Is the Airline Industry Still Flying in an Ash Cloud?

When an Icelandic dormant volcano, dormant for 200 years, erupted near Eyjafjallajoekull (this is the actual name, not a typo) glacier, the chimney of ash that blew out did not just impact locally, but it literally clouded the European skies.

Airline News Resource For at least six days, since last week's flight ban in Europe, thousands of flights and millions of passengers were left stranded on European soil. According to the International Air Transport Association (IATA), airlines could have contracted a loss of about $1.7 billion for those six days alone. The U.S. Travel Association, on its part, estimated a loss of $650 million to the U.S. economy as a result of the flight cancellations between the U.S. and Europe. Whilst flights resumed on Wednesday from and to Europe, another dark cloud seemed to be hovering over the airline industry in the U.S. This time it was not an Icelandic volcano eruption, but earnings results from the world's largest airline, Delta, which had reported a loss of $256 million for the first quarter 2010 as compared to a loss of $794 million in 2009. The news rippled through airline stocks early this week, sending most share prices to negative territory.


Delta, however, was not the only airliner flying in an ash cloud this week. Air Tran, which has seen all of its 2009 quarters in the green, also hit pockets of turbulence yesterday as it announced a net loss of $12 million citing higher operating costs. AMR Corp. (NYSE: AMR), which released its earnings in the late hours of the yesterday's session, only confirmed what the street is already dreading, Airliners are still in a mist of trouble financially. AMR reported a net loss of $505 million for its first quarter 2010 citing devaluation in the Venezuelan currency early this year, higher fuel prices and the taxing economic environment. After this late announcement, investors punished airlines stocks by pushing them in the red. "These series of negative readings from airliners have created a bearish mood within the industry. It will hard for airliners to get investors to change this sentiment overnight. Until something is given in this industry, we might see share prices spiral down drastically," commented Mathew Collier of www.rothmanresearch.com. 

However, with summer holidays approaching and the slow-paced economic recovery boosting consumer confidence, many airlines are hoping for more profitable days ahead. The industry itself seems to be gradually coming out of the ashes as air fares are now higher and demand is sprouting. Many airlines have reported a surge in advance booking ahead of the holidays. There is also the great smell of consolidation in the air for the industry as talks between United Airlines and Continental Airlines Inc. (NYSE: CAL) seems to have speculators' tongues wagging upon a possible deal that could eventually see the creation of the world's largest airline company. Can the Airliners maximize on these positives and deliver an improved quarter in the next earnings season; it would seem that right now optimism is at an all time low.

More airlines will be reporting their first-quarter readings this week and these will include Continental Airlines Inc. and Southwest Airlines Co. set for today. US Airways Group Inc. and UAL Corp. are programmed to release their earnings report next week.

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