Airlines cut losses as fliers return

By Robert Manor
Chicago Tribune

The airline industry is still bleeding money, analysts say, but the hemorrhage seen earlier this year may have slowed. Carriers are set to report their second-quarter earnings beginning next week, with analysts forecasting profits for most discount airlines and losses for most full-service carriers.

"I see the situation improving somewhat, but we are still going to have losses in the billions," said Barbara Beyer, president of Avmark Inc., an airline consulting firm. "I am somewhat concerned that traffic isn't coming back as quick as it should."

The nation's three largest carriers — American Airlines, United Airlines and Delta Air Lines — and nearly all the other major carriers were hammered by the Sept. 11 terrorist attacks, which frightened passengers away from air travel.

Then a weak economy combined with fear of severe acute respiratory syndrome in Asia and the war in Iraq to depress air travel and drive the industry into its worst depression ever.

United, for example, lost $1.3 billion in the first three months of this year — the industry's largest loss — even though it is in Chapter 11 bankruptcy, which allows the airline to curtail costs and put off some payments. American lost $1 billion, and Delta absorbed a half-billion-dollar hit.

Estimates vary, but one analyst said United probably cut its loss in half for the second quarter, as cost-reduction measures kicked in and the vacation season began.

But the mainstay customer for airlines like United and American — the business traveler — remains an endangered species.

Vacationers buy their tickets in advance and at a substantial discount. Historically, business travelers were the most profitable passengers for airlines because they traveled on short notice and had to pay higher prices.

Although vacation travelers are crowding flights these days, business travelers are notably absent.

So when will they return to the skies?

"Never," said Nicolas Owens, an airline analyst for Morningstar. "People talk as if the leisure traveler is a very different person from a business traveler. They are the same person, just on a different day of the week."

Owens said someone who spends a few minutes checking Internet Web sites to save hundreds of dollars for a pleasure trip is likely to make the same small effort for business travel.

Still, some analysts are optimistic that the airlines will do better as time goes on.

"We do see some clear indication that demand is coming back," said William Warlick, airline analyst with Fitch Ratings.

By one measure, June was United's best month ever: More than 80 percent of its seats were filled.

"At 82 percent, June 2003 was the highest load-factor month ever in the history of the airline," said Pete McDonald, executive vice president for operations.

United also has made substantial progress in customer satisfaction, baggage handling and timely flights — all areas where it once was last among its competitors.