Labor Actions Cloud Up The Airline Revenue Picture

<B> Labor Actions Cloud Up The Airline Revenue Picture</B>

By Jay Campbell

The major airlines' first quarter earnings reports released last week have made clear that the February sickout by American Airlines pilots sent many business travelers packing for other airlines. But, due in large part to this and recent labor actions at other airlines, it is much less clear whether corporations are continuing to find lower fares in the face of two successful business fare increases in 1999.

Meanwhile, some areas that have negatively impacted airline earnings over the past year or so--most importantly, the Asia/Pacific region--are showing some signs of life.

American Airlines parent AMR Corp. reported net earnings of $56 million for the quarter before gains on the sales of certain assets that brought profits up to $158 million. "We are obviously disappointed that the illegal job action undertaken by the Allied Pilots Association leadership so dramatically impacted our first quarter financial results," said Don Carty, AMR's chairman and CEO. The carrier previously said the loss in confidence by high-yield business travelers that resulted from the sickout cost it $200 million in profits. The pilots claim the damage was lower.

Announcing its earnings last Monday, Continental tagged the revenue benefit it saw from travelers switching from AA at $19 million, including $15 million domestically and $4 million on routes to Latin America. Continental claimed it is retaining some of American's passengers even now that the sickout has been settled.

Northwest, still suffering from its own pilot disputes last year, said it gained $13 million from AA passengers, although that was offset by a $20 million revenue drop due to the Midwest's severe winter weather.

Meanwhile, Gerald Greenwald, outgoing chairman and CEO of United Airlines parent UAL Corp., said that "although February's North America results benefited from the events at American, we saw a positive shift during the month in both U.S. and Pacific revenue performance. Pacific unit revenue improved on a year-over-year basis for the first time since Sept. 1997, pointing to signs of recovery in Asia. Pacific performance and the U.S. revenue environment remained strong in March, resulting in record high net earnings for the month and ending the quarter on a positive note."

Northwest's executive vice president of international sales, Philip Haan, agreed with United on the Asia market, calling this a "year of modest stabilizing." Timothy Griffin, executive vice president of marketing and distribution at Northwest, said the domestic revenue picture "showed strength and stability as the quarter progressed."

But BT Alex Brown analyst Susan Donofrio said that "what other airlines have been interpreting as a reversal of the weak business/ leisure mix of traffic may be at least partially accounted for by simply getting American's higher-yield passengers. The airlines may not be out of the woods yet in terms of weak business/leisure trends."

Continental, Delta and United reported profits of $84 million, $216 million and $78 million, respectively. Northwest lost $29 million for the quarter, but said it would be profitable for the next three quarters and the full year.

For Continental and Northwest, an average of about 1,200 passengers a day are connecting through their "not yet fully optimized" codeshare.

Southwest Airlines' net income increased 36.9 percent to $95.8 million, Alaska Air Group earned $20.2 million in the quarter and America West Airlines reported record earnings of $26 million. Southwest noted it is "elated" with the customer response to its new New York service to MacArthur Airport in Islip, Long Island.

TWA reported a loss before extraordinary items of $21.6 million, and US Airways netted a $46 million profit.