The airline sector is falling fast, attributed primarily to the hike in fuel prices, labor costs and congested skies. The latest casualties of the airline sector include US Airways Group Inc. [LCC] and UAL Corp., which abandoned their proposed merger. Meanwhile, British business airline Silverjet plc suspended flights because of a lack of cash to operate. Overall, the markets cautiously pushed forward as the Dow increased 15.22, or .1%, to 12,660.39, and the Nasdaq inched up 14.50%, or .6%, to 2,522.82. Here's a closer of the performance of Deal Stocks in Friday midday trading:
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Shares of US Airways dropped 27 cents, or 6.25%, to $4.05 as its talks for a merger with UAL Corp., which owns United Airlines, has ended. UAL's CEO reportedly told US Airways CEO Doug Parker that the labor obstacles proved too much for a merger. UAL is now looking into a possible alliance with Continental Airlines Inc. that would include its international Star Alliance. Overall, The Deal's Lou Whiteman said, the recent talk of dealmaking in the airline industry has been derailed because of "a combination of high oil prices, labor opposition and a slowing economy has derailed further dealmaking for the time being."
Even the proposed merger of Delta Airlines Inc. [DAL] and Northwest Airlines Corp. [NWA], which most experts say will happen, was motivated primarily by rising fuel costs. Delta budgeted $1.22 a gallon for fuel, this year, but the price jumped to $1.65 a gallon. The disparity is drastic as Delta could be looking to pay more than $1 billion in fuel costs in 2008, according to The Deal's senior editor Greg Johnson.
Meanwhile, airlines have learned to restructure their operations to deal with the financial pressures they face in the industry. Silverjet, for example, ended its business service flights between London and the U.S. It was the last of three business-class-only operators flying between those two points after the bankruptcy of Eos Airlines Inc. and MAXjet Airways Inc. - Gerald Magpily
