Delta Air Lines and Northwest Airlines are the two US airlines most at risk of falling into bankruptcy by surging energy costs, analysts said on Monday.
Few industries have been as hard hit as airlines by spikes in oil prices. But now, as prices continue to spiral, there could be a winnowing down in the industry in the United States, where carriers posted USD$10 billion in losses last year alone.
"We're very concerned about the higher energy prices and how (they) will affect the airlines," said Helane Becker, an analyst at the Benchmark Company. "Delta and Northwest are the two biggies that we're concerned about," she added.
Oil prices closed at USD$60.54 in New York on Monday after hitting a record USD$60.95. Since the beginning of the year, NYMEX crude prices are up about USD$17 or 39 percent. From a year ago, prices are up more than USD$23 or 61 percent.
The chief executives of Delta and Northwest, the No. 3 and No. 4 airlines in the United States, warned Congress earlier this month they could face bankruptcy if they did not get relief from pension costs.
Energy is the second highest cost for airlines after labor. US carriers have struggled to raise fares to compensate for oil prices amid stiff competition from discounters.
Delta spokeswoman Chris Kelly declined to comment specifically on whether bankruptcy was a possibility, but said the airline has been trying to save on fuel costs by making planes lighter by removing ovens and phones and replacing seats and cutting the amount of time planes taxi down the runway.
Northwest also declined to comment.
Atlanta-based Delta narrowly avoided filing for Chapter 11 bankruptcy protection from creditors last year.
Earlier this year, the carrier rocked the airline industry by slashing unrestricted fares.
"Once winter comes on and cash burn becomes a normal part of even healthy airline businesses, I can't see how the company cannot make the decision to preserve its remaining liquidity and remaining assets and take that into Chapter 11 and try to restructure," said Jim Corridore, an analyst with Standard & Poor's.
He said that Delta and FLYi, parent of much-smaller regional carrier Independence Air, were the most immediately at risk from the latest spike in fuel prices.
A FLYi spokesman was not immediately available to comment.
Minneapolis/St. Paul-based Northwest, which is seeking USD$1.1 billion in annual labor cost cuts, could be next in line for a bankruptcy filing, he said.
"As oil keeps going up and as they're unable to get the concessions they're looking for from their labor groups, we have to look at the fact that Northwest might be next after Delta," he said.
Northwest shares slid 7.6 percent on Nasdaq, while Delta shares fell 5.4 percent on the New York Stock Exchange, both underperforming the Amex Airline index, which was down 3.2 percent.
Each 1 cent increase in the price of oil per gallon adds USD$25 million to Delta's annual liquidity needs and USD$21 million to Northwest's costs, according to SEC filings by the carriers.
Two of the top 10 US airlines, United Airlines and US Airways are already operating under bankruptcy protection.
