Airlines Report 'Earnings'

The major airlines spent last week talking quarterly earnings and looking at the proverbial glass, trying to decide if it was half full with improving traffic and revenue trends and, in some cases, a profitable month of March, or half empty due to lower average fares, an ongoing decline in business travel, overcapacity and cost concerns (see story, page 6). Seven of the nine major carriers each reported hundreds of millions of dollars in losses and analysts predicted the combined loss for the first quarter to exceed $2 billion. The only major thus far avoiding red ink again is Southwest Airlines.

Meanwhile, JetBlue Airways joined the ranks of publicly traded airlines earlier this month after a very successful initial public offering. The carrier's share price began at $27 and at press time was hovering near $44. It was the first of several airline IPOs expected this year.

US Airways, in reporting quarterly losses of $269 million, said an application to the Air Transportation Stabilization Board for a federal loan guarantee "is likely." The carrier's passenger revenues slid 27 percent year over year. Unit revenues declined 10 percent, while unit costs rose marginally. President and CEO David Siegel said the carrier's numbers were "not only extremely disappointing, they are unacceptable." US Airways, and all other carriers, have until June 28 to apply for federal loan guarantees.

Though it did not indicate a loan guarantee is in its future, American Airlines parent AMR Corp. lost $575 million in the first quarter, inclusive of a $27 million one-time charge related to federal aid. Passenger revenues fell 11.5 percent and passenger yield decreased nearly 16 percent.

"There is no question that our business overall is improving, and there are a number of particularly encouraging signs with regard to our day-to-day operations," said AMR chairman and CEO Don Carty. "But the facts are that business travel, which historically constitutes a major portion of our business, is not rebounding the way leisure travel is, and average fares are down because of heavy discounting. I expect we will post a loss in the second quarter as well. Full recovery is going to be a long and slow process."

Including special items, Continental Airlines lost $166 million in the quarter. Its passenger revenues declined nearly 19 percent. Unit revenues fell 10 percent and passenger yield eroded 14.6 percent. On the positive side, the carrier turned a profit for the month of March and lowered its unit costs by 2.6 percent.

Continental executives were neutral on performance during the months ahead. "In the third quarter, the demand will be there for all of us to make money," said chairman and CEO Gordon Bethune. "But I have my doubts for the fourth quarter." He cited "too much testosterone" throughout the industry and the race to restore capacity as prime culprits.

Like Continental, Delta Air Lines reported positive cash flow in March and improved numbers in many areas. Nevertheless, the carrier finished $397 million in the red as passenger revenues declined 25 percent.

Northwest Airlines' loss was not nearly as high at $171 million and on the lower end of analyst estimates. It too turned a profit in March but said it is "cautious as the current economic conditions remain unfavorable." It did, however, report a decline in unit revenues of just 6.9 percent, a marked improvement over fourth-quarter numbers.

The lone profitable major carrier, Southwest, reported first-quarter net income of $21.4 million, despite a 12 percent drop in operating income and a 10 percent decline in passenger yield. The carrier said its costs were down due, in part, to lower fuel prices and cuts in agency commissions. CEO Jim Parker said he expects profits to steadily improve, but second-quarter earnings "will fall well below last year's profit."

Just before press time, United Airlines parent UAL Corp. posted a $510 million loss, inclusive of one-time items. The carrier continues to actively explore a federal loan guarantee. It also has not definitively ruled out a bankruptcy filing, though it finished the quarter with a cash balance of $2.9 billion.

Also, Alaska Airlines reported a $34.4 million loss, less than analysts had predicted. America West Airlines posted a $47.6 million loss excluding more than $300 million in one-time charges.

Despite all these losses, analysts said liquidity at most airlines is sufficient to prevent any major failures, at least in the short term. Combined, though, the nine major carriers are expected to lose more than $3 billion in 2002, compared with a $7 billion loss in 2001.

As for JetBlue, the carrier was flying high after its IPO earlier this month. Based in Kew Gardens, N.Y., and hubbed at New York JFK, the low-fare carrier initially generated $158.4 million from selling 14.3 percent of its common stock—some 5.8 million shares—on the Nasdaq National Market. The opening share price was $27 and hovered above $44 at press time. Proceeds from the IPO will be used to fund additional aircraft acquisitions and network expansion.

Another IPO, Continental's regional ExpressJet spinoff was priced on Wednesday at $16 per share. After a sharp rise, the stock on Friday again began trading at $16. The IPO generated about $480 million combined for Continental Airlines and ExpressJet.

Meanwhile, Northwest also will spin off a regional operation. Express I will be rebranded Pinnacle Airlines. No timetable has been set for the IPO, but it is expected in the next few months. An initial public offering for Republic Airways, a regional feeder that serves a few major carriers, also is expected to hit the market some time this year.