Airline stocks continued to slide Thursday amid jet fuel prices that have risen nearly 20 percent this week following Hurricane Katrina’s devastation, which prompted at least two major carriers to raise fares.
A Standard & Poor’s analyst, meanwhile, said the added financial pressure on Delta Air Lines Inc., the nation’s third-largest carrier, “may hasten an already likely bankruptcy filing, which will probably occur within weeks.”
Jet fuel prices have risen in the last week an average of 36 cents, from $1.91 a gallon on Aug. 23 to $2.27 a gallon on Tuesday, according to Jack Evans of the Air Transport Association. He didn’t have updated figures Thursday.
The increase, blamed in part on refinery outages and other damage along the Gulf Coast because of the hurricane, means an extra $18.6 million per day in fuel cost for the airlines based on an average daily industry consumption of 52 million gallons of jet fuel.
Bankrupt No. 2 U.S. carrier United Airlines, a unit of Elk Grove Village, Ill.-based UAL Corp., late Wednesday raised fares nationwide $10 to $30 roundtrip due to the increased cost in fuel, spokeswoman Jean Medina said.
“We are confident our customers will understand that as the price of fuel continues to reach record-high levels, we simply have no choice but to raise our fares,” Medina said.
On Thursday, Delta spokeswoman Chris Kelly said the Atlanta-based airline matched United’s fare increase in many markets. It did not match United’s increase on premium flights in cases where the price would be above Delta’s preexisting fare cap, Kelly said. Northwest Airlines Corp. spokesman Kurt Ebenhoch said the Eagan, Minn.-based carrier was studying United’s decision.
Delta shares fell 12 cents, or 10.3 percent, to close at $1.04 Thursday on the New York Stock Exchange, while Northwest shares fell $1.06, or 21 percent, to close at $3.97 on the Nasdaq Stock Market.
The problems caused by the hurricane — from possible fuel shortages to higher fuel prices to lost revenue from canceled flights — pose the largest threat to Delta, a major carrier in the South that has already lost nearly $10 billion since January 2001, analysts say.
Delta’s Kelly said the airline isn’t suffering any fuel shortages right now, but because of the hurricane it is trying to conserve fuel and minimize customer impacts.
In a research note Wednesday, S&P airline analyst Philip Baggaley noted that before Katrina, Delta was already bleeding cash and was at near-term risk of insolvency.
“The added financial pressure may hasten an already likely bankruptcy filing, which will probably occur within weeks,” Baggaley said.
He said Northwest, which has had to deal with a mechanics’ strike and losses due to high fuel prices and high labor costs, also is in danger, but may be able to avoid bankruptcy if it’s successful in labor negotiations with its unions.