Shares of major airlines weakened broadly on Friday, hammered by skyrocketing oil prices, an expense that carriers are finding difficult to pass along to travelers.
Some airlines have blunted the impact of high oil prices by raising fares during the peak summer travel season. But bookings may taper off in the autumn and fares may decline as well, an analyst said.
"Markets are looking at the summer and fall season coming, and the oil prices continue to be a major concern as they approach USD$60 a barrel," said Ray Neidl, airline analyst at Calyon Securities.
US crude oil futures traded at USD$59.65 a barrel on Friday, down from a record USD$60 a barrel on Thursday and Friday.
Shares of Northwest Airlines posted the biggest percentage decline, off 5.5 percent, or 28 cents, to trade at USD$4.77 on Nasdaq. American Airlines shed 42 cents, or 3.3 percent, to USD$12.15 on the New York Stock Exchange. Delta Air Lines shares slipped 17 cents, or 4.4 percent, to USD$3.68 also on the NYSE.
In recent years, low-cost competition has made it difficult for airlines to implement fare increases. Consequently, soaring oil prices have severely hurt results.
Since February, however, increased summer bookings have opened a small window of opportunity for fare hikes.
United Airlines on Tuesday said it was raising fares by 3 percent on most domestic and international flights due to rising oil prices.
"We are confident our customers will understand that we must take appropriate measures to mitigate our higher fuel costs," said John Tague, United's executive vice president in charge of marketing, in a statement.
United's move triggered an industry-wide fare increase. American Airlines followed immediately by adding USD$5 on one-way trips and USD$10 on round trips.
When the dust settled, the top airlines had all raised fares by USD$5 each way, said Terry Trippler, airline expert at Cheapseats.com. "This recent fare increase, it looks like it has succeeded. It had to," Trippler said.
"I've been in the business 38 years, and I never thought I'd wake up in the morning and look at the price of crude oil," he said. "I don't think that we've even begun to feel the total impact of" current oil prices.
Analysts said carriers with low-cost business models may be hit especially hard by record fuel prices.
Carriers like Southwest Airlines and America West specialize in keeping their business models cheap so they can undersell competitors.
But fuel prices are a largely uncontrollable variable that affects all carriers more-or-less equally.
"One of the few costs that are common to all carriers are fuel costs," said Stuart Klaskin of KKC Aviation Consulting in Miami. "There's not much low-cost carriers can do about fuel pricing."
He noted that low-cost airlines may not pay the same discounted fuel prices enjoyed by legacy carriers who buy in larger quantities. Furthermore, low-cost carriers may be less prepared to buy hedging instruments to offset fuel spikes.
America West, in particular, may have trouble coping with high oil prices as it plans a merger with US Airways. America West aims to join forces with US Air to create a coast-to-coast carrier with a low-cost business model.
A surprise rise in price could muddy the merger outlook, Klaskin said. But an America West spokeswoman said oil prices present no challenges that are unique to the merger.
"It's an industry issue," spokeswoman Elise Eberwein said. "However, as it relates to our deal, it's certainly something we're mindful of."
She said the merger plan assumes oil prices of USD$50 a barrel and higher.
