Storm's Disruptions Plus Effect On Oil Prices Gives Airlines Just What They Don't Need

Remember the venerable college film classic "Animal House?" Remember when Kevin Bacon was being initiated into the rich boy's fraternity and had to undergo a paddling as part of the secret initiation? Remember what he said with each whack?

"Thank you, sir, may I have another?"

Yeah, it's like that for the airlines these days, as Hurricane Katrina stormed ashore near New Orleans Monday and began its destructive march toward Canada.

"It's not anything that anybody needs, frankly," airline consultant Robert Mann told the Associated Press about the oil price spike caused by the storm, as well as the hurricane itself. "The airlines don't need it. Consumers don't need it."

Katrina, a Category 4 hurricane when it roared ashore at approximately 0510 CDT Monday morning, forced the closure of airports in New Orleans, Biloxi-Gulfport, Baton Rouge, Mobile and Pensacola. It also forced closure of the runways at Eglin AFB.

That meant airlines like United had to cancel dozens of flights into the region, causing big revenue losses and only worsening the financial situation in which many airlines now find themselves. They lost even more revenue when they decided to waive change fees for those headed into or out of the storm's path.

On top of that, crude oil hit a new record of more than $70/barrel, meaning fuel prices will most certainly rise on the heels of Katrina. The storm forced a shutdown of 15-percent of the oil production in the United States, an indication that prices would go up even further.

In fact, at least one industry-watcher said the hurricane might just be enough to push financially-struggling Delta over the edge and into the pit of financial despair.

"They cannot continue to bleed red ink," industry expert Terry Trippler told the AP. "Delta is going to get hurt a lot by this. Not just the oil prices, but the loss of flights they will experience over the next several days. It could be the one-two punch that makes the brain trust at Delta say it's time to go into Chapter 11 reorganization."

Mann agreed. "I think they're well below a minimum cash position where they should have filed already, but that's just my opinion."

But perhaps it was another airline analyst -- Joel Denney at Piper Jaffray in Minneapolis -- who put it best:

"One after the other there's been enough things hitting that it continues to push them closer to the edge. They just cannot stand a whole lot more."

Thank you, sir. May I have another?

FMI: www.nhc.noaa.gov