£2.5-billion) deal as a way to reduce costs and increase revenues as oil prices stay close to $120 a barrel.

According to the BBC report, carriers in the United States are suffering most as demand for domestic flights has fallen.

Delta Air Lines registered a net loss of $6.4 billion for the first three months of 2008, compared to a loss of $130 million the year before. The chief reason for this huge loss was a $6.1-billion charge related to a recalculation of the company’s value to reflect higher oil prices.

The rise in the oil prices drove the operating expenses of Delta Air Lines up by 20% in the first three months of 2008, compared to the same quarter in 2007.

With the United States’ economy on the verge of recession, Delta Air Lines, like most other domestic airlines, is having a tough time filling internal flights and it is planning to scale these back in a big way, according to BBC.

Delta is cutting its domestic operations by about 10% in the second half of 2008.

Northwest Airlines suffered a $4.1-billion net loss, much higher than the $292-million loss a year ago, when the airline was struggling to get out of bankruptcy.

Doug Steenland, CEO of Northwest Airlines, was quoted as saying: “Our first-quarter total fuel expense increased by $445 million. The sustained high fuel prices represent an extraordinary challenge to Northwest Airlines and the entire airline industry.”

The merger between Delta Air Lines and Northwest Airlines depends on approval from the competition authorities and the unions. If the merger does take place, it will lead to the creation of the biggest airline by passenger volume.