Although some US majors posted terrible results in the fourth quarter, a few are starting to show some hints of having seen the worst, reports David Field.
The year's final quarter was dismal for the US majors, but it could have been worse. Given that the comparison was with the disastrous final quarter of 2001 there was plenty of room for improvement. Indeed, with war in the air, there may yet be worse to come in the quarters ahead.
Overall, the majors collectively showed a net loss of just under $3 billion for the quarter, once the special items are factored out. Although massive, that is still an improvement over a year ago. Yields per passenger were also more or less stable while unit costs came down by another 3%. However, comparisons with the last quarter of 2001 were bound to flatter.
Those who are looking for signs of hope may also note that two special cases probably made the quarter worse than it would have been. First, United spent the period getting ready to go into Chapter 11 bankruptcy protection and then promptly went. Second, it was the first full quarter of bankruptcy for US Airways.
United led the losses on every measure, with a net deficit of close to $1.5 billion, while its seat costs leapt by 7.4%. Perhaps incredibly, it's unit costs were driven up by labour, as one union, the machinists, received a retroactive pay rise.
US Airways, which filed for bankruptcy in August, also racked up a net loss of close to $800 million, although that includes a host of special items. If they are stripped out the quarterly result narrows to a net loss of $295 million, down from the record-breaking $552 million in the final quarter of 2001.
Commenting on the results, the carrier said efforts to exit bankruptcy by the target date of the end of March were still running on track. US Airways has slashed nearly $2 billion annually from its once-unwieldy cost base.
If two big bankrupts helped deepen the red ink, the largest solvent majors did not do much to stem the tide. American Airlines parent AMR set a stunning record net deficit of $529 million in the quarter and it would have been worse but for an income tax credit. It is now burning cash at more than $5 million a day.
For those still looking for the silver lining in this enormous black cloud, a few bright spots emerge. Unit revenues picked up in December, pushed up by holiday traffic that normally flies in November. The Air Transport Association calculated a 7.4% rise in unit revenue per seat for December, a vast improvement on November.
Continental Airlines, which had the good fortune to come in with lower costs and higher revenues than it had projected, is high on most lists of winners. It exceeded its cost-cutting plan by as much as $44 million, estimates Lehman Brothers analyst Gary Chase. Meanwhile, revenues were up 17%, and Larry Kellner, Continental's president says that the airline "managed yields up" especially on days of heavy demand. "On some days demand actually met capacity. I couldn't be more pleased with our cost performance in the second half of the year," he adds.
CSFB analyst Jim Higgins sees Continental's late-quarter increases as possibly marking "the beginning of the airlines hitting most capacity cuts announced in late summer".
For Continental, as with Delta and Northwest Airlines, technology drove some of the savings as electronic ticketing and check-in increased. Continental is also benefiting from an old technology - a direct rail connection to its Newark hub from mid-town Manhattan.
Another emerging winner is Delta, which came in ahead of the Wall Street earnings consensus due largely to "impressive cost controls", says Lehman's Chase. The winter's early bad weather helped drive up regional strengths, "particularly in the Florida markets, which account for some 30% of Delta's revenues", he says.
And Northwest deserves an entry in the list of winners, says Susan Donofrio at Deutsche Bank, who notes that its cash on hand, at $2.2 billion, is within $200 million of its third-quarter cash reserves. Northwest is still leveraging its partnerships abroad, and, she says, would be enhanced, as would Delta and Continental, if their three-way domestic codesharing alliance survives a federal challenge.
Source: Airline Business
