Airlines expect losses to worsen
By Marilyn Adams
USA Today
Fresh from their toughest quarter ever, airlines say the fourth quarter will be far worse.
It could be a year — or even two — before most airlines are making money again, industry analysts say.
Reeling from the weak economy and the Sept. 11 terror, major airlines lost a total of $2.4 billion last quarter even with $2.1 billion in federal emergency aid. But this quarter their combined loss is expected to be much higher amid sluggish sales and low fares.
"How much worse it'll be, we don't know," says Dave Swierenga, chief economist for the large airlines' trade group, the Air Transport Association.
"It's far from over," American Airlines CEO Donald Carty said in a recent letter to employees.
Struggling United Airlines, which lost more than any other carrier last quarter — $1.16 billion — warned its fourth-quarter loss will be "substantially greater." Monday, United said it filled 63.4 percent of its seats in October — down 7.7 percentage points from a year ago — but Fitch, a Wall Street bond-rating agency, estimates that at its current revenue and expense levels it needs to fill 96 percent to break even for the rest of this year.
Last month, United was losing $15 million a day, down from $20 million a day after the attacks. Two of United's jets were hijacked and crashed Sept. 11. United wasn't alone in its fourth-quarter warning.
Salomon Smith Barney analyst Brian Harris predicts the industry will lose nearly $6 billion this quarter, not counting federal aid.
"The revenue decline has been much more severe than after (the Pan Am crash at) Lockerbie or the Persian Gulf War," Harris says.
Swierenga predicts the earliest most airlines will show a profit is the second or third quarter of next year. But if the second and third quarters — typically airlines' strong quarters — are still weak, recovery isn't likely until second quarter 2003, he said.
In the meantime, some airlines may file for bankruptcy reorganization despite billions in federal aid to the industry. Last week, America West said it has stopped making payments on some aircraft and received default notices from some jet-leasing companies. Most of its planes are leased, and it's trying to negotiate cheaper terms.
America West warned that if it can't restructure debt and raise cash with federal loan guarantees, it'll run out of cash "in the near term" and have to file for bankruptcy court protection.
Its spokesman, Jim Sabourin, said the withheld payments aren't "a terribly significant amount of money" and that stopping payments can be a negotiating technique in the plane-leasing business.
But an official at Standard & Poor's, which last week downgraded America West's credit rating to one notch above default, disagreed. "It is uncommon (to stop payments)," said Betsy Snyder, S&P's director of corporate ratings. "It's only common for companies on the verge of bankruptcy. They (America West) are in the worst shape of any of the majors."
Passengers are returning, but slowly. "It's not a nice, smooth recovery," Harris says.
And planes are filling in part because of deep discounting of fares. Almost all airlines have reduced schedules, parked planes, laid off workers and cut fares. But the same steps that cut costs also reduce sources of income.
Says Swierenga: "Even an airplane sitting on the ground costs money."
