American and Delta airlines lose $2.5bn in quarter on oil price rise

By Stephen Foley
Sunday 23 October 2011 01:01

Two of the largest airlines in the US lost a combined $2.5bn (£1.25bn) in the second quarter, as rising jet fuel prices and restructuring costs hobbled their operations.

American Airlines and Delta said they would ground additional planes and cut even more flights in their attempt to reduce costs and limit capacity. By doing so, they hope to be able to push through further ticket price increases – but both warned that the industry business model needs to change dramatically and quickly.

Gerard Arpey, chief executive of AMR, the parent company of American Airlines, said: "Our company continues to be severely challenged by the fuel crisis that has afflicted our entire industry, and we expect these difficulties to continue for the foreseeable future." AMR lost $1.45bn in three months; Delta said it had lunged $1.04bn into the red. Delta's chief financial officer, Edward Bastian, said: "Unprecedented fuel prices have created a real crisis in the airline industry, and Delta has been a leader in responding with quick, decisive action."

The latest financial figures cover the start of the peak summer travel season. Ray Neidl, an airline analyst at Calyon Securities: "The second quarter is supposed to be the best quarter for the industry, so these results have to be disappointing."

Delta emerged from bankruptcy protection last year, the last of a string of bankruptcies that have plagued the US airline industry. It is lobbying to be allowed to merge with Northwest Airlines, with which it agreed a deal this year.

Analysts have long argued that the industry needs to continue to cut flights if it is to manage sustainable profitability, but the deteriorating economy and stubbornly high fuel price has complicated the picture.

AMR said it would trim domestic capacity by up to 12 per cent in the fourth quarter and headcount by 8 per cent. Delta has said it plans to cut domestic capacity by 13 per cent in the second half of the year and to eliminate 2,000 jobs.

Shares in both companies soared yesterday after a second day of sharp falls in the crude oil price, on which jet fuel prices are based.

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