ATLANTA — Airline consolidation may not be the panacea for the industry amid persistently high fuel prices, but observers say it would help by removing domestic capacity from the system.
As several major carriers talk about possible combinations, two airlines — Delta and Southwest — gave investors another dose of reality in saying Wednesday their future results will continue to be weighed down by the cost of fuel.
Delta Air Lines Inc. officials were mum on the status of talks with Northwest Airlines Corp. and UAL Corp.’s United Airlines about possible combinations, as the Atlanta-based carrier reported fourth-quarter results that were hampered by jet fuel costs.
Southwest Airlines Co. reported its profit almost doubled in the fourth quarter, but said fuel costs in the current quarter will rise substantially for the Dallas-based carrier.
“We remain worried by high oil and the U.S. economy,” Standard &Poor’s airline analyst Jim Corridore said in a research note.
Delta’s president and chief financial officer, Ed Bastian, said his airline believes cuts in domestic capacity and other cost controls will help offset the effect on Delta from higher fuel prices.
Southwest has tried to fly fuller planes, though its capacity increases outpaced traffic growth during the fourth quarter. That led to emptier, less-profitable flights.
Southwest has also begun a multimillion-dollar initiative to renovate its gate areas and marketing and said it will begin installing equipment to test on-board Internet service. The airline has been gradually changing its boarding method from its longtime “cattle call” to assigned spots in line at the gate, and it has launched a special business-flyer program with higher ticket prices for in-flight extras.
Unlike most of its rivals, Southwest has been able to weather the high fuel prices because of its aggressive fuel hedging program in recent years. But as those older contracts run out, the carrier will become more susceptible to current market prices for jet fuel.
For the current quarter, Southwest estimated fuel costs of about $2 a gallon, up from $1.72 per gallon in the fourth quarter.
Delta reported Wednesday that for the three months ending Dec. 31, it lost $70 million, or 18 cents a share, compared with a loss of $1.98 billion for the same period a year earlier.
Revenue in the fourth quarter rose 10 percent to $4.68 billion, compared with $4.25 billion recorded a year earlier. But Delta spent $1.36 billion on aircraft fuel and related taxes in the quarter, compared with $1.06 billion a year earlier.
Southwest said that in the fourth quarter its net income rose to $111 million, or 15 cents per share, compared with a year-earlier profit of $57 million, or 7 cents per share. Revenue rose to $2.49 billion from $2.28 billion a year earlier. Excluding special items, the company reported a profit of 12 cents per share.
Analysts expected profit of 10 cents per share.
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