WHAT'S THE FUSS ALL ABOUT???
Delta shares fall as bankruptcy threat remains
Fri Jul 15, 2005 02:58 PM ET
NEW YORK, July 15 (Reuters) - Shares in Delta Air Lines Inc. (DAL.N: Quote, Profile, Research) and rival carriers fell on Friday as analysts said a rally sparked by the airline's decision to raise some fares had not lessened the chance it could file for bankruptcy.
Delta shares were down 11 cents, or 2.7 percent, at $3.96 in afternoon trading on the New York Stock Exchange. Continental Airlines Inc. (CAL.N: Quote, Profile, Research) shares were 32 cents, or 2 percent lower, Northwest Airlines Corp. (NWAC.O: Quote, Profile, Research) was down 17 cents, or 3.4 percent and AMR Corp. (AMR.N: Quote, Profile, Research) was down 25 cents, or 1.8 percent.
Delta on Thursday raised its caps on walk-up fares by $100 to combat soaring fuel prices. Traditional airlines including UAL Corp.'s United Airlines (UALAQ.OB: Quote, Profile, Research) , Continental, AMR Corp.'s American Airlines and Northwest followed suit.
The moves touched off a surge in most of the airlines' shares on optimism that the move could help them stem billions of dollars in losses amid fierce competition that has made it tough to raise prices to offset increasing oil costs.
But analysts said Delta, widely considered the weakest of the so-called legacy carriers, would gain only marginally from the move and had not significantly reduced the probability that it would be forced into bankruptcy over the next year.
"We estimate an incremental $80 million of annual revenue production for Delta, insufficient to materially affect its Chapter 11 probability," JP Morgan analyst Jamie Baker said in a research note. "Frankly we don't see what all the fuss is about."
Prudential analyst Bob McAdoo was even more pessimistic, seeing an impact of just $15 million to $20 million, or a few cents a share, for major airlines.
"With annual losses denominated in dollars per share rather than pennies, the excitement over this fare change will likely be short-lived," he wrote in a note.
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