Cheaper fuel offsets airlines' storm losses

Seth Wenig | AP

A plane is de-iced at LaGuardia Airport in New York, Jan. 26, 2015.

Announcing widespread cancellations and a waiver of change fees, U.S. airlines hunkered down Monday for a round of lost revenues as the season's worst winter storm bore down on the Northeast.

But unlike last winter's serial storm snarls, most carriers will more than make up for those losses thanks to lower fuel prices.

A wave of cancellations began rolling through the system Sunday night, as thousands of flights were put on hold after forecasts of as much as 3 feet of snow from northern Virginia into New England and Atlantic Canada.

As of Monday afternoon, more than 2,800 flights had been canceled or delayed, according to the flight tracking site FlightAware.

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Most major airlines are allowing customers whose flights are canceled in the next few days to book new flights without paying a penalty. The National Weather Service predicts 2 to 3 feet of snow for a 250-mile stretch of the Northeast, including the New York and Boston areas. Philadelphia should get 14 to 18 inches. The storm was expected to continue through Wednesday.

While major hubs like New York's John F. Kennedy, Newark and LaGuardia airports and Boston's Logan remained open, they warned of limited service.

Those cancellations are expected to produce bottlenecks that ripple throughout the national air traffic system. Because a large portion of the industry's capacity is concentrated in high traffic hubs in the Northeast, major delays there can slow the entire system as crews and equipment become stranded and unable to move in or out of the region.

And, as airlines have tightened capacity, it can take longer for the system to recover from widespread, storm-related delays. A steady rise in load factor—the share of seats filled on every flight—means there are fewer seats on the next flight out to get travelers where they're going.

Some cities have been hit harder by consolidation than others. In Pittsburgh, for example, US Airways' closure of its hub there a decade ago left the city with 40 percent fewer seats per day, less than half as many destinations and 15 percent fewer nonstop seats.

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The economic impact of storm-related flight cancellations is difficult to tally. For stranded passengers, the out of pocket cost—an extra taxi fare, overnight hotel room or overpriced meals at terminal concessions—represents a windfall for those businesses.

Airports typically feel the economic pain, too, on both sides of the ledger. While they're footing a bigger bill for snow removal and other operating costs, revenues fall because of such things as reduced fees from parking lots and slower concession sales.

For the airlines, last winter was one of the costliest on record. The top four airline companies (ranked by miles flown)—American, which includes US Airways; United; Delta; and Southwest—canceled some 75,000 flights last year after a series of snow and ice storms snarled airports in such major hubs as Chicago, Atlanta and New York.

Those cancellations cost Delta some $90 million in revenues and $55 million in pretax earnings million, the airline said last year. Other airlines reported revenues hits but didn't break out dollar amounts.

But for most airlines the losses are only temporary, as passengers rebook on the next available seats. American and Southwest were among those reporting that revenue per mile flown rose after the storms passed because planes were more crowded and average fares rose.

This year, U.S. airlines are already enjoying the profit tailwind of falling fuel prices, which have plunged along with the price of crude since last summer. As a result, carriers expect to save hundreds of millions of dollars in fuel costs.

As the biggest variable cost, those savings can more than make up for the losses from a few winter storms. For some carriers, fuel represents a third or more of operating expenses.

Southwest Airlines said last week it will pay $1.90 per gallon in the first quarter, down from $2.62 the previous quarter—a savings of about half a billion dollars from the first quarter of 2014.

Alaska Airlines and United Airlines also reported lower fuel costs for the latest quarter.