Has airline merger fever cooled?

DALLAS — Airlines executives say worries about recession, high fuel prices and tighter credit seem to have cooled the consolidation fever that gripped the industry a few weeks ago.

Instead, they turned their comments Tuesday toward cutting costs and reducing flights, which could give them more power to raise fares.

The comments seemed to reassure investors, who drove up major airline stocks across the board anywhere from 2 percent to 11 percent.

Delta Air Lines Inc. set the tone by offering buyouts to 30,000 employees — more than half its work force — as the likelihood of a deal with Northwest Airlines Corp. faded.

Executives at other carriers also talked about controlling costs and raising fares while planes are still very full.

"Demand is still pretty good," said Jeff Misner, the chief financial officer of Continental Airlines Inc. "The problem we've got is we're not covering the cost of fuel right now...We can't get the prices up fast enough to cover that."

Continental expects its 2008 fuel bill to be $1.5 billion or more higher than last year, or about three times its profit for all of 2007.

United Airlines says it faces a $1.2 billion increase in fuel costs, Delta expects to pay $900 million more, and Northwest is budgeting an extra $800 million.

In response, the carriers are considering reducing flights to save money and perhaps drive up fares. Led by United, part of UAL Corp., the carriers raised round-trip fares by up to $50 per round trip last week and some now charge $25 extra for checking a second piece of luggage.

JetBlue Airways Corp., meanwhile, hopes to boost revenue by rolling out a new program to charge passengers extra for additional legroom, CEO David Barger said.

Delta said Tuesday it would reduce its flying by 5 percent.

United plans to ground about 4 percent of its fleet, or up to 20 older Boeing 737s that get poor mileage, CFO Jake Brace said at a JPMorgan conference in New York. He said it didn't make sense to fly those jets at current fuel prices.

Executives from Northwest and American Airlines, the nation's largest carrier, said they, too, were considering cutting capacity, with announcements possible next month.

"The silver lining of oil at a high price: It's stripping capacity out," JetBlue's Barger said.

Even Southwest Airlines Co. might reduce flying. And it's better insulated from high fuel prices than other U.S. carriers because of financial transactions made several years ago that will let it buy 70 percent of its fuel this year at the equivalent price of $51 per barrel of oil — less than half the current rate.

Southwest values those hedges at more than $3 billion over the next few years.