Record losses and the woes continue

US carriers have emerged from the worst quarter on record still facing a series of crises, writes David Field in Washington.

The US airlines came out of their worst quarter ever just in time to face a near bankruptcy by the world's largest carrier, continued panic about the SARS virus and a US economy that even its strongest supporters call "wobbly".

Excluding a host of special items and accounting changes, the majors posted a combined net loss of $3.3 billion for the March quarter, about 40% worse than earlier forecast. During the first full quarter after the 11 September attacks, the nine largest US airlines lost $2.5 billion before special items.

Only the low-cost sector remained in the black, with Southwest Airlines, predictably, turning a profit, slightly up on a year ago.

Still a market darling, JetBlue posted a profit that exceeded Wall Street expectations, racking up 35% earnings growth and falling only about $7 million behind Southwest. The solid results emboldened JetBlue management to place an order for 65 Airbus A320s. AirTran Airways also overturned last year's first quarter loss to show its fourth consecutive profitable quarter.

Results for the majors were more sobering. United and American Airlines both posted overall net losses of more than $1 billion and even at operating level managed deficits of above $800 million.

The magnitude of American's loss could have threatened chief executive Don Carty's tenure had he not already done so with his indiscretions in arranging a lucrative pensions and retention scheme and hiding it from the unions.

Lehman Brothers analyst Gary Chase says that United's cost performance was better than projected and sees the odds of a United liquidation falling to the 10-15% range, down from evens just weeks ago.

Meanwhile, Delta Air Lines is searching for 22% in pilot labour cuts. Chief executive Leo Mullin says: "We will be moving ahead with a sense of urgency on both sides."

Mullin has said Delta will use deep salary concessions agreed at American as context for its talks with its own pilots. The Air Line Pilots Association's early response was hardly encouraging. "Labour did not create this problem, and the [union analysis] team does not endorse management's specific proposal," a union memo said. "The team has concluded, however, that all stakeholders, including labour, need to be part of the solution."

One of the few signs of hope this quarter carries a curious name if not a tune: Song, the low-fares venture that Delta launched on 15 April, the day that federal tax payments are due. Song began with 36 Boeing 757s making 144 flights a day, but Delta president Fred Reid told the 12th Annual Phoenix International Aviation Seminar that Song could easily double or triple in size in the next year or two.

At Northwest Airlines losses doubled, although vice-president Tim Griffin told analysts he thought bookings had bottomed out, despite a steep SARS impact. The airline has just begun to engage its pilots union in cost-cutting talks.

Continental Airlines posted a wider first quarter loss and said it may have to cut more workers and flights if travel demand softens further. However, analysts expressed confidence that the carrier is pursuing the right strategy to weather the industry downturn. Domestic and transatlantic capacity is likely to be down 6% in the second quarter, president Larry Kellner said. Continental is to cut 1,200 jobs - or 2.5% of its work force - by year-end to trim $500 million in costs. It has cut senior management by about 25%, forcing early retirements for some of chairman Gordon Bethune's "longest serving colleagues and closest friends".

The second quarter hardly opened propitiously, with April traffic slipping by 7.6% compared with a year ago, as SARS, war in Iraq and concerns about the economy cut into travel demand. In addition, according to JP Morgan's Jamie Baker: "On the capacity front, the industry appears to be doing a good job of maintaining discipline. However, at least domestically that capacity discipline is offset to some degree by the continued growth of the low-cost carriers." They, he estimates, are more than 60% overlapping with the network carriers.

Source: Airline Business