Air Transport World

Prosperity postponed: last year it was war and SARS, this year it's fuel and capacity. When will the US industry return to profit?(Finance)

The 10 US Major airlines combined to lose $1.6 billion in the first quarter of 2004, somewhat improved from the $1.9 billion loss posted by the group in the year-ago period but a hugely disappointing beginning to what was expected to be a turnaround year for the industry. The challenge this time was not terrorist fears spawned by war, or a heretofore unknown disease, but the more mundane issues of fuel and overcapacity that more than offset the underlying recovery in the domestic economy. In particular, low-cost carriers are challenging in the transcon market and the legacy airlines are making their stand.

The hole in which the industry finds itself is illustrated by the fact that in aggregate, operating revenues rose 10.3% during the period, which represented the strongest year-over-year improvement since 1999-00, while operating expenses--in spite of record high fuel prices--declined 0.5%, yet the group still posted an operating loss of $960 million. Furthermore, turnover remains about 9% below industry revenues for the 2001 first quarter, a period in which the 10 lost $743 million before interest and taxes.

In the just-ended quarter, Southwest Airlines (of course), and America West Airlines were the only Majors to report net profits. AWA embraced a low-fare pricing model two years ago, having always enjoyed a significant cost advantage over larger network carriers (see article, p. 34).

American Airlines was the most improved among the Big Six network airlines. Riding a 16.7% year-over-year reduction in mainline unit costs, parent AMR Corp. reported that it achieved an operating profit of $42 million for the quarter compared to an operating loss of $844 million last year excluding special charges. The improved operating performance carried through to the bottom line as AMR narrowed its net loss for the period to $166 million from $1. …

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