An already woozy airline sector could be dealt a knockout punch by Hurricane Katrina, portfolio managers and analysts said. The soaring cost of fuel and disrupted flight routes will add to the problems airline companies have been dealing with for months. Of the major airlines, Delta Air Lines and Northwest Airlines were singled out as the ones hurt most by the deadly storm, making bankruptcy more likely.
Market players said in order to stop the bleeding, airlines as a whole may be forced to raise ticket prices. Additionally, it could be months before airports in New Orleans and Gulfport/Biloxi will be reopened to commercial traffic. Ming Shao, senior portfolio manager of fixed income at DuPont Capital Management, said the risk of bankruptcy for several airlines has jumped even higher after they hurricane. "They need to do something to try and stabilize themselves and raising ticket prices is a very real possibility. If they raised prices something like $10 a ticket, they would be able to cover around .60 per gallon of jet fuel," he commented.
Kevin Roche, high-yield portfolio manager at PENN Capital Management, said he does not think there is any way that several airlines, specifically Delta, can avoid filing for bankruptcy. "I think that they will. They said they won't do anything by the October 17 deadline, but right now I don't see how they can't what with the price of jet fuel," he commented.
With the exception of Northwest, airline bonds performed better than expected during Katrina and in its aftermath. From Aug. 29- 31 Northwest bonds averaged a decline of four points and continued to fall additional three points. Delta's bonds dropped an average of .75 of a point form Aug. 29-31 and around 1.5 points from Aug. 31 to Sept. 1. Calls to Northwest and Delta went unreturned by press time last week.
Roche noted that consumer spending would take a big hit in the wake of the hurricane. "The gaming industry down there (see related story, page 4) and restaurants along the interstate, like Cracker Barrel, are going too be in big trouble," he said. "Add that to $3 a gallon for gas and rising and it's the everyday consumer who is going to take a big hit.
