Red ink means airlines will try to bleed travelers

updated 4:52 p.m. ET July 16, 2008

ATLANTA - The red ink is mounting for airlines amid soaring fuel costs, leaving them little choice but to further hike ticket prices. As Delta Air Lines and American Airlines reported big second-quarter losses Wednesday, they signaled customers should expect more hits to their checkbooks.

There are signs overall demand for flying within the U.S. is softening, but industry observers insisted that will not stop rising fares, more fees and fewer domestic flights.

"The first thing they have to do is forget about the butts in the seats and worry about the bucks in the till," Minneapolis airline expert Terry Trippler said.

That point was underscored as Atlanta-based Delta Air Lines Inc. reported a $1.04 billion loss in the April-June quarter and Fort Worth, Texas-based AMR Corp., the parent of American, posted a $1.45 billion loss for the quarter. One-time charges and unprecedented fuel costs impacted both airlines, which saw their shares soar as their results beat Wall Street expectations and oil prices dropped.

The two carriers have posted combined net losses of $9.2 billion since the start of the year.

"Clearly, with fuel at these record levels, there's no question ... airfares need to go up," Delta president Ed Bastian told reporters.

He added, "Will there be a tipping point, where demand is going to be affected? I think there already is a bit of a tipping point."

According to Department of Transportation statistics released last week, the number of domestic passengers carried by U.S. airlines decreased 3.3 percent in April from a year earlier. Fares have risen across the country since January over 20 percent, and much higher in smaller cities, according to Rick Seaney of FareCompare.com. Oil prices have doubled in the last year.

AMR chief Gerard Arpey said in a sluggish economy, high fares will cause some people to stop flying.

"We don't believe we're at that point yet, so we continue to believe the industry can sustain — we can sustain — higher prices, so we're raising our prices," Arpey told reporters on a conference call.

Passengers feel squeezed.

At Minneapolis-St. Paul International airport on Wednesday, Mark Davidson of Atlanta said he and his wife and four teenage daughters usually fly twice a year from Minneapolis to Fargo, N.D., to visit family in northern Minnesota. But after pricing those tickets at $700 apiece recently, he said they'll probably fly into Minneapolis and drive the rest of the way next time.

"I've got four daughters and price becomes prohibitive," he said.

Bonnie Geier of Rapid City, S.D., who had just flown into Minneapolis for a doctor's appointment, said she worries her son who works for UAL Corp.'s United Airlines will lose his job as airlines struggle.

"I just feel like Congress should do something about gas prices, because it's going to wreck our economy," she said.

Airlines find themselves in a fight for survival, as they furiously try to conserve cash to keep their operations going.

Delta said it expects $2 billion in cost savings by 2012 from its planned acquisition of Northwest Airlines Corp. That is double what it estimated when it announced the deal on April 14. It also said it expects to spend only $600 million in cash to integrate the two companies, compared to an earlier projection of $1 billion.

Delta's Bastian said he is looking at unspecified cash-raising opportunities. He told reporters Delta is studying a fee imposed by several carriers on the first piece of checked baggage. But he said, "We have no plans to implement it at this point."

Delta's loss for the three months ending June 30 amounted to $2.64 a share, compared to a profit of $1.59 billion a year ago when Delta emerged from bankruptcy protection. It did not provide a per-share figure for the year-ago period. A year ago, it reported a different figure for its net income — $1.77 billion — which a spokeswoman said Wednesday was due to fresh-start accounting.

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