Consolidations losing steam

Airlines focus on cost-cutting instead

DALLAS -- Airlines executives say worries about recession, high fuel prices and tighter credit seem to have cooled the consolidation fever that gripped the industry a few weeks ago.

Instead, they turned their comments Tuesday toward cutting costs and reducing flights, which could give them more power to raise fares.

Delta Air Lines set the tone by offering buyouts to 30,000 employees -- more than half its work force -- as the likelihood of a deal with Northwest Airlines faded.

Executives at other carriers also talked about controlling costs and raising fares while planes are still very full.

"Demand is still pretty good," said Jeff Misner, the chief financial officer of Continental Airlines. "The problem we've got is we're not covering the cost of fuel right now ... we can't get the prices up fast enough to cover that."

Continental expects its 2008 fuel bill to be $1.5 billion or more higher than last year, or about three times its profit for all of 2007.

United Airlines says it faces a $1.2 billion increase in fuel costs, Delta expects to pay $900 million more, and Northwest is budgeting an extra $800 million.

In response, the carriers are considering reducing flights to save money and perhaps drive up fares. Led by United, the carriers raised round-trip fares by up to $50 per round trip last week, and some now charge $25 extra for checking a second piece of luggage.

Delta said Tuesday it would cut 10 percent from its domestic schedule by August as it parks up to 45 jets.

United plans to ground about 4 percent of its fleet, or as many as 20 older Boeing 737s that get poor mileage, CFO Jake Brace said at a JPMorgan conference in New York. He said it didn't make sense to fly those jets at current fuel prices.

US Airways executives, speaking at the same conference, said the carrier would reduce capacity this year an additional 2 percent to 3 percent, on top of initial plans to trim 1.5 percent

JetBlue Airways said it will sell four Airbus SAS A320 aircraft, bringing the number of jets it has shedding to 10.

Representatives of Northwest and American Airlines, the nation's largest carrier, said they too were considering cutting capacity, with announcements possible next month.

Even Southwest Airlines might reduce flying. And it is better insulated from high fuel prices than other U.S. carriers because of financial transactions made several years ago that will let it buy 70 percent of its fuel this year at the equivalent price of $51 per barrel of oil -- less than half the current rate.

Southwest values those hedges at more than $3 billion over the next few years.

Several executives said industry consolidation appears less likely than a few weeks ago. They were speaking a day after Delta pilots created fresh doubt about a possible Delta hookup with Northwest.

The possibility of a Delta-Northwest deal spawned speculation about all kinds of other combinations.

Airlines executives think that business travelers pick carriers with extensive U.S. and international routes, so they would be loath to sit idly if rivals grow by joining forces.

Southwest had been interested in picking up gates or other assets that other airlines might be forced to sell if they grew through combinations with other carriers. But Southwest CFO Laura Wright said no deals looked obvious Tuesday.

"It feels like all the talk about consolidation has lost a lot of steam," Wright said.