qxeplt
Well-known member
- Joined
- Nov 27, 2001
- Posts
- 199
Airlines Face 1st Quarter Losses On Lower Revenue, Higher Costs
By: Sonoko Setaishi, Of DOW JONES NEWSWIRES
NEW YORK -(Dow Jones)- Although travelers are gradually returning to the skies, airline earnings remain grounded.
The industry faces another quarter of large losses as demand for air travel, while recovering from ADVERTISEMENT
the post-terrorism slump, remains sluggish.
The nine major carriers likely lost a combined $2.2 billion on a net basis in the first quarter, estimated Samuel Buttrick, airline analyst at UBS Warburg LLC in New York .
While that's narrower than the $3 billion net loss the group suffered in the fourth quarter of 2001, it would still be one of the steepest quarterly losses for the industry.
Eight of the nine major carriers will likely remain in the red, while low-fare carrier Southwest Airlines Co . (LUV) will roughly break even. Continental Airlines Inc. (CAL), the first major carrier to report first-quarter results, will release its figures on April 15 .
"What we have is a classic squeeze on margins, with revenues down and costs on the rise," said David Swierenga, chief economist of the Air Transport Association, an industry trade group.
Revenue fell about 22% during the quarter from a year-earlier period, Buttrick estimated, as traffic declined nearly 12% and carriers were forced to offer discounted fares to stimulate demand and fill seats.
For instance, America West Holdings Corp.'s (AWA) America West Airlines surprised the rest of the industry last month by sharply reducing unrestricted fares and eliminating the traditional Saturday-night stay requirements to win back travelers from discount distributors. The impact of the initiative, if any, will be felt primarily in the second and third quarters.
The revenue for each mile a seat is flown fell about 9.5%, Buttrick said.
Rising Labor, Security And Insurance Expenses
While the industry's overall operating costs likely declined 13% due to a 14% reduction in capacity, the cost of flying one seat one mile rose about 1%, and climbed 5% when fuel is excluded, according to Buttrick.
Despite the recent sharp rise, fuel prices were relatively low during the quarter. Airlines on average paid 61.7 cents for a gallon of jet fuel in January, down nearly 29% from a year earlier, according to the Air Transport Association. The average cost of jet fuel for the quarter was about 20% below its year-ago levels, Buttrick estimated. Fuel is the sector's second-largest expense.
Labor costs, the industry's largest expense, continued to rise due to wage increases carriers have agreed upon in contract talks to maintain labor peace. While a few financially troubled carriers, including UAL Corp. (NYSE: UAL - news) 's (UAL) United Airlines and US Airways Group (NYSE: U - news) Inc. (U), are trying to reduce the costs by negotiating concessions with unions, such efforts have been "slow-moving," noted Brian Harris, airline analyst at Salomon Smith Barney in New York .
Meanwhile, security costs rose as airlines scrambled to comply with new security requirements. Insurance expenses also increased despite the government's temporary assistance, as private insurers began charging premiums for war-risk insurance.
Helane Becker, airline analyst at Buckingham Research Group in New York , said carriers must raise fares to offset the soaring costs and lower revenue.
"Revenue is going down, oil is going up, security costs are going up, insurance costs are going up - all the costs are going in the wrong direction," she said. "Those fares (had) better get up."
Tax Breaks Help Carriers
Despite the projected losses, carriers likely ended the quarter with only a slight decline in cash balances from the end of 2001. That's because of continued borrowing and a tax break some large carriers are receiving as part of the economic stimulus package, signed into law by President Bush last month.
"Industry liquidity remains sufficient against projected near-term losses," Buttrick said.
Another bright spot: the recent elimination of commissions airlines used to pay to travel agents should help them reduce distribution costs, Harris noted. The move was initiated last month by Delta Air Lines Inc. (DAL) after years of declining commissions.
All the same, major carriers will post a combined full-year loss of up to $3.5 billion, Buttrick predicted. Although carriers will likely have modest third- quarter profits, full-year profits aren't expected at least until next year.
Suffering the steepest loss, UAL is expected to report a loss of $10.44 a share for the just-ended quarter, compared with a loss of $5.82 a share a year ago, according to a survey of analysts compiled by Thomson Financial/First Call.
AMR Corp. (NYSE: AMR - news) (AMR), which owns American Airlines, the largest carrier, is forecast to lose $3.28 a share, wider than a loss of 28 cents a share a year earlier, according to Thomson Financial.
Delta Air Lines Inc. (DAL), the third-largest U.S. carrier, is expected to lose $2.89 a share, contrasted with a loss of $1.02 a share a year ago.
No. 4 Northwest Airlines (NasdaqNM: NWAC - news) Corp. (NWAC) and No. 5 Continental likely lost $2.56 a share and $2.07 a share, respectively, compared with a loss of $1.47 a share and a profit of 16 cents a share.
US Airways, America West and Alaska Air Group Inc. (ALK) will likely see their losses increase to $6.14 a share, $1.46 a share and $1.57 a share, respectively. US Airways lost $2.45 a share in the year-ago quarter, and America West lost 38 cents a share during the same time frame. Alaska Air lost $1.25 during the first quarter last year.
Southwest is expected to earn 3 cents a share, compared with a profit of 15 cents a share a year ago.
