Airline Losses May Top $600 Million on Record U.S. Cancellations

Airlines may be headed for more than $600 million in weather-related losses as U.S. winter storms trigger the most flight cancellations since the government began tracking the data in 1987.

Almost 20,000 flights were scrubbed last week alone as snow blanketed U.S. airports such as Chicago’s O’Hare, a hub for United Continental Holdings Inc. and American Airlines, according to researchers FlightStats and FlightAware.com. Since Nov. 1, the total is 89,884, the firms’ tallies show.

That would push carriers’ net revenue loss to about $629 million, based on the average estimate of $7,000 for each scrapped flight from Vaughn Cordle of AirlineForecasts LLC, which builds financial models for investors. His projection factors in lost fare revenue plus fuel and labor savings.

“If this keeps up, it will really get ugly,” said Daniel Kasper, an airline economist with LECG LLC in Cambridge, Massachusetts. “It’s already brutal and it’s only the first week in February.”

The industry already was under increasing financial strain even without the snarls from snow and ice, with an 8.8 percent increase this year for jet fuel, one of the largest expenses for airlines.

Delta Air Lines Inc. is alone so far in quantifying first- quarter weather fallout, saying Jan. 18 it would have a $30 million net reduction in revenue from scrapping 4,000 flights at its hometown hub in Atlanta last month. That’s about $7,500 a flight.

Photographer: Tim Boyle/Bloomberg

Snow is cleared from the tarmac at O'Hare International Airport in Chicago, Illinois. Close

Snow is cleared from the tarmac at O'Hare International Airport in Chicago, Illinois.

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Photographer: Tim Boyle/Bloomberg

Snow is cleared from the tarmac at O'Hare International Airport in Chicago, Illinois.

‘Talking About Snow’

“I can’t believe I’m talking about snow again,” Chief Executive Officer Richard Anderson told employees in a Feb. 3 message. “When we’re seeing record or near-record snow across the heartland and the Northeast, that definitely has an impact on our operation and airline operations all over the U.S.”

Cancellations from Jan. 31 through Feb. 4 amounted to about 13 percent of the schedule for the five weekdays, according to Houston-based FlightAware.com. That came on top of cancellations of 4 percent of all domestic trips since November, according to FlightView.com in Boston.

The previous worst season for cancellations occurred from November 2000 through February 2001, when airlines failed to operate 76,851 scheduled flights, or 3.93 percent, according to data from the U.S. Bureau of Transportation Statistics.

Last month’s total was the highest this winter, at 33,372 cancellations, according to Portland, Oregon-based FlightStats. Its count includes Canadian carriers at U.S. airports.

‘Most Extreme’

“This year is the most extreme weather I’ve ever seen,” said Henry Margusity of AccuWeather Inc. in State College, Pennsylvania, who has been a forecaster for 25 years. “The storms have been widespread. New York has been hit four times, and that backs up the whole system.”

Chicago’s O’Hare received about 20 inches (51 centimeters) of snow last week as United Continental, AMR Corp.’s American and Southwest Airlines Co. scrapped most flights in the city. Days earlier, a winter storm dumped 19 inches on New York, which also endured thousands of flight cuts from the shutdown of its three major airports for parts of Dec. 26-27.

Fourth-quarter passenger revenue fell by about $25 million at United Continental because of December storms, JetBlue Airways Corp. reported a $30 million impact and Delta said bad weather in the U.S. and Europe cut profit by $45 million.

While grounding a flight erases some costs, the savings and rebooked fares won’t offset all of the lost revenue because some travelers will abandon their trips. Consultant Cordle, who is based in Clifton, Virginia, assumes that 70 percent to 90 percent of fliers change their travel dates instead of seeking refunds, so airlines keep most of the revenue on their books.

Softest Quarter

“It’s a negative, there’s no question about it,” Herb Kelleher, Southwest chairman emeritus and former CEO, said in an interview. “And the first quarter of each year is the softest quarter for the airline industry. That means the impact is felt even more.”

Carriers will need every dollar as they face mounting bills, with jet fuel for immediate delivery in New York Harbor closing on Feb. 4 at $2.79 a gallon. It reached $2.85 a gallon on Feb. 2, when the International Air Transport Association trade group said global airline profits were at risk from rising prices for crude oil, from which jet fuel is refined.

The Bloomberg U.S. Airlines Index slumped 5.2 percent this year through Feb. 4 and posted a third straight monthly decline in January, the longest such streak in more than two years.

Quicker Calls

United, Delta and Fort Worth, Texas-based American, the three largest U.S. airlines, are among the carriers making quicker calls on flight cancellations and ticket waivers so planes and passengers don’t pile up at socked-in airports, adding to costs and sowing ill will among travelers.

“The worst thing you can do is have people show up and have nothing for them,” said Robert Mann, president of aviation consultant R.W. Mann & Co. in Port Washington, New York.

Also driving cancellation decisions is the threat of fines of as much as $27,500 a passenger, under new federal rules that prohibit tarmac waiting times of more than three hours, Cordle said. BTS data showed a 25 percent increase in canceled flights in the first 11 months of 2010 from a year earlier.

“There’s no doubt about it that they are canceling more, and they should be,” said Cordle, who retired from Chicago- based United after more than 20 years of flying. “It’s more efficient to just cancel flights and rebook people.”

To contact the reporters on this story: Mary Schlangenstein in Dallas at maryc.s@bloomberg.net; Mary Jane Credeur in Atlanta at mcredeur@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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