Analysts doubt that airlines can afford consolidation

Surging oil prices are becoming so costly to U.S. airlines that some analysts are beginning to wonder whether industry consolidation is moving beyond the carriers’ reach.

“Mergers, which are supposed to make the industry more efficient, may not work in this environment since there is a large cash outlay up front and high execution risk,” wrote Calyon Securities analyst Ray Neidl in a note. “The current crisis may serve to cool the merger frenzy.”
In the last week, oil prices have climbed to above $135 a barrel from around $126 on Friday. Analysts have estimated that for each $1 increase in the price of oil, roughly $465 million is added to airlines’ total fuel expense. Jet fuel now represents more than 40% of the industry’s costs.

MarketWatch