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Quick Hits: Airlines Losing Fewer Billions

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Brief scrutiny of today's headlines.

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North American airlines -- including American (AMR), United (UAUA), Delta (DAL) and Continental (CAL) -- are expected to report combined losses of about $3.9 billion in 2008, though they will generate about $300 million in profits next year.

The reason: Lower fuel prices will more than offset the declining number of passengers.

Worldwide, airlines may lose about $2.5 billion next year, down from about $5 billion this year, Bloomberg News reports.

The estimates are from the International Air Transport Association, a trade group representing 230 airlines that carry about 93% of international travelers.

In the US, carriers acted quickly to reduce the number of flights, boost fares and find new sources of revenue in the economic downturn. It's called unbundling, and many major airlines have already broken down the cost of a flight into basic airfare and begun charging additional fees for beverages, blankets, seat selection, or even changing planes. Many airlines now impose a fee for checked baggage.

Others are edging closer to the no-frills approach that has made Southwest Airlines (LUV) a success, and overseas carriers are adopting many of the tactics used by domestic airlines.

Crude oil is priced in US dollars. The greenback has gained about 18% against the euro and about 25% against the pound in the last 6 months. This reduces the benefit of falling oil prices for foreign carriers.

The price of oil is certain to rebound along with the broader economy, putting US airlines' new tactics to the test. So far, the airlines have many of the right moves, even if the new fees drive many passengers nuts.

Here's hoping airlines don't become indifferent or high-handed in the knowledge that most passengers won't take ground transportation for trips over 500 miles or so, creating a captive base of customers willing to line up at security check.

No positions in stocks mentioned.
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