As the US airline sector reaches the halfway point of the 2005 financial year, it continues to encompass both rich profits and large deficits, although growing numbers of legacy network carriers are now in the black.
Boosted by lower expenses as cost cuts begin taking effect, numerous carriers have moved into profit in the second quarter. A string of strong revenue increases has also helped the industry. AirTran Airways, Alaska Airlines, America West, American Airlines, and Continental airlines all posted solid profits without the benefit of special items, joining perennial money-makers JetBlue Airways and Southwest Airlines. Most of these exceeded Wall Street expectations, where some analysts had doubted American and America West would be profitable.
Calyon Securities analyst Ray Neidl credits “three reasons for the general improvements in industry results off a very weak second quarter of 2004: heavy traffic, airlines’ cost-cutting efforts taking effect ...and better-than-expected unit revenue resulting from the recent series of modest ticket-price increases”. At America West, unit revenues leapt almost 12%, says chief executive Doug Parker. At American, near to filing for bankruptcy protection less than 24 months ago, this key measure was up 7%.
Few would forecast a third-quarter or annual profit for challenged network carriers like American, and even some strongly performing carriers emphasise the prospect of a deficit. At Continental, even though analysts believe the airline is on track to follow its strong second-quarter performance with a third-quarter profit, executives point out the carrier is still headed for a “significant” full-year loss as fuel expenses remain high.
Although United Airlines may leave bankruptcy protection by the end of the financial year, and US Airways will probably exit Chapter 11 as it merges into America West, analysts believe the prospect of Delta Air Lines or Northwest Airlines filing for protection is intensifying. The latter has admitted that it is on the brink, and although the airline’s executives say they are prepared to fly through a strike that could begin on 20 August, they also admit that they simply are unable to sustain further losses.
DAVID FIELD/WASHINGTON DC
Source: Flight International
