Business

Cheap oil could return airlines to profitability

FORT WORTH, Texas — In May, American Airlines' chief executive, Gerard Arpey, called the run-up in jet fuel prices a ”game changer“ for the airline industry, and said it had spurred his plans to downsize the airline in the fall and begin charging customers a host of new fees.

Now one analyst is suggesting that the industry's outlook might improve after a recent drop in crude oil prices.

”The recent oil price move to $115, if sustained, is a game-changing event for the industry,“ William Greene of Morgan Stanley wrote in a report Monday. Greene said that the airlines now have ”substantial breathing room even if demand does weaken.“

Greene said that if current oil prices are sustained, four major carriers (Delta, Northwest, United and Continental) will return to profitability next year. And although he still expects a 2009 loss for AMR Corp., the Fort Worth-based parent of American, Greene has sharply decreased the amount he expects the carrier to lose, from $8.35 a share to $4.29.

”Sustained lower oil prices could cause the industry to avoid the tipping point,“ he said.

Greene credits the industry's rapid response to high fuel prices for his brightened outlook.

He said that plans to cut capacity, levy new passenger fees and raise money to bolster liquidity were designed to help the airlines survive an environment with $130 per barrel oil prices.

Cheaper oil will move most major carriers from mere survival into profitability by next year, he said.

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