But Investors See Positives In Long-Term Plans

If US domestic airlines have avoided being the first to raise base ticket prices out of fears of losing market share, it looks as if the industry's great staring contest may be about to end.

Both Delta and American blamed huge second-quarter losses on fuel prices and one-time charges in financials released Wednesday. American Airlines parent AMR lost $1.45 billion, with Delta close behind at $1.04B in losses. The two have posted combined net losses of $9.2 billion just since January 1.

The two carriers say they'll have to start raising ticket prices, even if it means the risk of suppressing demand.

BusinessWeek cites industry analysts who predict higher ticket prices, even more fees and "unbundling," and fewer available domestic flights. Or, as Minneapolis airline expert Terry Trippler puts it, "The first thing they have to do is forget about the butts in the seats and worry about the bucks in the till."

Delta president Ed Bastian told reporters fares clearly must rise, with fuel at record levels. "Will there be a tipping point, where demand is going to be affected? I think there already is a bit of a tipping point."

He could be right. The DOT's Bureau of Transportation Statistics says US-based airlines carried 3.3 percent fewer domestic passengers in April this year than in 2007. Figures from FareCompare.com show airline fares up 20 percent just since January, with much higher increases in some smaller markets.

So... what's an airline to do? Delta expects to save $2 billion by 2012 by combining with Northwest Airlines, and now says merger costs will be $600 million in cash, down from an earlier projection of one-billion. Bastian says, at this point, Delta is not prepared to join other carriers in charging an extra fee for a passenger's first checked bag -- not yet, anyway -- but is considering other fees.

Delta also plans to cut domestic capacity by 13 percent after the end of the summer travel season.

American announced Wednesday it will take its 34 Airbus A300s off-line by the end of 2009, three years earlier than planned.

While the discussions of harsh measures may have some frequent fliers worried, the news was received enthusiastically by investors. Delta's stock finished the day up over 25 percent, American's up over 30 percent, both buoyed in part by a significant two-day downward-trend in oil prices, and news that both carriers still have cash on hand.

FMI: www.delta.com, www.aa.com