DAVID FIELD / WASHINGTON DC
As major US airlines begin celebrating narrower losses, investors are showing renewed interest in the sector and even sceptics believe that network carriers' chances of survival are now good.
American Airlines' parent AMR epitomises the trend, losing only $111 million in the last quarter of 2003 ($95 million before one-off costs), compared with a loss in the fourth quarter of 2002 of $529 million, about half the deficit Wall Street had expected. Full-year losses fell from $3.51 billion in 2002 to $1.29 billion, and revenues increased 5% to $4.4 billion, better than most analysts had expected.
Analysts credit cost cuts for much of the recovery. American's labour costs for the quarter were $55 million less than expected and its unit costs 11.9% lower than a year ago. JP Morgan airlines analyst Jamie Baker says: "Behold the power of near-bankruptcy," crediting American's success to the leverage its financial straits gave it in negotiating concessions from workers and suppliers. American's costs are now only 20% more than those of low-cost leader Southwest Airlines, down from a 60% disadvantage two years ago. AMR reported a net loss of $1.29 billion compared with $3.51 billion in 2002. Baker says: "Only a significant outside shock could derail a full-year profit [in 2004]".
Continental also reported strong results, putting it "on the foothills of recovery" says Michael Linenberg of Merrill Lynch. The airline reported a $47 million profit for the fourth quarter of 2003, up from a $109 million loss last year. Passenger revenues rose by more than 8% to $2 billion, and Continental also made $85 million from the sale of its stakes in online travel services Orbitz and Hotwire.
The US industry is expected to lose $5-6 billion in 2003, according to Blaylock & Partners analyst Ray Neidl. Of that, almost $2.8 billion will have come from United parent UAL, which trimmed its fourth- quarter net loss by two-thirds to $476 million. In 2002 the industry lost more than $9 billion.
Source: Flight International
