"US Airline Losses Still Mount, and No Relief Is on Horizon"

Thursday, January 20, 2005

Airline Losses Still Mount, and No Relief Is on Horizon
By MICHELINE MAYNARD 
The New York (NY) Times


Can things get any worse for the nation's airline industry? Yes, say the
beleaguered chief executives at American and Northwest Airlines, whose
companies reported steep fourth-quarter losses yesterday.

Even Southwest Airlines, which has been profitable since 1973, reported a 15
percent drop in net income in the fourth quarter. It is expected to be the
only major airline to post a profit for the quarter or the year.

When 2004 began, the nation's airlines were hopeful that they could
collectively break even or post a small profit, reversing a slump that began
in 2000. Instead, analysts and executives now say they believe the
industry's troubles will continue in 2005. 

"I have no hope that turmoil will end any time soon, perhaps in my
lifetime," Southwest's chief executive, Gary C. Kelly, who is 50, said
yesterday. 

All the airlines, including Southwest, are being battered by fuel prices,
which have climbed 64 percent in the last year. 

The industry also is beset with fare wars, led by Delta Air Lines, which cut
its fares by up to 50 percent two weeks ago, a move matched by most rivals.

American, the industry's biggest airline, said it lost $387 million in the
fourth quarter, or $2.40 a share, more than triple the $111 million, or 70
cents a share, it lost in the same quarter in 2003. Shares of its parent,
the AMR Corporation, fell 11 cents, to $8.76 yesterday, a 1.2 percent drop.

American said it spent $477 million more on jet fuel last quarter than it
had the previous year, meaning it otherwise would have been profitable. For
the year, American said it lost $761 million, down from its loss of $1.2
billion in 2003.

The airline's chief executive, Gerard J. Arpey, said the fourth-quarter
performance was a "disappointing end to a very difficult year."

Earlier this month, American matched the fare cuts at Delta, which reduced
its prices by up to 50 percent and eliminated several requirements like a
Saturday night stay. 

Northwest has also matched the fare cuts, but neither airline joined Delta
in placing limits on coach and business-class fares. Even so, analysts say
each airline stands to lose hundreds of millions of dollars in revenue by
matching Delta's cuts.

Northwest, the fifth-largest domestic airline, said yesterday that it lost
$420 million in the fourth quarter, or $4.84 a share. That compared with a
profit of $363 million a year ago, or $3.60 a share.

The company's stock fell 37 cents yesterday, to $8.04, down 4.4 percent.
Northwest said its loss widened to $878 million, from a profit of $236
million in 2003. 

Northwest's chief executive, Douglas M. Steenland, said the airline might
have to revisit its request to unions for $950 million in wage and benefit
concessions, which it has been trying to achieve for more than two years.
Only Northwest's pilots have agreed to cuts, of $265 million.

Mr. Steenland would not set a timetable for achieving the cuts, saying only
that he hoped they would be in place sometime this year. 

The comment raised analysts' eyebrows, given the industry's dire atmosphere.
"It is a more stately pace than one would hope for," said Philip A.
Baggaley, an airline industry analyst with Standard & Poor's Ratings
Services.

But Mr. Baggaley said Northwest might be expecting other airlines to demand
more cuts from their workers, particularly US Airways and United Airlines,
both of which are in bankruptcy protection. That could help fuel Northwest's
own demands, he said. United is a unit of UAL.

Meanwhile, Southwest said it earned $56 million, or 7 cents a share, down
from $66 million, or 8 cents a share, in the 2003 quarter. 

Southwest, the country's sixth-biggest airline and the largest low-fare
airline, would have lost money in the fourth quarter had it not arranged
contracts that locked in fuel prices at below-market rates. Southwest's
stock fell 61 cents, to $14.39, down about 4 percent.

For 2004, Southwest said it earned $313 million, down from $442 million in
2003.

Mr. Kelly said he saw no break from high fuel prices. He also predicted that
major airlines would add more capacity in hopes of attracting passengers
with lower airfares. That combination of higher fuel prices and lower
airfares, he said, would put airlines in a vise.


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