Sandy Rips Into Revenues for Major Airlines
Already fighting with tough operational challenges, hurricane Sandy is beating on airline companies that are still trying to make a post-crisis turnaround. Over 6,800 flights have been cancelled because of the storm. Most notably, the three major airports in the New York metropolitan area — JFK, Newark, and LaGuardia — have cancelled all departures and arrivals.
International flights coming in are also cancelled, leaving some travelers stranded overseas until conditions clear later in the week. The brunt of the storm is expected to pass sometime Wednesday, but could linger as long as Thursday.
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A number of major airlines reported earnings last week and the week before. Southwest Airlines (NYSE:LUV) posted year-over-year revenue growth of just 0.6 percent. A decline in summer demand through September is largely to blame, according to CEO Gary Kelly. A drop in oil prices has helped ease expenses for many airlines, but other factors — like costs associated with the ongoing merger — caused Southwest’s third-quarter operating expense to rise 1.9 percent. Fourth quarter fuel costs are expected to be slightly higher, up to $3.45 per gallon from $3.16 per gallon in the third quarter.
Sandy is slated to halt production at a number of refineries on the East Coast. Depending on the damage and the duration of any closures, fuel costs could temporarily increase for the end of October and the beginning of November.
Thinking ahead, Delta Air Lines (NYSE:DAL) could hedge its losses against disruptions like this in the future. The company’s acquisition of the Trainer refinery in Pennsylvania is expected to break even in the fourth quarter. It’s unclear if the storm will change that.
With some sources pointing at over 9,000 flights in the Northeast being cancelled, airlines like United Continental (NYSE:UAL), American Airlines, JetBlue Airways (NASDAQ:JBLU), and US Airways (NYSE:LCC) are paying the toll. Airlines across the board offered refunds and waived many re-booking fees as the storm approached, but there are still costs associated with concessions. These costs will no doubt cut into the industry’s already slim margins. Despite preparations, thousands of people are stranded.
This is stacked on top of revenue losses from cancelled flights. United Continental cancelled as much as 16 percent of its scheduled flights between Sunday and Wednesday.
East coast airports are unlikely to open before Wednesday or Thursday. JFK and LaGuardia are particularly vulnerable to flooding, which could exacerbate delays. Logan International Airport in Boston is also close to the ocean, and could face damage and flooding from surges.
In their third quarter earnings, many airlines pointed to the fourth quarter for growth. We may be hearing about the thousands of cancelled flights and costs associated with re-booking, rescheduling, repairs, and other hurricane-related troubles in fourth quarter earnings calls.