Sunday, February 28, 2010

Airlines slammed by heavy snow, making for a costly month
March looks just as bad; Airline stocks move higher on adjusted GDP report

Christopher Hinton, MarketWatch
NEW YORK (MarketWatch) -- As snow blanketed the Northeast on Friday, airlines were wrapping up one of the worst months on record for snow-related disruptions, punishing the industry with hundreds of millions in lost revenue and costs; and March is likely to be just as bad.

"For the country as a whole, it's going to be a reluctant spring," said AccuWeather meteorologist Joe Bastardi, in an interview. "As far as snow is concerned, March will be just like February."
On Friday, the third major storm in February hit the Northeast, causing more than a thousand flight cancellations and extremely-long delays at some of the nation's busiest airports. Carriers scrambled to accommodate millions of passengers.

"This is certainly one of the worst weather months in my memory," said CRT Capital Group analyst Michael Derchin.

"What has made it particularly bad for the airlines is the storms are widespread throughout the country with the worst ones concentrated in some of the busiest flight corridors in the Northeast and Midwest," Derchin said. "I think it's safe to say that the industry will see a quarterly impact of hundreds of millions due to weather related loss of revenue and extra costs."

Hot Stocks: Airline stocks up
Most carrier shares are higher Friday after a U.S. GDP report shows the economy grew faster than originally thought. The sector's benchmark index gained, led by shares of Continental, Delta and US Airways. Christopher Hinton reports.

Most airline stocks traded higher, lifted by a U.S. Commerce Department report that adjusted fourth-quarter gross domestic production to 5.9% from 5.7%.

With steady crude-oil prices and signs that demand deterioration that carriers suffered last year has ended, investors are focusing more often on economic growth and the unemployment rate, which generally affect premium-ticket sales.

AccuWeather said the severe winter storm in the Northeast could last through Saturday and drop up to 3 feet of snow in some areas. Meteorologists have said they can't recall a worse month for snowy weather.

"Typically this February and March period is worse than most other periods as far as snowfall is concerned," said JetBlue Airways /quotes/comstock/15*!jblu/quotes/nls/jblu (
JBLU 5.28, +0.07, +1.34%) spokeswoman Alison Croyle. She couldn't say if the weather this past month was the worst on record for the budget carrier.

The disruptions had an impact on revenue, but those figures won't be released until first-quarter results, Croyle said.

Airlines got prepared quickly for the storm, which helped reduce the size of costs they might have been burdened otherwise. Starting Wednesday, many airlines began announcing cancellations and encouraging customers to change itineraries, free of charge, if they thought their flights might be affected.

By canceling flights, airlines save money on fuel and labor hours, as well as maintain their on-time performances. Fuel accounts for some 40% of an airline's cost, so not flying can directly impact a carrier's operating expense, said CRT's Derchin.

"Airlines have been more proactive in advising customers ... not charging fees for changing bookings," said Derchin. "And so far there's been no disaster stories this year, like people getting stranded at the airport for five or six hours."

At Delta Air Lines
which has a major hub at John F. Kennedy International Airport, the carrier started canceling flights on Wednesday as forecasters predicted the blizzard would hit the New York City area by Thursday afternoon.

"We recognize we cannot control Mother Nature, but we can minimize the inconvenience for customers," said Delta spokeswoman Susan Elliot. "Our goal is to stay ahead of the storm."
Delta said it rerouted many of its flights around New York, such as its Friday flight from Dublin, Ireland. The flight was supposed to land at JFK, but will land in Cincinnati, where passengers will be able to use connecting flights to get home.

AccuWeather's Bastardi said February has been the snowiest on record, and another winter storm is expected to sweep up from the Tennessee Valley to the mid-Atlantic states by as early as next week.

More moist air from the Pacific is being pushed up from the southwest part of the country this year due to cooler currents along the coast line, Bastardi said. Meanwhile higher volcanic activity in the northern hemisphere spewed greenhouse gases into the atmosphere, resulting in a warmer stratosphere that increased pressure around the North Pole, pushing cold air further south.

When all that moist air hits the arctic cold, snow results, Bastardi said.
"No one thing is causing this, it's a combination of things," he said.

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