Posted on: Tuesday, January 18, 2005

Airline losses likely to pass $5B

By Dan Reed
USA Today

U.S. airlines this week begin reporting 2004 losses expected to top $5 billion, pushing the total since 2000 to almost $33 billion.

Analysts also estimate that the expansion of "simplified" fare structures featuring lower business-travel prices could cost the carriers an extra $2.1 billion in 2005. That could push losses this year up to around $3 billion.

Lehman Bros. airline analyst Gary Chase in a report last week called 2004 "another financial disappointment."

Barring "huge" positive surprises for the October-December period, Chase said, "Results will be worse in 2004 than those experienced in 2003." Then, industry losses totaled $3.6 billion.

Because air travelers had been returning after terrorism and recession had nearly cleared the skies in 2001, industry losses weren't supposed to be so deep in 2004.

As recently as fall 2003, analysts and many industry executives were predicting a turnaround year for the haggard industry, with carriers about breaking even. And 2005 was expected to be a breakout year in profitability.

But that was before oil soared to $55 a barrel in October 2004. And it was before it became obvious that the low-cost carriers' rapid growth, and their low everyday prices formula, would cut so deeply into big airlines' business.

Now, most analysts expect the string of industry losses to extend at least into 2006. That could change if oil prices fall to around $30 a barrel, or big chunks of capacity are removed from the industry through the liquidation of one or two large carriers, say analysts, including Lehman's Chase and J.P. Morgan's Jamie Baker.

Oil was at $48.38 a barrel when markets closed Friday.

Analysts expect Arlington, Va.-based US Airways, now operating in Chapter 11 bankruptcy, to survive, at least for a while longer. In a report last week, Baker said that the collective interests of the federal government, private creditors such as General Electric and aircraft manufacturer Airbus should keep US Airways in business.

The airlines tomorrow will begin reporting for the quarter and for the year.

If analysts are correct, AMR, parent of American, will report a 2004 loss of nearly $1 billion. NWA, Northwest's parent, is expected to post a $725 million loss.

Discount giant Southwest is the only airline expected to post a profit for the quarter.

Delta and Continental will report their financial situation on Thursday; America West on Friday. The rest report next week, except United and US Airways, which will disclose their results in bankruptcy court filings, probably in early February.