The Marketplace Report: Struggling Major Airlines

The one-two punch of Hurricane Katrina and soaring oil prices is giving the beleaguered U.S. airline industry a crippling blow. And with the approach a traditionally slow travel season at the end of summer, a few major carriers are flirting with bankruptcy. Alex Chadwick discusses the future of some struggling airlines with Bob Moon of Marketplace.

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ALEX CHADWICK, host:

Back now with DAY TO DAY. I'm Alex Chadwick.

The beleaguered airlines could be another casualty of Hurricane Katrina. Travel experts say the damage done to the industry could drive ticket prices higher. It also could push some airlines into bankruptcy. Bob Moon joins us from the "Marketplace" news bureau in New York.

Bob, how much as the airline industry been harmed by this hurricane?

BOB MOON reporting:

Alex, there are actually two parts of that question to consider here. First, you have all the lost business from the many canceled flights throughout the region. That adds up to a lot of lost revenue. But this has been something of a one-two punch because the airlines will also undoubtedly be hit with those rising fuel prices. Some airlines are able to cushion themselves from the oil market shocks with contracts that they sign in advance. This is something called fuel hedging. But those that are close to the brink and facing credit problems have a tough time doing that, so the irony is that it's the ones in the worst financial shape that could be hurt the most. Again today, crude oil prices have pushed above the 70-dollar-a-barrel mark, and fuel price futures are way up.

CHADWICK: Wow. OK, so which carriers do you think are really vulnerable now?

MOON: Well, one of the biggest carriers that serves the region is Delta, which has been on the brink of bankruptcy for many months now. It's had to cancel all flights to and from nine cities in Louisiana, Mississippi and Alabama. American Airlines has canceled scores of flights. Continental says it canceled 111 flights. And there's United Airlines, which is currently trying to make its way out of bankruptcy. United says it's canceled all 63 flights scheduled through midday today into the area affected by the hurricane, and more cancellations are likely as this still-powerful storm moves further north. Northwest also is being pushed closer to the edge; it's struggling to avoid bankruptcy. It suspended service in a dozen Southeastern cities. Even Southwest Airlines, which has managed to escape the financial trouble that's hit the others, has had to cancel service to New Orleans and Jackson, Mississippi.

CHADWICK: Right. You know, Bob, when the airlines get in these moments of trouble, it seems to me either they raise prices because they need the revenue or they cut them in order to encourage more people to fly. Which is it going to be?

MOON: Well, some industry experts are expecting that it could well be the case that this time they're going to raise prices. Travel consultant Terry Tripler for one says this could cause the airlines to move more aggressively to raise ticket prices because, as he puts it, `they just cannot continue to bleed red ink.' Another airline consultant, Robert Mann, suggests that the oil price spike out of this hurricane isn't just what the airlines don't need. He says consumers don't need it. By the way, if you had to change travel plans because of this, talk to your airline. Many of the airlines are waiving fees for customers affected by this storm.

And today in the "Marketplace" news room, we're taking a look at some of the organizations that are funding Arnold Schwarzenegger's ballot initiatives in California.

CHADWICK: Thank you, Bob. Bob Moon of public radio's daily business show, "Marketplace," produced by American Public Media.

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