With the possibility of congressional opposition to airline mergers, and the carriers continuing to face rising costs, the prospects for relief in the industry are unclear. James Oberstar, D-Minnesota, Chairman of the Transportation and Infrastructure Committee, said in a CNN Money report of the possible mergers, “Hell, no.” He will carry his aggressive anti-merger fight to the Justice and Transportation Depts., pressuring them to deny approval of proposed airline mergers.
Delta (NYSE: DAL) is in early talks with United (NASDAQ: UAUA) and Northwest (NYSE: NWA). If a merger takes place there, speculation is that Continental (NYSE: CAL) will need to find a takeover candidate to stay highly competitive. US Airways (NYSE: LCC) CEO Doug Parker said in another CNN Money story that consolidation is going to be necessary, as the airlines have little left to trim in terms of cost. Rep. Oberstar was not optimistic that the Bush administration would do much to oppose potential mergers, however, which the chairman maintained reduce consumer choices, increase fares, with reduced coverage to service areas.
Airlines have faced rising fuel costs, as the fuel costs in the recent third quarter have risen to their highest levels and are up 90% since 2000. Fuel costs make up more than 25% of the carriers’ operating expenses. The price of a gallon of airline fuel was up 1.6% the last quarter, to $2.11.
On the recent earnings front, Delta lost $70 million, or 18 cents a share. It had lost $2 billion in the prior year when it was operating under bankruptcy protection. Delta was trading at $16 a share, and has traded in a $10-$23 range in the past year. American Airlines reported on January 16 losses of $69 million, 28 cents a share, compared to a net income of $17 million, or 7 cents a share, for its most recent quarter. Again, high fuel prices as well as bad weather were blamed for the losses. AMR was trading at around $13 a share, off its lows of $10 in the last year which has seen it hit a high of $39.87.
Other carriers have been battling the same fuel and cost structure difficulties, which most industry observers feel will continue in the near term.
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