Cheap Fuel, New Fees Keep Airlines Upbeat

CHARLOTTE, N.C. -- As a result of tumbling fuel prices, unprecedented capacity reductions and added revenue from new fees, several airlines reiterated their positive outlooks Tuesday, saying they expect a turnaround worth billions of dollars to their financial results.

At oil price levels around $50, Delta ( DAL) will pay $5 billion less for fuel in 2009 than it paid in 2008, President Ed Bastian said at the Credit Suisse airline investor conference. UAL ( UAUA), the parent of United, would save about $3 billion next year, said Chief Financial Officer Kathryn Mikells.

"The airline industry is of course also impacted by recession," Mikells said. "However, the capacity actions we announced earlier this year are serving us well. The drop-off we've seen in oil prices is poised to more than offset the impact from declining demand."

AirTran ( AAI) CEO Bob Fornaro said he can't wait to see 2008 come to an end. "It's been a very tough one," he said. "But we acted quickly and decisively" to cut capacity.

Airline shares were trading higher Tuesday. The Amex Airline Index was up 3% to 19.26. Among the leading stocks, US Airways ( LCC) was gaining 7.4%, while Alaska ( ALK) was advancing 7.1%.

At Delta, first-quarter international bookings are running about 5% behind last year, Bastian said, though he cautioned that a clear picture has yet to emerge. Domestic bookings are flat, he said.

Delta announced it will reduce next year's system capacity for the combined Delta/Northwest operation by 6% to 8%, including an 8% to 10% domestic cutback and a 3% to 5% international decrease. Including those reductions, over two years Delta will have pulled down 20% of its domestic capacity, Bastian said.

In recent years, international capacity consistently has risen, he noted.

Bastian believes something on the extremely unlikely order of a 20% drop in revenue would have to occur to offset the anticipated decline in fuel costs. "We've never seen the level of demand destruction that some are forecasting," he said.

At United, fourth-quarter capacity will be down 11%. After reducing its current-quarter guidance, United now projects revenue per available seat mile growth of 2.5% to 4.5%. Looking ahead to 2009, the carrier predicts that various fees will produce $1.2 billion in new revenue and that by year-end, it will have shed 100 of the 460 aircraft in its mainline fleet.

For Alaska, advanced bookings are up 3 points in December, 3 points in January and 1 point in February, compared with the same period last year, said Brandon Pederson, vice president of finance. Loads at subsidiary Horizon are unchanged. Pederson noted that Alaska has reduced capacity by 8% and that guidance "will likely tick up a bit."

Meanwhile, US Airways CEO Doug Parker says, "November was very soft." AirTran's Fornaro says that was because the stock market was melting down, travel slowed during election week and the late Thanksgiving pushed traffic into December.

Both December and January look better than November, Parker said. For the industry, "most of us see improvements in RASM in the fourth quarter and most people are predicting RASM improvements in 2009," he said.

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