In reaction to surging fuel costs, several major airlines announced today that they were raising their fares in order to recoup some of their rapidly increasing flying costs.
The increase this time around is $20 and effects passengers traveling on UAL Corporation (NASDAQ: UAUA), Delta Air Lines, Inc. (NYSE: DAL), and AMR Corporation (NYSE: AMR)'s American Airlines. The $20 jump in prices will be added to the airline's fuel surcharges, and consequently, these charges are now running at $130 round trip on most flights that you will book through the airlines.
The current rate hike was first initiated by Delta, and marks the second time in just over a week that the airline has been forced to raise fares in order to combat record high fuel costs. Times are definitely tough for airlines, and they are doing everything they can to combat fuel prices, but regardless of the rate increases most analysts are still expecting to see huge losses this year from most, if not all, airline carriers.
Oppenheimer downgraded shares of Chelsea Therapeutics (NASDAQ:CHTP) to Perform from Outperform after their survey suggested physicians believe currently available generic treatments are adequate in neurogenic orthostatic hypotension, which could impact the company's lead drug Droxidopa.
Clearwire (NASDAQ:CLWR) was cut to Sell from Hold at Citigroup on valuation, as they estimate fair value at $13.
OTHER DOWNGRADES:
Goldman downgraded Kellogg (NYSE:K) to Neutral from Buy and Hershey Foods (NYSE:HSY) to Sell from Neutral.
Higher oil prices and the surging aviation fuel costs they imply may reduce the benefits of an airliner merger, such as the potential deal between United Airlines and U.S. Airways, but they don't eliminate a merger's long-term positives, an analyst argued Tuesday.
Further, C. Leonard Bauer, independent stock analyst, told BloggingStocks Tuesday the potential United-US Airways union would benefit the sector in that it would be the second merger this year among major airlines in the United States, also known as the legacy carriers.
Shares of UAL Corp. (NYSE: UAUA), parent of United Airlines, are down 88 cents to $14.10, while US Airways (NYSE: LCC) are down 55 cents to $7.79 in Tuesday trading.
Sector right-sizing
"The deal would take another legacy carrier off the table, after the Delta-Northwest merger, and that can only help the sector from an earnings standpoint," Bauer said. "The United States airline sector leads the league in airline route redundancy and duplicate hubs. This second deal would further tighten the sector."
Reading the paper everyday means seeing a headline that another airline merger is in the offing. The most recent wave of articles is on a United Airlines (NASDAQ: UAUA) merger with US Air (NYSE: LCC). It is yet another example of two carriers hoping that they can get together and save costs, without alienating customers in the process.
According toThe Wall Street Journal, "The companies have identified more than $1.5 billion in potential cost savings and revenue enhancements from joining forces." The word "potential" is the key.
Airline employees who are in unions have a good chance of shutting down a merged airline if they think they will loss a ton of jobs. Pilots, flight attendants, and mechanics all have plenty of leverage. A combination of United and US Air would have almost $10 billion in revenue a quarter. It would not take a very long strike to eat through $1.5 billion of that.
The number of pending mergers is also almost certain to get some of them canceled by The Justice Department. Members of Congress who have employees on airline payrolls are also likely to take a position. Today, the US has at least five major carriers. If Delta (NYSE: DAL) and Northwest (NYSE: NWA) get married, that cuts consumer choice down by a lot.
Don't count on a United hook up with US Air. It is not likely to happen.
TheStreet.com's Jim Cramer says they can't be profitable with this huge cost – it's time to move on.
Here's a revelation. The airline industry is disappearing right before our eyes. And it doesn't even matter. They can merge all they want, they can try to cut costs through synergy, but the business can't survive $120 oil. The variable cost is 35% of their expense. That's not tenable and it is going higher. Fares have to double to make it up. That's just not tenable. The Dreamliner's a nice savings, but this American industry won't get there in time to be saved by it.
Last week we saw the big give-up, the departure of even the longest-term investors. The stocks are signaling that most of them will have to restructure through bankruptcy. They have done it before, but this time it doesn't matter. The fare increases have to occur, and they are such that the airline structures can't be profitable. It is one of those industries that can't stay afloat without massive federal subsidies, and that can't happen.
I have hated the airline stocks ever since 1985 when I recommended Delta (NYSE: DAL) (Cramer's Take) and my clients promptly dropped 50%. I reiterate that after the tremendous declines these stocks have, they are still worth avoiding. Don't be tempted to pick up these stocks if oil "swoons" down to $115. The airlines will rally, but they will need to do every bit of financing possible if a rally occurs.
Another day. Another merger of two struggling airlines.
This time it''s UAL Corp.'s (NYSE: UAUA) United Airlines and US Airways Inc. (NYSE: LCC), which together lost more than $773 million in the first quarter are reportedly in are "advanced" merger talks, two sources familiar with the situation told The Associated Press. These "sources" may be public relations people who are leaking details of the deal at the direction of the investment bankers and the companies themselves.
Wall Street is reacting positively to the news sending shares of US Airways in mid-afternoon trading. I am not so sure a celebration is in order. For one thing, as Reuters and the Associated Press both have noted this is a marriage of necessity.
"The discussions intensified over the weekend after Continental Airlines Inc, which had been in negotiations with United, pulled out to explore a potential marketing alliance with AMR Corp's American Airlines and British Airways Plc," according to Reuters.
While Northwest (NYSE:NWA) and Delta (NYSE:DAL) have decided to merge, Continental (NYSE:CAL) will take the road in the other direction by electing to stay independent.
According toThe Wall Street Journal "Continental's statement comes as the industry faces soaring fuel prices." The trouble is that whether airlines merge or not, crude oil prices continue to rise.
