Airlines resume market slide on oil price spike

By John Crawley

WASHINGTON (Reuters) - A record one-day spike in global crude oil prices on Friday pushed the anticipated fuel bill for U.S. airlines up by more than $4 billion, driving down shares and heightening uncertainty about industry prospects.

"Things just got worse for us today," James May, the top lobbyist for carriers as chief executive of the Air Transport Association, told Reuters.

Airlines are particularly sensitive to price increases with carriers spending more on jet fuel than any other expense.

Domestic airlines are expected to pay more than $61 billion for fuel this year, $20 billion more than the tab for 2007, the ATA estimates. The figure accounts for some of the pending capacity cuts, imposed by the biggest airlines to counter high fuel expense.

May's group estimated that Friday's $10 jump in crude prices -- if it sticks -- added more than $4 billion to the industry's annual bill.

U.S. crude CLc1 settled up $10.75 at $138.54 a barrel on Friday. Prices could reach $150 by July 4, one of the busiest American travel holidays, investment bank Morgan Stanley said in a research note.

Wall Street analysts have warned that continued sustained increases in fuel costs could eventually push more U.S. airlines into bankruptcy. A handful of small airlines have gone out of business this year. Frontier Airlines (FRNTQ.PK) is operating under bankruptcy court protection.

"I know one thing, people can't afford to fly and so you're seeing a decline in revenue and increasing costs that will probably result in more bankruptcies in this industry," former Continental chief executive Gordon Bethune told CNBC.

Airlines have imposed multiple fare increases this year to try and offset oil price increases.

United Airlines, a unit of UAL Corp (UAUA.O), and Continental Airlines Inc (CAL.N) this week became the latest domestic carriers to announce plans for grounding planes and eliminating thousands of jobs as part of industry capacity reductions to offset high oil and slackening demand due to a weakening economy.

MORE CUTS?

Bill Warlick, a senior analyst at Fitch Ratings, said liquidity cushions at major carriers are sufficient for now but believes another round of capacity cuts could occur later in the year if fuel prices continue to climb this summer.

"Schedule planners are going to look hard at where they can cut further, if it's necessary," Warlick said.

Already depressed shares of the biggest airlines, which rallied modestly mid-week on their capacity reduction plans and prospects for higher fares, resumed their downward slide on Friday.

The Dow Jones industry average recorded its worst sell-off in 15 months. The Dow Jones Transport Average, led by airline declines, fell 4.4 percent. The AMEX Airline Index .XAL was off 6.9 percent.