-By Sonoko Setaishi, Dow Jones Newswires; 201-938-4148; sonoko.setaishi@ dowjones.com
By: Sonoko Setaishi, Of DOW JONES NEWSWIRES
NEW YORK -(Dow Jones)- Although travelers are gradually returning to the skies, airline earnings remain grounded.
The industry faces another quarter of large losses as demand for air travel, while recovering from ADVERTISEMENT
the post-terrorism slump, remains sluggish.
The nine major carriers likely lost a combined $2.2 billion on a net basis in the first quarter, estimated Samuel Buttrick, airline analyst at UBS Warburg LLC in New York .
While that's narrower than the $3 billion net loss the group suffered in the fourth quarter of 2001, it would still be one of the steepest quarterly losses for the industry.
Eight of the nine major carriers will likely remain in the red, while low-fare carrier Southwest Airlines Co . (LUV) will roughly break even. Continental Airlines Inc. (CAL), the first major carrier to report first-quarter results, will release its figures on April 15 .
"What we have is a classic squeeze on margins, with revenues down and costs on the rise," said David Swierenga, chief economist of the Air Transport Association, an industry trade group.
Revenue fell about 22% during the quarter from a year-earlier period, Buttrick estimated, as traffic declined nearly 12% and carriers were forced to offer discounted fares to stimulate demand and fill seats.
For instance, America West Holdings Corp.'s (AWA) America West Airlines surprised the rest of the industry last month by sharply reducing unrestricted fares and eliminating the traditional Saturday-night stay requirements to win back travelers from discount distributors. The impact of the initiative, if any, will be felt primarily in the second and third quarters.
The revenue for each mile a seat is flown fell about 9.5%, Buttrick said.
Rising Labor, Security And Insurance Expenses
While the industry's overall operating costs likely declined 13% due to a 14% reduction in capacity, the cost of flying one seat one mile rose about 1%, and climbed 5% when fuel is excluded, according to Buttrick.
Despite the recent sharp rise, fuel prices were relatively low during the quarter. Airlines on average paid 61.7 cents for a gallon of jet fuel in January, down nearly 29% from a year earlier, according to the Air Transport Association. The average cost of jet fuel for the quarter was about 20% below its year-ago levels, Buttrick estimated. Fuel is the sector's second-largest expense.
Labor costs, the industry's largest expense, continued to rise due to wage increases carriers have agreed upon in contract talks to maintain labor peace. While a few financially troubled carriers, including UAL Corp. (NYSE: UAL - news) 's (UAL) United Airlines and US Airways Group (NYSE: U - news) Inc. (U), are trying to reduce the costs by negotiating concessions with unions, such efforts have been "slow-moving," noted Brian Harris, airline analyst at Salomon Smith Barney in New York .
Meanwhile, security costs rose as airlines scrambled to comply with new security requirements. Insurance expenses also increased despite the government's temporary assistance, as private insurers began charging premiums for war-risk insurance.
Helane Becker, airline analyst at Buckingham Research Group in New York , said carriers must raise fares to offset the soaring costs and lower revenue.
"Revenue is going down, oil is going up, security costs are going up, insurance costs are going up - all the costs are going in the wrong direction," she said. "Those fares (had) better get up."
Tax Breaks Help Carriers
Despite the projected losses, carriers likely ended the quarter with only a slight decline in cash balances from the end of 2001. That's because of continued borrowing and a tax break some large carriers are receiving as part of the economic stimulus package, signed into law by President Bush last month.
"Industry liquidity remains sufficient against projected near-term losses," Buttrick said.
Another bright spot: the recent elimination of commissions airlines used to pay to travel agents should help them reduce distribution costs, Harris noted. The move was initiated last month by Delta Air Lines Inc. (DAL) after years of declining commissions.
All the same, major carriers will post a combined full-year loss of up to $3.5 billion, Buttrick predicted. Although carriers will likely have modest third- quarter profits, full-year profits aren't expected at least until next year.
Suffering the steepest loss, UAL is expected to report a loss of $10.44 a share for the just-ended quarter, compared with a loss of $5.82 a share a year ago, according to a survey of analysts compiled by Thomson Financial/First Call.
AMR Corp. (NYSE: AMR - news) (AMR), which owns American Airlines, the largest carrier, is forecast to lose $3.28 a share, wider than a loss of 28 cents a share a year earlier, according to Thomson Financial.
Delta Air Lines Inc. (DAL), the third-largest U.S. carrier, is expected to lose $2.89 a share, contrasted with a loss of $1.02 a share a year ago.
No. 4 Northwest Airlines (NasdaqNM: NWAC - news) Corp. (NWAC) and No. 5 Continental likely lost $2.56 a share and $2.07 a share, respectively, compared with a loss of $1.47 a share and a profit of 16 cents a share.
US Airways, America West and Alaska Air Group Inc. (ALK) will likely see their losses increase to $6.14 a share, $1.46 a share and $1.57 a share, respectively. US Airways lost $2.45 a share in the year-ago quarter, and America West lost 38 cents a share during the same time frame. Alaska Air lost $1.25 during the first quarter last year.
Southwest is expected to earn 3 cents a share, compared with a profit of 15 cents a share a year ago.
-By Sonoko Setaishi, Dow Jones Newswires; 201-938-4148; sonoko.setaishi@ dowjones.com
