Depending on one’s point of view, airline revenues, and profits, are being tamped down by higher fuel costs or fewer passengers. For 2009, airlines as a group are expected to lose $11 billion, according to the International Air Transport Association (IATA). Delta Air Lines (DAL) has already announced that it expects a net loss in 2009 of more than $1 billion.
The IATA projects that airline losses in 2010 will be cut in half, to about $5.6 billion, but that is hardly good news for the industry. The group expects passenger traffic to increase by about 4.5%, but that rise is more than offset by lower fares.
Even worse news comes in the form of higher fuel prices. Jet fuel prices in 2009 have averaged about $61.80/barrel. That cost is expected to rise to $75/barrel in 2010.
But not everyone agrees. UBS has raised its 2010 outlook for airlines based on increased passenger miles and slightly lower fuel costs. The firm sees jet fuel prices at $2.11/gallon, compared with an earlier estimate of $2.13/gallon. UBS also raised profit forecasts for AirTran (AAI), Alaska Air (ALK), Continental (CAL), Delta (DAL), JetBlue Airways (JBLU) and Southwest (LUV). The company predicts narrower losses for American (AMR), US Airways (LCC), and United Airlines (UAUA).
The U.S. Energy Information Administration reports that a gallon of jet fuel costs $2.02 in November 2009, the highest price of the year so far and $0.70/gallon more than February’s lowest price of the year. As we go into 2010, the trend is clearly for higher prices.
What might offset, or at least mitigate, higher prices for jet fuel would be lower crude prices. Airline share prices will move in the opposite direction from crude prices, a path that shares are noticeably following today. Oil prices are down more than $0.50/barrel this morning, less than 1%. Airline shares are up sharply: United is up more than 9%; US Airways up almost 8.5%; Delta is up about 3.5%; and American is up nearly 6%
The airlines are caught in a nasty position. If the global economy improves, crude prices will rise, costing the airlines more for fuel. If the economy remains sluggish, the airlines will need to lower fares in an effort to attract more passengers. Neither solves the industry’s woes.
