Air Transport World

Will the boom go bust?(FINANCE)(Financial report)

US AIRLINES ENJOYED ANOTHER STRONG financial quarter in the three months ended Sept. 30, with the 10 largest carriers all in the black for the second straight reporting period and posting a cumulative net profit of $1.67 billion compared to a $738 million loss in the year-ago quarter. But executives worry that the next down cycle may not be too far away. Fuel costs are ascending rapidly and the US airline industry doesn't exactly have a history of long-term financial stability. Rather than celebrate the success of the past 18 months, executives appear to be looking ahead and trying to avoid past mistakes, evidenced by several carriers considering sales of assets such as frequent-flier programs.

"US airlines have consistently destroyed value," UAL Corp. Chairman, President and CEO Glenn Tilton said. "We have to take a different approach ... to break the historic boom-and-bust cycle of this industry." For UAL, which led the US industry in the third quarter with a $334 million net profit, that means having "discipline in capacity planning" and "looking at everything" in its portfolio to determine "what is core and what is not" to "unlock" the value of noncore businesses and enhance the performance and value of the core business to better position it for consolidation, which Tilton considers a "strategic imperative." a spinoff of its Mileage Plus frequent-flier program is under consideration, he said.

Such caution about growth and a willingness to explore unloading key assets is not the kind of talk one normally hears from leaders of companies posting hundreds of millions of dollars in net earnings. But US airline officials are scarred by the recent past, in which annual losses of more than $1 billion became far too routine and bankruptcy lurked around the corner and/or became a way of life. …

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