As the airline industry continues to lag, Standard & Poor's Ratings Services hit the industry's latest blow on Thursday by placing nine major domestic airlines on CreditWatch with negative implications as they face due to record high jet fuel costs.
Oil prices have soared in recent weeks and went on to set another trading record overnight of more than $135 per barrel. However, oil retreated to end below $131 on a stronger dollar.
Philip A. Baggaley,a senior analyst with S & P. said the move decision was taken because of potential severe financial damage that could result from record fuel prices. In total, 10 airlines, including all the major carriers, have been placed under the CreditWatch negative designation.
The dramatic increase in jet fuel prices has increased airline costs significantly over the past two months, and if sustained, could threaten their liquidity and financial profiles, Philip Baggaley, a Standard & Poor's credit analyst, said in a statement.
Although airlines will seek to recover the higher costs through additional fare hikes and higher fees, we believe that this will prove increasingly difficult in a weak U.S. economy, he added.
S&P said it placed the following on CreditWatch: AirTran Holdings Inc.; Alaska Air Group Inc., the parent of Alaska Airlines: AMR Corp., parent of American Airlines; Continental Airlines Inc.; JetBlue Airways Corp.; Southwest Airlines Co.; UAL Corp., which owns United Air Lines: and US Airways Group Inc., which owns both US Airways and America West Airlines.
Jet fuel prices have soared 82.5 percent this year and 10 percent in the last month, making it the single biggest expense for the airlines. Baggaley said that if the price fails to moderate, one or more of the major airlines may need to seek bankruptcy protection by 2009.
All of them have a decent amount of cash, but with the scale of losses that may occur, they could burn through that very quickly, he said.
Southwest Airlines, the best-hedged U.S. airline, and Alaska Air Group, the second-best fuel hedged carrier, are in a somewhat better position than others, according to the report.