Skyrocketing jet fuel prices could spur mergers

By Tom Stundza -- Purchasing, 3/12/2008 9:19:00 AM

The spot price of jet fuel has risen to $3.17/gallon, eclipsing the previous record levels in 2005. “The run-up in fuel prices that we've had in the last three weeks is really unprecedented,” notes Delta’s CEO, Richard Anderson, in the recorded message to employees.

In fact, the spot price of jet fuel has risen nearly 16% this year—and at least $1/gallon above earlier estimates--and caused such analysts as Kevin Crissey of UBS Securities to forecast a merger soon between Delta and Northwest, followed by a marriage of United and Continental.

And now, credit rating agency Standard & Poor's tells the Atlanta Journal-Constitution that high fuel prices and adverse economic trends could prompt it to lower its credit ratings on the 10 airlines it follows. A lower credit rating could reduce the airline industry’s access to capital and increase its borrowing expenses. Standard & Poor's analyst Philip Baggaley tells the Atlanta newspaper in an interview that persistently high fuel prices may prod airlines to ground older, less fuel-efficient jets or find other ways to cut costs and boost revenues. He says rapidly rising fuel bills have increased airlines' costs at the same time that the threat of a recession could soon hem in their ability to raise fares.