AMR at bottom of article
Airline losses likely
Jet fuel prices expected to more than offset passenger traffic growth
08:04 PM CDT on Monday, April 12, 2004
By ERIC TORBENSON / The Dallas Morning News
Hamstrung by oil prices, major airlines embark on another grim round of earnings Wednesday, when Delta Air Lines Inc. reports what analysts predict will be a first-quarter loss.
Delta's woes will start a losing streak that will add up to nearly $1 billion in total losses for the top carriers, according to analyst estimates.
Strong passenger traffic growth though at low average airfares will probably be masked by record-high jet fuel prices for the three months, analysts said.
Jet fuel prices are 41.4 percent above last year's at the same time, said James Higgins of Credit Suisse First Boston. He estimates the largest carriers including bankrupt United Airlines Inc. and struggling US Airways Corp. will lose $892 million for the first quarter.
Each dollar increase in oil prices adds $425 million to the industry's operating expenses, according to the Air Transport Association, a trade group that lobbies for large airlines.
Jamie Baker of J.P. Morgan Chase lowered some of his estimates for the major carriers Monday, saying in a research note, "The market appears to have realized that oil is expensive, and domestic revenue trend are uninspiring."
Mr. Baker also lowered earnings estimates for 2005 based on low prospects for revenue recovery among the largest carriers.
While overall passenger traffic has picked up over last year, total revenue hasn't kept pace because fast-growing discount airlines are forcing larger competitors to lower their fares.
Delta, the No. 3 carrier by size, has its hands full fighting low-cost rivals such as AirTran Airways Inc., based in Orlando, Fla.
But Delta's more immediate problem remains its costs relative to its peers. Delta has been in talks with its pilots' union about taking a substantial pay cut from current salary levels, which are the industry's highest. No agreement has been reached.
One analyst predicts that Dallas-based Southwest Airlines Co. could beat its expected profit of 4 cents a share when it reports Thursday. Mr. Higgins said in a note to investors Monday that Southwest may show stronger revenue than thought.
Likewise, Fort Worth-based AMR Corp. could also perform better than its expected loss of $1.07 per share because of successful cost savings, Mr. Higgins said. AMR reports next Wednesday.
The parent company of American Airlines Inc. has righted itself financially, said chief financial officer James Beer, but it has no fuel hedges in place to offset high oil prices.
"One of the things that's so frustrating about the recent run-up in fuel prices is that it has had the effect of washing over or negating some of the good work being done around the company on the cost line," Mr. Beer said in a recent interview.
That said, American's results are expected to show a nearly 17 percent improvement in unit costs compared with the first quarter of 2003.
American restructured its labor agreements last May to save $1.62 billion a year. Last spring, American had used futures markets to purchase fuel at prices far below the spot price of oil that now hovers near $35 a barrel. American liquidated those hedge positions to raise cash during its successful effort to stay out of bankruptcy.
"I would love to have those hedges back, but that's not the reality," Mr. Beer said. "The right decision was taken last year."
Airline losses likely
Jet fuel prices expected to more than offset passenger traffic growth
08:04 PM CDT on Monday, April 12, 2004
By ERIC TORBENSON / The Dallas Morning News
Hamstrung by oil prices, major airlines embark on another grim round of earnings Wednesday, when Delta Air Lines Inc. reports what analysts predict will be a first-quarter loss.
Delta's woes will start a losing streak that will add up to nearly $1 billion in total losses for the top carriers, according to analyst estimates.
Strong passenger traffic growth though at low average airfares will probably be masked by record-high jet fuel prices for the three months, analysts said.
Jet fuel prices are 41.4 percent above last year's at the same time, said James Higgins of Credit Suisse First Boston. He estimates the largest carriers including bankrupt United Airlines Inc. and struggling US Airways Corp. will lose $892 million for the first quarter.
Each dollar increase in oil prices adds $425 million to the industry's operating expenses, according to the Air Transport Association, a trade group that lobbies for large airlines.
Jamie Baker of J.P. Morgan Chase lowered some of his estimates for the major carriers Monday, saying in a research note, "The market appears to have realized that oil is expensive, and domestic revenue trend are uninspiring."
Mr. Baker also lowered earnings estimates for 2005 based on low prospects for revenue recovery among the largest carriers.
While overall passenger traffic has picked up over last year, total revenue hasn't kept pace because fast-growing discount airlines are forcing larger competitors to lower their fares.
Delta, the No. 3 carrier by size, has its hands full fighting low-cost rivals such as AirTran Airways Inc., based in Orlando, Fla.
But Delta's more immediate problem remains its costs relative to its peers. Delta has been in talks with its pilots' union about taking a substantial pay cut from current salary levels, which are the industry's highest. No agreement has been reached.
One analyst predicts that Dallas-based Southwest Airlines Co. could beat its expected profit of 4 cents a share when it reports Thursday. Mr. Higgins said in a note to investors Monday that Southwest may show stronger revenue than thought.
Likewise, Fort Worth-based AMR Corp. could also perform better than its expected loss of $1.07 per share because of successful cost savings, Mr. Higgins said. AMR reports next Wednesday.
The parent company of American Airlines Inc. has righted itself financially, said chief financial officer James Beer, but it has no fuel hedges in place to offset high oil prices.
"One of the things that's so frustrating about the recent run-up in fuel prices is that it has had the effect of washing over or negating some of the good work being done around the company on the cost line," Mr. Beer said in a recent interview.
That said, American's results are expected to show a nearly 17 percent improvement in unit costs compared with the first quarter of 2003.
American restructured its labor agreements last May to save $1.62 billion a year. Last spring, American had used futures markets to purchase fuel at prices far below the spot price of oil that now hovers near $35 a barrel. American liquidated those hedge positions to raise cash during its successful effort to stay out of bankruptcy.
"I would love to have those hedges back, but that's not the reality," Mr. Beer said. "The right decision was taken last year."
