Air Transport World

As good as it gets? US Majors rebounded in the third quarter but have a long way to go to return to financial health.(Finance)

After hemorrhaging red ink for almost three years, the 10 US Major airlines in aggregate swung back into operating profitability for the third quarter ended Sept. 30, showing earnings before interest and taxes of $729.4 million compared to a collective operating loss of $2.46 billion in the year-ago period. It was the first industry operating profit since the fourth quarter of 2000. Although deficits at Delta Air Lines, UAL Corp. and US Airways offset gains elsewhere, the industry reduced its net loss to only $262.8 million, from $2.58 billion in the 2002 period, as seven of the 10 showed bottom-line profits, including American Airlines parent AMR Corp., which had been knocking on the bankruptcy court door only a few months earlier.

The improvement was built on several factors. The suspension of the federal security tax during the quarter served as an invisible fare increase for most airlines, helping to boost yield 3% for the group. Strict capacity discipline offset a slight reduction in traffic, resulting in record high load factors for many carriers that helped transform that increase in yield into a 7.5% jump in revenue per ASM for the industry as a whole. Tight cost control, meanwhile, helped push collective CASM down 3.4%.

But as recoveries go, this one is tepid. Historically, the third quarter encompassing the peak summer travel season is the industry's strongest earnings period. This year's operating profit, however, represented less than a 4% operating margin--hardly sufficient to fatten the earnings-starved industry for the coming winter. And with several carriers planning to boost capacity next year, Wall Street analysts already are fretting that the recovery may peak sooner than anyone expects. …

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