High oil prices and Japan earthquake expected to harm airline profits
Fuel prices and unforeseen events such as the earthquake in Japan are continuing to hit airlines hard in 2011, despite a recovery in the global economy and higher travel demand. In the US, Delta Air Lines says its fuel bill will rise by 35% this year, impacting first quarter profits. It anticipates an operating margin down 2% to 3% for the period, compared with an earlier forecast increase of 1% to 3%. US Airways and United Continental have already outlined capacity cuts.
“While capacity restraint should help, the key to overcoming higher fuel costs is to increase revenue,” explains the vice president of corporate development at AMR Corp, American Airlines’ parent company.
Delta flies more aircraft to Japan than any other airline in North America, generating more than $2 billion a year from that market. It is cutting capacity there by 15-20% at least until May and says that the earthquake and tsunami could cost it between $250 million and $400 million.