Newsflash! Profits

Newsflash! Profits

Copyright 2003, Traffic World, Inc.

The economy demonstrated its turnaround in U.S. airlines'' third-quarter financial results. A year ago, Southwest Airlines was the only major U.S. airline to report a third-quarter profit. This year, at least five of the country''s biggest airlines are in the black for the quarter, which is typically the strongest one for airlines.

Continental Airlines, Northwest Airlines, Southwest, America West and even loss leader American Airlines reported third-quarter profits. United Airlines was scheduled to report its earnings on Oct. 30. Delta Air Lines and US Airways reported losses, with both loss sums being less than half of third-quarter 2002 losses.

"Our continuing efforts to align our schedule, fleet and cost structure with today''s weak revenue environment are beginning to produce results," Continental Senior Vice President and Chief Financial Officer Jeff Misner told investors.

Despite the better third-quarter numbers, many of the airlines said there is still a long way to go and several still are cutting back capacity.

"While we continue to make significant progress in an industry that is showing some signs of recovery, we simply cannot be satisfied with losing less money than before when the goal is to be profitable and successful," US Airways President and Chief Executive Officer David N. Siegel said.

Cargo division results were mixed, with yields generally improving but most revenue totals close to flat.

But the third quarter offered the first signs of real improvement to an industry that has ridden wave after wave during the past two years. Even before the September 11 terrorist attacks, the economy had been cutting into airline business. Hopes of a recovery this year were waylaid by the war in Iraq and then the impact of severe acute respiratory syndrome, which trickled down to freight traffic.

When 2003 began, Arlington, Va.-based US Airways and Chicago-based United were under bankruptcy protection, and Dallas-based American was on the brink. Now, American has $3.3 billion in cash and investments, double what it had in April, and US Airways emerged from Chapter 11 last spring. Only United remains in bankruptcy.

United spokeswoman Carol Joyce said the quarter did not shake out as well for the cargo side as the industry had hoped it would.

"It''s not as strong as last year''s market," she said. "And some of the more optimistic projections, where some thought that we might reach levels similar to those during the West Coast port shutdown, did not materialize."

From the forwarder side, Seko Worldwide Executive Vice President of Sales and Marketing Tom Cagney said he was pleased with the third quarter for the industry overall, as well as for the Chicago-based forwarder.

He said there was an unexpected uptick in expedited freight levels during the quarter.

"Where that was a business that was steadily declining, we''ve seen an increase in that," Cagney said. "I think that has a lot to do with the economy tracking upwards and inventory levels being down."

Among the airlines, Continental had the top profit spot for the quarter with $133 million in net income. That compared with a $37 million loss for third-quarter 2002. Continental''s gain included $100 million after tax from the sale of some of its shares in ExpressJet Holdings Inc.

"We remain focused on being a long-term survivor by further reducing our costs to achieve a break-even position in 2004," Continental Chairman and CEO Gordon Bethune said.

Continental''s cargo revenue edged up 1 percent to $69.2 million. The airline carried 5.3 percent less freight during the quarter but the passenger capacity was lighter by 2.3 percent.

Southwest, which has barely missed a step in the downturn, posted a $106 million profit, up from $75 million last year. Southwest''s cargo business grew 14 percent, jumping from $20 million to $23 million.

Minneapolis-based Northwest reported a $42 million profit for the quarter, up from a $46 million loss a year earlier. The improvement came on the strongest cargo growth among the U.S. airlines. Northwest, the only U.S. passenger carrier with widebody freighters, reported $196 million in cargo revenue for the quarter, up 8.9 percent over last year.

"These results do not signal an end to our challenges or diminish the need to address our cost structure in light of the changes in the revenue environment," Northwest CEO Richard Anderson said.

One of those challenges is labor. During the quarter, Northwest began negotiations with its unionized pilots. Negotiations with its ground and customer service employees, represented by the International Association of Machinists and Aerospace Workers, have been going on for almost a year.

American made the biggest climb in income for the quarter, going from a $924 million loss a year ago to $1 million in profit.

The airline''s cargo revenue slipped 2.9 percent to $135 million from $139 million. Unlike some of its competitors, American does not report revenue from its surcharges in its cargo revenue totals.

AA''s $1 million profit took into account special items, most of them the result of a turnaround that includes sharply reduced capacity.

"The third quarter is a peak season for the airline industry and, under normal circumstances, we should be doing much better at this time of year than simply breaking even," AMR Corp. President and CEO Gerard Arpey said. "We have a lot of work to do to achieve sustained profitability at acceptable levels but we are clearly on the right track."

Standard & Poor''s Ratings Services upgraded AMR stock to "stable" from "negative" after the company''s third-quarter financial report came out. "Still, the airline faces an industrywide difficult revenue outlook and remains highly leveraged, with substantial upcoming debt maturities and pension payments," S&P credit analyst Philip Baggaley said.

US Airways and Atlanta-based Delta are still in the red. Delta reported a $164 million loss for the third quarter, an improvement over a $326 million loss a year earlier. Its cargo division revenue grew 0.9 percent to $113 million.

In an effort to stem its losses, Delta plans to sell 11 planes it has scheduled for delivery in 2005 and will defer until 2008 the delivery of eight more.

US Airways also reported a loss for the quarter, but the $90 million loss compared with $335 million for the third quarter of 2002. The airline''s cargo division revenue dropped 14.3 percent to $30 million.

Alaska''s profit was $40.7 million, up from $12.5 million a year earlier. America West reported $32.9 million in profit compared with a $49.6 million loss in 2002.