Page last updated at 17:59 GMT, Wednesday, 23 April 2008 18:59 UK

Sky-high fuel hurts US airlines

Delta Air Lines planes
US airlines are battling with high fuel costs and a cooling US economy

Delta Air Lines and Northwest Airlines have both recorded multi-billion dollar losses for the first three months of 2008, hit by crippling fuel costs.

The firms agreed to merge in a $5bn (2.5bn) deal last week as a way to cut costs and boost revenue as oil prices hover near $120 a barrel.

The entire sector is battling to deal with the spike in fuel and a decelerating global economy.

US carriers are suffering most as demand for domestic flights drops.

Delta Air Lines posted a net loss of $6.4bn for the period, compared to a loss of $130m the year before.

Today's results demonstrate the volatility of the airline industry and the challenges that airlines face
Dave Davis, Northwest Airline's chief financial officer

The main reason behind the loss was a $6.1bn charge related to a recalculation of the firm's value to reflect higher oil prices.

The rise in the oil price helped to drive Delta's operating expenses up 20% in the three months of the year compared to the same quarter in 2007.

With the US economy on the brink of recession, Delta Air Lines - like most of its domestic rivals - is having a tough time filling internal flights and plans to aggressively scale these back.

Turbulent times

Northwest Airlines also suffered, posting a $4.1bn net loss, much wider than the $292m a year earlier when it was struggling to emerge from chapter 11 bankruptcy.

Like Delta, the vast portion of this - $3.9bn - was a one-off accounting charge to take into account the negative effect of fuel prices, which cost Northwest an additional $445m in the quarter, 57.3% more than in the same period a year earlier.

"Today's results demonstrate the volatility of the airline industry and the challenges that airlines face related to uncontrollable increases in input costs such as oil," said Dave Davis, Northwest Airline's chief financial officer.

The merger between the two airlines depends on approval from the competition authorities and the unions, but if successful it will create the biggest airline by passenger volume.

Consolidation elsewhere in the sector is expected, with reports that UAL, parent of United Airlines, is in talks with rival Continental.

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