2008 Travel Stats Paint Dark Picture

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Lost in the Hedges

Things are so bad in travel that even the good news—plunging oil prices—has a negative effect. The large hub-and-spoke airlines were reluctant to hedge fuel costs as prices rose throughout the decade, then leapt in too late as oil prices surged as high as $147 last year. The result? Huge hedging losses as prices sank as low as $34 in December. Delta Air Lines, for instance, reported a $507 million loss on its hedges in the forth quarter. United Airlines lost $370 million. But even Southwest Airlines, whose fuel-hedging strategy is legendary, was blindsided. It took a $117 million charge in the fourth quarter and has all but abandoned its hedging for the next few years.

Like a Virgin
The travel industry's biggest publicity hound, Sir Richard Branson, talked about launching a U.S.-based airline for seven years before Virgin America finally made its debut in August 2007. Then his minions spent almost as much time trying to keep the privately held carrier's financial results out of the Department of Transportation's public files. Now we know why. According to statistics released last week, the airline lost $175.4 million in the first three quarters of 2008 on revenue of just $259.6 million. In the third quarter, Virgin America's unit revenue (8.8 cent per mile) was far below the industry norm and its costs (13 cents per mile) far above the industry average. And it had just $25.4 million in cash. Needless to say, Branson, a British citizen restricted by U.S. law to minority-stakeholder status, is looking for new domestic investors.

Hotel Junk
The rapid expansion of the lodging industry this decade was partially fueled by mixed-used developments that stressed residential condominiums and time-share projects as much as traditional guestrooms. Condo projects ground to a halt in the housing crash, of course, but "vacation ownership" (industry jargon for time-shares) has also tanked. In the fourth quarter, for example, Starwood Hotels, parent of Westin, Sheraton, W, and other lodging brands, reported revenues from vacation ownership and residential sales decreased 48.7 percent compared with 2007. Fitch, the credit rating agency, promptly reduced Starwood to junk status.

Cashless in Chicago
The woes of Chicago-based United Airlines are well known and frequently chronicled. But now the nation's second-largest airline is burning through cash and selling or mortgaging assets and renegotiating loan covenants to keep its corporate head above water. The carrier consumed almost $1 billion in the fourth quarter and ended the year with just $2 billion in unrestricted cash. That's no more cash than US Airways, about half United's size, has on hand.

Seldom-Heard Discouraging Words
If all these figures don't distress you, consider this discouraging pronouncement from Southwest Airlines: "Fleet growth plans are suspended indefinitely," said chief executive Gary Kelly. Southwest saying it won't grow is the real-world equivalent of Chicken Little warning the sky is falling. The former intra-Texas carrier has recorded 36 consecutive years of profit and grown into the nation's fifth-largest carrier. Most of that growth has come while traditional competitors have struggled during recessions. In 2009, however, Southwest expects to shrink by 4 percent.

And, of course, the Fine Print…
If you must have a silver lining, try Frontier Airlines. Flying in Chapter 11 since last April, Frontier reported a net operating profit of $18.7 million in December. That means the Denver-based carrier might find the funding it needs to exit bankruptcy.

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