May 20, 2004

NEW YORK (Reuters) -- Several U.S. airlines announced fare hikes to offset soaring jet fuel prices, following Continental Airlines' announcement a day earlier to do the same.

Continental Airlines on Tuesday raised fares worldwide to counter fuel costs, which have risen 50 percent from a year earlier on the back of soaring crude oil prices. The airline also warned of a loss in the second quarter and a "significant loss for 2004 and beyond."

Analysts, on average, were expecting a profit of 4 cents for the second quarter, and a loss of 90 cents for the year, according to Reuters Research, a unit of Reuters Group, Plc.

The Houston-based carrier also said it may have to consider additional furloughs, wage and benefit concessions and reduced pension funding for employees. Its shares fell 3.3 percent to $9.48 on Wednesday.

United Airlines, which on Wednesday matched Continental's price increase of $10 each way for flights up to 1,000 miles and $20 each way for flights over 1,000 miles, said high jet fuel prices were keeping the bankrupt airline from reaching profitability.

"If not for fuel prices, I'd be able to say we'd be profitable this quarter," Glenn Tilton, the chief executive of UAL Corp., said at an event in New York. UAL shares were up 4.9 percent at $1.08.

The price for jet fuel jumped 9 cents on Wednesday to $1.38 per gallon in the Los Angeles spot market because of an increase in the NYMEX heating oil contract and refiner buying, traders said.

American Airlines, the world's largest carrier, said it matched the increase in European markets. "We have matched it in some European markets where we compete with Continental, but we are still evaluating the domestic markets," a company spokesman said. AMR's shares fell 2.7 percent to $10.54.

Delta Air Lines, the No. 3 U.S. carrier, said it has also matched Continental's hike. Its shares were up 0.4 percent at $5.17. Northwest Airlines, the No. 4 U.S. airline, said it has selectively matched the increase as well. "We have selectively matched Continental's price increase on fares that we offered to compete with low-cost carriers," a spokeswoman said. Its shares were off 2.6 percent at $9.

Several airlines tried earlier this year to add fuel surcharges, which failed to stick due to relatively weak demand. "This industry is seemingly incapable of transferring skyrocketing fuel prices to passengers," Tilton said, hoping that the increases will stick this time around.

Low-cost carrier Southwest Airlines said it could consider raising fares but JetBlue Airways said it did not plan to do so. Southwest shares dipped 0.8 percent to $14.77. JetBlue shares were up 0.9 percent at $27.21.

Wall Street analysts remained optimistic about the performance of low-cost airlines.

"We strongly favor low-fare carriers, most of whom are well hedged, and all of whom should maintain profitability despite high fuel prices and a weak revenue environment," Lehman Brothers analyst Gary Chase wrote in a research note.

Jet fuel makes up 12 to 14 percent of airlines' operating costs and is their second-biggest operating expense after labor.

http://www.cnn.com/2004/TRAVEL/05/20/bt.us.airfare.oil.rise.reut/index.html