Airlines have hit choppy skies of late. But the news I am referring to is a little more serious in nature than the “Scorpions on a Plane!” episode that ABCNews reported the other day. Evidently, on that flight, there was a family of scorpions on board, and one succeeded in stinging a passenger.
But the airline industry has been stung by a much bigger predator: the recession.
Delta Air Lines, which is currently the biggest carrier in the world, has admitted that it does not expect to make a profit this year. The company’s revenues are estimated to have dropped over $3 billion so far this year.
Reuters reported, “Excluding merger expenses of $58 million, Delta said it lost $199 million, or 24 cents per share. Analysts polled by Reuters estimated a loss of 29 cents, excluding merger costs.”
In order to cope, Delta is trying to lower capacity to a level more in line with reduced travel. Delta also announced it will have to cut more jobs.
Delta is not the only airline that is suffering. American Airlines and Continental Airlines reported second quarter losses of $390 million and $213 million, respectively.
ABCNews reported, “Even the good news from the airlines isn't that good. Southwest announced that it had earned $54 million in the April-June period but that was down dramatically from the $321 million earned during the same period last year.” That’s an 83% drop in income.
A big reason that airlines are struggling so much is because business travel has dropped off quite a bit. And, to adjust for the bad market, airlines are considering some sizeable cuts.
The Los Angeles Times reported, “Continental Airlines Inc. plans to eliminate 1,700 jobs and Southwest Airlines Co. said 1,400 employees took voluntary buyouts, while United Airlines will shrink international capacity an additional 7%.”
There is at least one exception that has actually recorded some good earnings. Per ABCNews, “The only bit of good news came Wednesday from discount carrier AirTran Airways which posted a $78.4 million quarterly profit. Unlike the mainline airlines, AirTran doesn't rely on business travelers but instead focuses on leisure travelers looking for specials to resort destinations.”
Good for AirTran. As for the others, they will have a time recovering from this recession. And, unfortunately, in the end, consumers will be the ones to pay the cost.
Continental Airlines is raising flight reservation fees and baggage fees, while Delta is adding a charge for paying baggage fees at the airport rather than online, according to The New York Times. Even the discount carrier Southwest Airlines may be considering adding baggage fees, reported the Orlando Business Journal.
Contrary to what it may seem, there are still investment opportunities in airlines. Investors who plan their investments well certainly have potential to make gains. Recently, Editor Zachary Scheidt of Taipan’s New Growth Investor and Death Cross Trader explained some of the pitfalls that airlines have fallen into. He also suggested an airline that had built a strategy to avoid those pitfalls and capitalize on every opportunity. Follow this link to learn more.
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