Airlines executives say worries about recession, high fuel prices and tighter credit seem to have cooled the merger fever that gripped the industry a few weeks ago.
Executives from Continental Airlines Inc. and Southwest Airlines Co. said Tuesday that they’re not working on any obvious deals, but they didn’t rule out anything.
“It feels like all the talk about consolidation has lost a lot of steam,” said Laura Wright, Southwest’s chief financial officer.
Continental is more concerned with high oil prices that could add $1.5 billion or more in extra fuel costs, said CFO Jeff Misner.
“And if that’s not enough for you ... maybe we’ll throw a recession on top of that, and a weak dollar just to kind of make sure it stays real, real interesting,” Misner said.
The comments, made at a JPMorgan conference in New York, came a day after pilots at Delta Air Lines Inc. created fresh doubt about a possible Delta hookup with Northwest Airlines Corp.
Union leaders at Delta said talks on merging work forces with another carrier had failed. They didn’t mention Northwest by name, but people close to the talks have said Northwest was the other player in deal talks.
The possibility of a Delta-Northwest deal spawned speculation about all kinds of other combinations. Airlines executives believe that business travelers pick carriers with extensive U.S. and international routes, so they would be loath to sit idly if rivals grow by joining forces.
While worried about a slowing economy, executives said demand seemed to be holding up well. Southwest said traffic in January and February rose 8.9 percent from a year ago.
Continental’s Misner said demand is still “pretty good. The problem we’ve got is we’re not covering the cost of fuel right now. ... we can’t get the prices up fast enough to cover that.”
Led by United Airlines, the carriers raised round-trip fares by up to $50 per round trip last week. Misner said fare hikes are probably already scaring away some leisure travelers, and he predicted that demand will weaken.
The head of JetBlue Airways Corp., however, said demand remains solid across the discount carrier’s network.
The airline, based in the Forest Hills neighborhood of New York, is planning to announce an expansion in Orlando on Wednesday, and believes it can boost revenue despite concerns about the economy in part by charging passengers extra for perks such as added legroom, CEO Dave Barger said.
“It’s a tough landscape with oil doing what it’s doing ... but we’re very heartened by what were doing at JetBlue,” he said.
Delta said it expected to spend $900 million more on fuel this year than last year, and United said its increase would be even bigger, $1.2 billion.
United CFO Jake Brace said his company plans to retire 15 to 20 older, less fuel-efficient planes, and might cut capacity to cope with higher fuel prices. United is part of UAL Corp. JetBlue, meanwhile, is planning to replace several of its older aircraft with newer models this year.
“The silver lining of oil at a high price: it’s stripping capacity out,” JetBlue’s Barger said.
Southwest’s Wright said traffic in January and February was up 8.9 percent, faster than the airline was adding capacity. But Southwest, which cut back expansion plans twice last year, might do the same thing again if the economy slows, she said.
Southwest is better insulated from high fuel prices than other U.S. carriers because of hedging transactions that it made several years ago. The company will buy 70 percent of its fuel this year at the equivalent price of $51 per barrel of oil — less than half the current rate — Wright said.
Southwest values it hedges over the next few years at more than $3 billion based on current fuel prices.