Posted on: Wednesday, November 3, 2004
Major airlines take summer cruise in red ink
By Mark Skertic
Chicago Tribune
CHICAGO — The summer travel season was pretty chilly for the nation's airlines.
Advertiser library photo • July 15, 2004 As bad as things are, they will likely get worse, some analysts predict.
"There will probably be more severe losses than in the third quarter simply because of the normal seasonal pattern," said Philip Baggaley, an airline analyst with Standard & Poor's.
The summer travel months of July, August and September typically make up the most profitable quarter for the airline industry. But this year most airlines sunk further into the red.
In September, US Airways sought bankruptcy protection. Last week, ATA Airlines did the same, becoming the first low-cost carrier to file Chapter 11. UAL Corp.'s United Airlines and Hawaiian Airlines are still struggling to emerge from bankruptcy.
Three years after the Sept. 11 attacks, "profit recovery remains elusive despite an economic recovery, strong traffic patterns and aggressive cost cutting by the major carriers," according to an analysis of the quarter released yesterday by Ray Neidl of Calyon Securities.
The biggest problem is rising fuel prices. Crude oil prices have dropped slightly in recent days, but remain about 70 percent higher than they were a year ago.
The price of fuel has added about $4.6 billion to the annual fuel costs for the industry, Neidl's analysis found.
If fuel costs had remained where they were a year ago, "most major carriers would have reported healthy profits," according to an industry update from Michael Linenberg of Merrill Lynch.
For example, he found that instead of losing $177 million, United Airlines would have made $69 million in the quarter.
High fuel prices "threaten to undo much of the cost reduction initiatives that have been put into place the past few years," Linenberg said.
In most industries, rising costs are covered by raising prices. But that solution no longer works for airlines. Customers have demonstrated they will look for the airline that has the lowest prices, said Glenn Tilton, United chairman and chief executive, in a recorded message to employees this week.
Customers "have a wide range of airline products to pick from," he said. "Log onto the Internet and any travel search engine and the prices are there for every consumer to see, and easily so. This transparency creates revenue pressure across the system, and that's not going to change."
Delta is trying to restructure its finances while avoiding bankruptcy court. The airline has arranged financing and reached a tentative agreement on $1 billion in wage cuts and other concessions with its pilots' union.
Major carriers reported a collective $1.1 billion loss, two airlines declared bankruptcy and others are teetering on the edge of insolvency. Fuel and labor costs remain high, and competition makes it difficult to raise ticket prices.
Hawaiian Airlines is one of four of the nation's major airlines in bankruptcy. Last week ATA joined Hawaiian, United and US Airways in bankruptcy court, and others may follow if fuel prices continue to rise.
