This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Airlines Cope With
Oil-Enforced Austerity

The rising price of oil has been devastating for the airline industry, causing costs to soar and fueling industry losses at a time when results should be stronger. But $40-plus oil may also be the best thing that could happen to the industry, forcing carriers to slim down or go belly up.

Every time the price of a barrel of crude oil increases by $1, the industry's costs increase $425 million, according to research from Bear Stearns. And with at least three carriers -- Delta Air Lines (DAL - Get Report), Northwest Airlines (NWAC) and US Airways (UAIR) -- actively pushing for employees to cut their own pay, chronically high fuel costs have shortened the amount of time they have to seek concessions, while deepening the amount they're asking for.

"Unsustainably high jet fuel prices could, in fact, be good for the industry," said Susan Donofrio, analyst at Fulcrum Global Partners, in a research report. "While we concur with labor that the current bloated cost structures at many of the airlines [is not labor's] fault, we still think that the numbers show there is the need to become more competitive."

The Second Quarter and $40 Oil

Second-quarter results at the carriers currently seeking concessions drive home this point.

In the three months ended June 30, Delta announced an adjusted loss of $312 million, which was $75 million worse than last year, despite the fact that Delta was grappling with a war in Iraq, SARS and a weaker economy in 2003. While the company saw sales rise, expenses rose even faster, jumping 23.7% on a 53.8% increase in fuel costs.

Labor costs were down marginally in the second quarter, but Delta's labor costs were high to begin with. According to Donofrio, Delta has the highest pilot costs in the industry, coming in at $527 per block hour, 67% higher than the industry average. With losses mounting, something has to give, and since Delta cannot control oil prices, it has turned to labor as the first step in an ambitious plan to perform a top-to-bottom restructuring of its business.
1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
DAL $48.70 0.41%
LUV $41.09 -0.32%
TSLA $221.00 2.50%
YHOO $32.75 -0.33%
AAPL $112.07 0.42%


Chart of I:DJI
DOW 17,130.76 -1.10 -0.01%
S&P 500 2,014.89 +15.91 0.80%
NASDAQ 4,841.5340 +2.8910 0.06%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs