United's Woes Worst In 1Q

<B>United's Woes Worst In 1Q</B>

By David Jonas

United Airlines began 2001 with a slew of bad news: Its parent UAL Corp. dropped $305 million in the first quarter, acknowledged delays in closing its planned acquisition of US Airways and conceded that archrival American Airlines is gaining ground in the all-important Chicago market.

United's quarterly loss, the most severe of any carrier, reflected an industrywide revenue deterioration stemming from significantly slower business traffic. Only Continental and Southwest Airlines managed to avoid red ink in their quarterly performances, as the nine major U.S. carriers combined for a loss close to $700 million. UBS Warburg analyst Sam Buttrick predicted 1Q01 will go down as "the industry's toughest operating period in eight years." To mitigate losses, airlines announced reductions in certain onboard services, capital expenses, payroll and training and advertising costs, among other measures.

In reporting losses per share of $5.82, United said weaker business traffic industrywide has had a disproportionate impact, as it carries a higher percentage of business travelers. It also cited a heavy concentration of technology-oriented corporate accounts on the West Coast that have been hit hard by the economic downturn.

Doug Hacker, the carrier's executive vice president and CFO, added that overall passenger yield declined 3 percent because business travelers were buying cheaper and more restrictive fares. He said, "the labor situation can't possibly be helping as passengers are booking on other carriers to avoid potential problems on United." Looking ahead, United said continuing revenue trends also would result in losses for 2Q and full year 2001. Meanwhile, senior vice president of finance Jake Brace said, "We are no longer optimistic that the United-US Airways transaction will close in the second quarter."

Both Delta and Northwest airlines also reported net losses of slightly more than $120 million. Delta's loss, its first in 24 quarters, was driven not only by economic conditions, but also pilot disputes at its regional subsidiary Comair--still mired at press time in a strike--and for mainline operations. Mainline pilots and Delta management still are in a cooling-off period set to expire this weekend, though chief Leo Mullin is "virtually certain" a mainline strike will be averted. Even so, Delta said ongoing labor strife and economic softness would negatively impact second-quarter operating revenues by as much as $350 million.

Like Delta, Northwest faced its own labor issues, though a tentative agreement between management and the mechanics union is on the table and ready for review by union membership in the coming weeks. Nevertheless, the damage was done and amplified by the economy. CFO Mickey Foret said Northwest's decline in business travel started in February and was "significant and abrupt."

US Airways Group's red ink spelled out a $171 million quarterly loss, or $2.55 per share. Revenue per available seat mile fell 7.6 percent, while passenger yield fell a disastrous 10.5 percent. Chairman Stephen Wolf said the competitive environment "underscores the necessity of US Airways becoming part of a larger network" and, therefore, the airline's focus is on the United merger. However, United's comments on uncertainty in closing the deal do not bode well for US Airways, which now has reported three consecutive money-losing quarters.

Compared with most others, AA parent AMR Corp's. $43 million quarterly net loss wasn't so terrible. Passenger revenues grew 4.3 percent, while passenger yield jumped 6.7 percent. AMR chief Don Carty said international revenue performance has not been as sluggish as domestic, a trend also observed by other carriers. Meanwhile, this marked the first quarter Trans World Airlines did not report earnings, as it now is a wholly owned subsidiary of AMR Corp. AA expects to profitably operate consistently unprofitable TWA during this year's second and third quarters.

America West Holdings Corp. announced a first-quarter loss of $12.8 million and cited "dramatically" slower business travel and higher fuel costs. On a positive note, America West Airlines experienced a 12.8 percent traffic growth on 8.7 percent capacity, pushing overall load factor up 2.5 points, to 69.2 percent.

Alaska Air Group dropped $33.1 million in the quarter, despite year-over-year improvements in traffic and yield.

Though Continental's quarterly net income was down 36 percent, to $9 million, it posted relatively positive results. Passenger revenue grew 8 percent, to $2.3 billion, while passenger yield grew more than 6 percent, to 13.86 cents. Continental attributed its profit, in part, to the highest completion factor in the industry, three points ahead of the nearest competitor. President and COO Greg Brenneman said, "We continue to get a disproportionate number of business passengers," which accounted for 48.3 percent of all quarterly traffic. Looking ahead, CO expects to grow capacity about 6 percent for the rest of the year.

Low-fare specialist Southwest Airlines proved yet again it's the healthiest major domestic airline. It netted $121 million in the first quarter, up nearly 27 percent. Revenues, traffic, capacity, load factor and passenger yield all grew year over year. The carrier expects to be "solidly profitable in the second quarter.