Signs of optimism are still hard to find among US majors, as third quarter figures fail to show much improvement in what should be the best period of the year.
As US airlines left the third quarter and entered winter, the spectre of a United Airlines bankruptcy is framing the thinking for most airline executives. This domestic concern is as universal as the belief that war with Iraq is inevitable and that with the conflict will come a downturn reminiscent of the recession caused by the Gulf War a decade ago.
United's net loss for the year's traditionally most lucrative quarter ran to $889 million. Its cash burn of $7 million a day is sharply up from the daily outflow of $1 million recorded in the second quarter. United says it is making progress on cost cuts with its unions and that it is not inevitable that it will join US Airways in bankruptcy. However, as UBS Warburg analyst Sam Buttrick quips: "The most frequently asked question is: which airline is going to go bankrupt next? And the follow up is: no, I meant after United."
As United moved towards its ninth quarterly loss in a row and its worst performance since the third quarter of 2001, its share price plunged, valuing the 76-year-old company at $98 million - only one-fourteenth the size of JetBlue.
With United's report, the industry was on the way towards the $1.6 billion in underlying net losses being forecast for the quarter. It was nearing an annual deficit of about $8 billion, exceeding last year's $7.7 billion combined loss.
Even Southwest, which posted its 46th consecutive quarterly profit, warns of tough times, saying that the final quarter may break the string of earnings. Continental, considered the likely candidate to be the first network carrier back in the black, lost $37 million, despite squeezing 4.7% out of unit costs. Chief executive Gordon Bethune foresees no immediate recovery, saying: "I can't see things getting better for our industry through the first half of next year."
Don Carty, chairman of American Airlines parent AMR, offers no more optimism as the group counted losses of $475 million for the quarter, before charges of $449 million. Its unit revenues sagged by 7.5%, almost two percentage points more than expected. American said earlier it would have to take an after-tax charge of about $990 million related to goodwill write-downs from acquisitions including TWA.
AMR chief financial officer Jeff Campbell warns that the group will lose even more in the fourth quarter. It lost $1.8 billion in 2001 and has already lost nearly $3 billion through the first nine months of 2002. Campbell says $1 billion in further cuts is imperative, but adds: "I'm not really confident about where the next billion is going to come from."
At Delta, where the quarterly loss of $326 million was ahead of some estimates, chairman Leo Mullin "could not see near-term improvement" in the current "treacherous environment". The carrier has announced another round of voluntary furloughs.
If an upside can be found, it is also in United's situation. In an industry that sees overcapacity lurking everywhere, some people were cheered by the prospect of even a little diminution with the likely shrinking - if not implosion - of United. As Continental's Bethune puts it: "Some folks are going to disappear. We're pretty sure things won't look the same next year."
Further cuts in the third quarter
American Airlines postponed aircraft deliveries through 2005, halting 34 that were already set by Boeing, and will mothball 42 more aircraft. It will take 11 airliners in 2003, instead of 19, and will take none in the next two years after that for savings of $1.5 billion. Delta Air Lines has laid off 8,000 more employees, bringing to 18,000 the number laid off or furloughed since September 2001. It has frozen all aircraft deliveries except regional jets for the next two years, is grounding its Boeing MD-11 fleet, and has outsourced some call-centre and back-office activities, including work transferred to India. Northwest Airlines is to close one of its major maintenance facilities, a McDonnell Douglas DC-9 heavy overhaul hangar at Atlanta Hartsfield Airport that it inherited when it took over Republic Airways 15 years ago. It also closed a reservations centre in Long Beach, California, and announced flight attendant and pilot layoffs and voluntary furloughs totalling more than 1,600, noting that all pilots hired after late 1999 would be laid off by next year. United Airlines is to lay off 1,250 staff equivalent to 1.5% of the workforce and also close three reservation centres and a maintenance line.
DAVID FIELD WASHINGTON
Source: Airline Business
