First, rising oil burns the airlines and transportation exchange traded funds (ETFs). Now, one airline is getting burned by falling oil prices. How does that work?
For the first time in 17 years, Southwest (LUV) has lost money on the basis of falling oil, which forced them to write down the value of their fuel-hedging transactions, reports David Koenig for the Associated Press. Even though revenue rose 11.7%, the company lost $120 million in the third quarter.
The company was burned by fuel-hedging contracts that are less valuable now, forcing them to take $247 million in charges.
Delta (DAL) and American Airlines (AMR) have also posted third-quarter losses this week, but they have differing views on what lies ahead for the industry. Delta sees the drop in oil prices as protecting the airline industry from the brunt of an economic downturn, Michelle Maynard for the International Herald Tribune says.
American warned about continued volatility in oil prices, and that financial turmoil could still lead to fewer bookings from corporate travelers. Delta lost $26 million in the third quarter, while American lost $360 million.
Delta seems to have the more popular sentiment in this argument. While one would believe that overall, the industry would benefit from falling oil prices, they’re not. Aviation fuel is still sky-high at more than $4, well above the 61 cents it cost in the mid- and late 1990s, reports Rachel Dornhelm for Marketplace.