DONTTELLTHEPAX

UNITED Airlines may ground up to 100 planes to save money on fuel expenses as other major carriers including American Airlines and Northwest Airlines also consider grounding aircraft.

This comes as two US senators asked aviation officials to look into a report that carriers may have cut back on fuel reserves to reduce expenses, possibly violating safety regulations.

Carriers are scrambling to meet demand and maintain their profit momentum after a successful summer travel season amid pressure from high energy prices.

Crude oil was up nearly $US1 ($1.09) on Friday on the New York Mercantile Exchange to $US96.40 a barrel. Every $US1 increase in crude oil prices costs airlines $470 million.

vinayak

so what happens to all those pilots flying those planes?

WhatsaLizad?

It is a B.S. article from a rather uneducated reporter in the back of the press conference room. There was some discussion on aircraft and the low costs of grounding owned aircraft. The idiot reporter ran with it.

CAP493

Oil @ 100$ a Barrel – A Frightening Thought

From 'USA Today'

The very thought of $100 oil "makes me feel sick," says John Heimlich, chief economist at the US Air Transport Association, the airlines' trade group. He says oil prices that high could push one or two of his group's big member airlines into bankruptcy, with the most endangered solvent carrier being Houston-based Continental. And, he says, it likely would keep Delta and Northwest in Chapter 11 much longer than anticipated because it would be almost impossible in such market conditions to find investors to provide financing needed to emerge. Both airlines currently expect to exit bankruptcy in 2007.

Northwest officials declined to respond specifically to such suggestions. But in recent financial reports and news releases, Northwest officials have raised the possibility that the company may not be able to absorb escalating fuel costs.

Betsy Talton, spokeswoman for Delta, says high fuel prices "do pose a risk to our plan" to emerge from bankruptcy in 2007. "For 2006, we've seen a nearly $600 million impact from higher fuel prices."

Baggaley agrees that Continental is most at risk of entering bankruptcy protection if oil prices climb to three digits. Despite outperforming most other big carriers by several measures in the past couple of years, Continental has the smallest cash cushion. Continental spokesman David Messing declined to comment on that speculation.

Prolonged oil prices above $100 a barrel could even run the USA's only perennially profitable carrier, Southwest, into the red on a full-year basis for the first time since 1972. The Dallas-based discounter's recent quarterly profits have been mostly the result of gains from its industry-leading fuel-hedging program.

Southwest has locked in fuel prices by contracting for future delivery at negotiated prices. Though it continues to be the best-hedged U.S. carrier, those hedges are eroding as oil prices climb and futures investors seek a premium for locking in a price for the airline. This year, Southwest has contracts guaranteeing that the price of 75% of expected fuel purchases will be based on crude prices no higher than $36 a barrel. Next year, that falls to 65% at $41 a barrel. Only 39% of its 2009 fuel needs are hedged, and at prices up to $44 a barrel.

Southwest CEO Gary Kelly discounts the likelihood of $100 oil. "We don't think the fundamentals justify the current price, and certainly not something as high as $100. There's a lot of fear included in the market price right now." Still, Kelly acknowledges that "world events could occur that could push the market price much higher." That's why, he says, Southwest hedges in the first place.

Perhaps not such an "idiot" after all...

jtr

If grounding 100 saves them some money, imagine how much they could save if they ground the whole company!

StbdD

United Airlines version of what was said. Looks like the reporter indeed heard what he wanted to and wrote a misinformed, inflamatory piece.

From 'Jake' Brace, United Airlines Executive Vice President and CFO:

"Good evening. By now, many of you have read or heard reports that United is planning to ground 100 aircraft. The reports are based on comments I made at a Goldman Sachs conference yesterday in New York. I want to put the story straight and get the facts into the right context. First, let me be clear, we are not grounding airplanes.

At the conference, I was talking with analysts about how the industry would respond to an economic environment where oil is hovering near $100 a barrel. I was reinforcing to the analysts a point that I believe strongly: United has more flexibility to respond to economic challenges than our competitors. We have a great network that gives us the opportunity to move our aircraft around in response to changes in worldwide economics. We have managed our U.S. domestic capacity very well. We have a strong cash balance and good cash flow. We are in a very good fundamental position.

As part of that conversation, I also brought up, as one point about our flexibility, the fact that we have more than 100 aircraft that are debt-free. Because they are unencumbered, if oil prices stay high and if we cannot pass the costs on to our customers, one way to manage our capacity could be to ground aircraft, which we could do without incurring ongoing costs. It was one point in a larger conversation about the possible responses we would have in an extreme environment, which the analysts in the room understood. Unfortunately, the point was picked up by reporters listening to the webcast as something we were considering, rather than a possibility if certain conditions occurred.

There is no underestimating the impact the price of oil has on our industry. It’s a significant issue for every airline and something we are watching every day. Just today, we announced a $10 fare increase on U.S. domestic flights to offset higher fuel costs. We will continue to weigh our options to manage the impact the price of oil has on our business and we will certainly inform you in a much more deliberate way if we ever get to a point where decisions as serious as grounding 100 aircraft are necessary.

In the meantime, as Pete reinforced in a recent email, the best course for all of us is a continued focus on fuel conservation, efficiency and looking for cost savings at every opportunity.

Jake"

niknak

Since none of the major American airlines can run at a profit, perhaps it's about time those who can't remain solvent should be shut down and let the people who know how to run a business operate to and from the USA.

In the short term, employees would suffer, but in the long term aviation in America would re emerge as a far leaner and competitive industry.

Bankruptcy protection in the USA is a disgrace and a complete political sham, it only exists to serve the interests of the morally bereft and industrially incompetent.

StbdD

Your statement is a bit disingenuous unless you have never heard of Southwest, Alaska, UPS, FEDEX, or American (which has somehow stumbled into being the worlds largest airline despite their 'incompetence'). None have ever been bankrupt and the last 3 mentioned compete quite profitably across the pond.

Honorable mention to DHL even though it has now been sold overseas.

If one really wanted to willy wave this is the point in the debate where European/Mid East airlines and/or aircraft manufacturers who are directly and indirectly supported financially by their national governments are mentioned. They compete in the Atlantic market as well.

Myopia, stones, and glass houses.

Moderators, sorry for the thread drift. We now return you to your originally scheduled thread topic of a crap journalist making a crisis where none exists in order to sell papers.

daninLTN

So what are we talking here? 757/737/A320s or 747/767/777 being grounded?
I'm sure the likes of AI and others would be happy to get their hands on some extra widebodies...

ocnus

If you hear of any A330 -3 let me know; grounded or no.