Continental has probably made a wise decision. There is no guarantee that the marriage of NWA and DAL will help either company. Mergers mean lay-offs and that often means strikes. If there are labor walk-outs the new carrier could face weeks of being unable to fly and unable to collect revenue. Merged reservation systems can also take months to integrate.
Continental will be on its own, but if fuel continues it sharp ascent, it won't matter.
Douglas A. McIntyre is an editor at 247wallst.com.
Eos was an improbably candidate for success in the airline industry. It flew one route, from New York's JFK to London. It was an all-business-class carrier.
Now, Eos is bankrupt. Having only one route, added to the rising price of jet fuel, cut the carrier down.
The news raises the question, once again, whether small and large airlines alike can make it though the current increase in fuel prices and a recession without having to file for Chapter 11. It was only four years ago that most U.S. carriers had to seek protection in the courts. AMR (NYSE: AMR) was one exception. That hurts it now because it did not use bankruptcy to cut its debt and the costs of its workforce. That may make it the most likely candidate of any American carrier to hit the air pocket of insolvency.
The oil price crisis my be so bad that, coupled with falling passenger revenue in a sharp and prolonged downturn, even mergers like the one planned by Delta (NYSE: DAL) and Northwest (NYSE: NWA) will not save them.
That will leave the banks, who hold most of the debt on airline balance sheets, holding the bag.
Douglas A. McIntyre is an editor at 247wallst.com.
Stock futures indicated a higher start earlier this morning following solid results from internet bellwether Yahoo late Tuesday. As earnings reports have started coming out this morning, though, stock futures have started to reverse direction.
Other than many earnings reports on tap today, investors may look at U.S. oil inventories when out later today after reaching nearly $120 a barrel (10 cents shy) Tuesday. Analysts expect supplies declined in the past week. So far oil has moved somewhat lower today, but remained near $118 a barrel.
U.S. stocks tumbled Tuesday following some disappointing results from several tech and consumer stocks. The Dow industrials dropped 104 points, or 0.82%, the S&P 500 fell 12 points, or 0.88%, and the Nasdaq Composite lost 31 points, or 1.29%.
Despite many upcoming earnings reports, investors will likely continue to focus on Yahoo! (NASDAQ: YHOO), which has reported strong results, beating analyst estimates on both the top line and bottom line. Still, the results weren't phenomenal, or uncovered any surprising issue that might show it could fare better on its own. Yahoo! has until Saturday to accept Microsoft (NASDAQ: MSFT)'s takeover offer of $31 a share or face a proxy fight. Microsoft has already said it wouldn't raise its offer, but of course, nothing is certain at the moment. YHOO shares are down about 0.8% in premarket trading.
U.S. stock futures were down slightly this morning, reflecting nervousness about economic data and earnings reports due out today.
Stocks fell Tuesday for the second session in a row after disappointing earnings from Wachovia surprised the market. The Dow industrials ended the day down 23 points, the S&P 500 lost 5 points, and the Nasdaq Composite fell by 14 points.
In the news, Delta Air Lines (NYSE: DAL) and Northwest Airlines (NYSE: NWA) announced yesterday that they will combine to form the world's largest airline, with a market value of $17.7 billion. The new airline will be called Delta. United and Continental may be next in line to tie the knot.
In another blow to the ailing airline sector, oil prices rose to an intraday record of more than $112 a barrel Tuesday as the U.S. dollar continued to weaken against other major currencies.
There was evidence of continuing deterioration in the housing market -- according to a report by RealtyTrac for March, U.S. foreclosure filings rose 57% and bank repossessions more than doubled from last year. However, there was some good news from Detroit as Ford announces plans to step up production of the compact Focus by 30% to meet strong demand.
Economic data due out today includes the Producer Price Index, a measure of wholesale inflation, at 8:30 a.m. EST, the Empire State Manufacturing Survey at 8:30 a.m. EST, and the Housing Market Index at 1:00 p.m. EST.
MTB), State Street (NYSE: STT) all reporting before the open. After the close, all eyes will be on Intel and Washington Mutual, as they report earnings.
What works for two airlines should work for two others. At least that is the thought process behind a possible merger of United (NASDAQ:UAUA) and Continental (NYSE:CAL). They believe that if there are financial and marketing advantages to the Delta (NYSE:DAL) merger with Northwest (NYSE:NWA) that they should go next.
According toReuters the two carriers "have laid most of the groundwork for a merger, two people briefed on the matter said, and could have a deal ready "pretty quickly" if Delta Air Lines and Northwest Airlines announce a tie-up." Now that the Delta/Northwest deal is done, they are likely to speed up that process.
While the value of airline mergers is dubious, two big mergers could cause regulators to turn down both. The marriages are based on the idea that airlines can cut costs in personnel, marketing, and route consolidation. If the is true, it means lay-offs and service to fewer cities. It also could help an airline to raise ticket prices as it becomes the sole providers to air travel out of some cities.
Two big airline mergers have to make the US government looks at whether it is good to have only three large airlines in the US, including AMR (NYSE:AMR) instead of five.
Douglas A. McIntyre is an editor at 247wallst.com.
In reaction to surging fuel costs, several major airlines announced today that they were raising their fares in order to recoup some of their rapidly increasing flying costs..gif){kind=logo}
Reading the paper everyday means seeing a headline that another airline merger is in the offing. The most recent wave of articles is on a 
Here are some highlights from this past week's 
Stock futures indicated a higher start earlier this morning following solid results from internet bellwether Yahoo late Tuesday. As earnings reports have started coming out this morning, though, stock futures have started to reverse direction. .gif){kind=logo}
Oil hits record $127.43 on supply concerns, raised Goldman forecast
Icahn's 'shock and awe' on Yahoo -- a gutsy play
Housing starts surprisingly rise in April on apartment construction
