High fuel costs continued to batter the air travel industry Wednesday as two of the nation's largest carriers, American Airlines and Delta Air Lines Inc., posted losses totaling nearly $2.5 billion for the second quarter.
They were the first of several dismal airline earnings reports that are expected over the next week.
But airline shares surged as oil prices declined sharply for the second day and the quarterly results for American and Delta turned out better than analysts expected. Shares of American's parent, AMR Corp., climbed $1.41, or 32%, to $5.82, while Delta rose $1.24, or 27%, to $5.74.
Airline investors were buoyed by the possibility of a sustained drop in oil prices, which would provide welcome relief to an industry that has been one of the hardest hit by rising fuel expenses. The cost of crude tumbled $4.41 to $134.60 a barrel Wednesday after plummeting $6.44 the day before.
But don't expect airlines to pass along the benefits of falling oil prices to passengers any time soon. To cope with high fuel expenses, airlines have been raising fares, adding fees for services that had long been included in the price of a plane ticket and cutting back on flights. That is not expected to change even if fuel prices continue to fall.
"If oil prices retreated, that would be a good thing, but that wouldn't necessarily mean we or the industry should give back anything that we've gained in terms of pricing or fees," AMR Chief Executive Gerard Arpey said in a conference call.
"Even before the surge in oil prices, the industry was not generating enough revenues to produce enough profits to produce a satisfactory return on investments," Arpey said.
Ray Neidl, an airline analyst with Calyon Securities, said falling oil prices could help the industry "avert a disaster" that could include major airlines going out of business. Even if oil prices dropped to $100 a barrel, the industry would still need to undergo a major restructuring to remain financially viable, he said.
"You would still have to cut passenger capacity by 20% and hike fares by 20%," Neidl said.
For now, fuel costs continue to hammer away at industry profits.
American, the nation's largest carrier and the busiest airline at Los Angeles International Airport, said it lost $1.45 billion in the second quarter as it took a $1.1-billion charge against earnings to reflect the declining value of older aircraft that it is taking out of service.
