Airline Stocks Continue Their Descent
Monday, March 10, 2008SUSIE GHARIB: Airline shares fell sharply today, as the high cost of jet fuel and talk of recession weighed on the industry. The Federal Aviation Administration says the airlines will face a tough year, but still expect an increase in passenger traffic. Stephanie Dhue reports.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: The skyrocketing price of jet fuel threatens to cost the airlines an extra $9 billion this year. That's more than the industry made in net profits last year. Speaking at an FAA conference, Delta CEO Richard Anderson says the high cost of oil is the first and foremost issue facing the industry.
RICHARD ANDERSON, CEO, DELTA AIRLINES: You've really seen fuel run from $60 to $105 in 12 months and more particularly, it's run from $70 to $105 in the last six months. We don't have an energy policy in this country and we need one.
DHUE: Airlines have increased fares and added fuel surcharges in response. Just last week, Delta and United added an additional $10 in fuel surcharges for a domestic round-trip ticket, bringing the total surcharge to as much as $50. Global Insight economist Nariman Behravesh says rising fuel prices are also increasing the pressure on airlines to merge.
NARIMAN BEHRAVESH, CHIEF ECONOMIST, GLOBAL INSIGHT: The issue is cost structure. The issue is trying to rationalize the cost structure, trying to get some critical mass and see if they are cost savings. And let's be honest, that's what they are trying to do here, is to reduce the overhead.
DHUE: New airline mergers have yet to take off. Delta's CEO would not comment on merger talks with Northwest, which have been delayed as the two work to resolve labor issues. The airlines are also coping with congestion. Flight delays and cancellations hit a record high last year. The FAA is pushing peak pricing at gridlocked airports to reduce delays. It's also rolling out a multi- year upgrade of the air traffic control system, known as Nextgen. Thomas Kinton heads airport operations at Boston Logan airport. He says the new system will help, but not solve the problem of gridlock.
THOMAS KINTON, CEO, MASSACHUSETTS PORT AUTHORITY: It's not the silver bullet. Air traffic, the next generation of air traffic control will really look at airborne issues, not so much ground delays. It's not going to help with lack of gates. It's not going to help with lack of runways.
DHUE: Frustrated passengers are also putting headwinds on the industry. Some state lawmakers are considering giving passengers a bill of rights. Delta's CEO says that would be a mistake and he called on regulators to let the markets work it out. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
