Airlines Issue Warnings Amid High Fuel Prices
Airlines are continuing to face challenges from high fuel prices and slowing passenger demand, prompting Southwest Airlinesand Delta Air Lines to issue warnings.
Delta Air Lines said Tuesday it may post an operating loss in the fourth quarter because of higher-than-expected fuel prices.
The No. 3 U.S. carrier lowered its operating profit margin target to a range of zero to negative 2 percent. That compares with an October forecast of an operating profit margin of 3 percent to 5 percent, Delta said in a filing with the U.S. Securities and Exchange Commission.
Separately, Southwest AirlinesTuesday it plans to cut its capacity growth in 2008 on concerns that a weakening U.S. economy will stifle travel demand.
The largest U.S. low-cost carrier said in a statement that it plans to increase its fleet by five to 10 aircraft in 2008. The capacity growth will amount to 4 percent to 5 percent year over year, the airline said.
Southwest said it is concerned about the surge in energy prices.
"We are concerned about growing evidence of slowing economic growth that would inevitably affect passenger demand, coupled with a surge in energy prices," Southwest Chief Executive Gary Kelly said.
The airline industry has been battered by overcapacity, which has made it hard for carriers to boost fares enough to cover the soaring cost of jet fuel. Top airlines have been cutting domestic capacity and raising fares this year to boost revenue.
Southwest's fuel costs are among the lowest in the industry due to aggressive hedging strategies.
Meanwhile, Delta said it was raising its forecast for fourth-quarter jet fuel to $2.60 from $2.36 per gallon.
As a result, Delta plans to reduce its capacity. The company said it took 13 domestic aircraft out of its fleet during the fourth quarter. Delta also plans to cancel the equivalent of 10 domestic mainline aircraft and 35 regional jets by grounding aircraft and reducing utilization.
Delta said it expected 2008 domestic capacity to decline 4 percent to 5 percent.
Some of those planes will be transferred to more lucrative international routes. Delta forecast international capacity to rise 15 percent next year.
The company plans to cut costs by about $400 million in 2008, in part by installing lighter seats and winglets on certain aircraft and halting hiring of back-office jobs.