Thu, Jul 24, 2008
'Yay! They Lost Slightly Less Than We Thought They Would!'
US domestic airlines are demonstrating that even a financial
loss is good news, so long as analysts have driven expectations low
enough.
Northwest Airlines -- which is in the process of being acquired
by Delta -- announced Wednesday a second-quarter net loss of "only"
$377 million. That included a write-down of the company's goodwill
value, essentially acknowledging its assets have lost $547 million
in value since the carrier exited bankruptcy.
Offsetting that write-down was an increase of a quarter-billion
dollars in the value of Northwest's fuel hedges.
So, why did Northwest's stock gain 15 percent on Wednesday
alone? Bloomberg reports there were two reasons.
First, the company's loss was not as severe as analysts had
expected. Without considering the write-down and fuel hedges, the
quarterly loss would have been "just" $80 million. Second,
September oil contracts finished the day below $125 a barrel, a
level not seen since June 5. Falling oil prices are buoying the
entire airline industry.
Also improving the outlook for investors, Delta said last week
that cost savings achieved through the merger, originally estimated
at a billion dollars a year by 2012, are now expected to reach $2
billion annually if fuel prices remain high.
The average cost paid by Northwest for jet fuel leapt 69 percent
from 2007's second quarter. Jet fuel now exceeds labor as the
airline industry's largest expense category.
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