Between October 27 and November 1, airlines canceled more than 20,254 flights in North America because of Hurricane Sandy. The mass cancelations caused massive inconvenience for thousands of passengers and also hurt airline profits.
According to Wolfe Trahan analyst Hunter Keay, the total cost of losses for the seven most affected airlines is an estimated $190 million on earnings before interest and taxes, reported The Street
Keay’s estimates of the earnings impact of Sandy on each airline were: Delta
(NYSE:DAL), $50 million; United Continental
(NYSE:UAL), $45 million; American
(PINK:AAMRQ), $30 million; US Airways
(NYSE:LCC), $30 million; JetBlue
(NASDAQ:JBLU), $20 million; Southwest
(NYSE:LUV), $10 million; and Spirit
(NASDAQ:SAVE), $5 million.
Deutsche Bank’s Michael Linenberg also calculated that
the storm would cost airlines close to $200 million. He noted that the pretax impact of Hurricane Irene to the industry was some $100 million, so, “given that Irene occurred during late August, a busier travel period than late October, it would seem that the impact of Sandy to the US airline industry would be a little less than $200 million pretax.”
How do airlines calculate losses in events like Sandy? "Here's the usual assumption: Passengers with unrefundable tickets make up roughly 70% of those flying, which airlines will end up earning back. About 30% of passengers are either emergency or business travelers. Those trips don't necessarily recur, so that money is then lost for the airlines," explains Bob Mann, an airline industry analyst with R.W. Mann, to The Huffington Post
"All told, roughly 25% of revenue is lost ... but that depends on how long service is suspended for. The airlines ask themselves at times like this: 'Is the cost of reconstructing the schedule balanced with the period during which no one is flying?' The airlines, at some airports, weren't flying for two and a half days. That's a period in which no one was flying and no one was burning fuel, which outweighs the cost of reconstructing the schedule,” Mann continued.
While the final cost of Hurricane Sandy on land-based corporations will likely take some time to tally, Delta has already announced that it lost $45 million in revenue from the cancelation of over 3,500 flights in the last few days of October. The company released a public statement addressing its Sandy-related losses last Friday, which said:
In response to Hurricane Sandy, Delta cancelled more than 3,500 flights in October, which caused a 2% system capacity reduction versus prior year. The company is estimating that the hurricane negatively impacted October revenues by $45 million and reduced October profit by approximately $20 million. Delta is still assessing the impact to November, but expects it to be less than October. Delta's October unit revenue improvement was approximately one point higher than it would have been without the hurricane impact.
Meanwhile, JetBlue said in a statement that “although JetBlue cancelled 1,484 flights in October due to Hurricane Sandy, the overall financial impact to JetBlue’s October profitability is not expected to be material.” The company added that the brunt of Sandy’s impact would likely be felt in November instead, as it “expects short term demand to soften as customers focus their attention to recovering from the storm. As a result, fourth quarter impact is expected to be material.”
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