Air Transport World

Recovery comes to crashing halt: severely affected by soaring fuel costs, Us airlines staggered out of the starting gate in 2008, with the nation's 10 largest carriers posting a cumulative net loss of $11.76 billion.(FINANCE)(Financial report)

The US industry's recovery--perhaps the story in global air transport circles last year--rather abruptly has become a thing of the past.

Delta Air Lines' and Northwest Airlines' noncash goodwill impairment charges totaling $10 billion made the quarter look much worse than it actually was. Still, the 10 carriers posted a $1.75 billion cumulative loss excluding the charges, more than five times the $342 million loss in last year's first quarter, and the remainder of the year does not look promising. Among the 10, only Southwest Airlines eked out a profit for the period and it is hardly celebrating a 63.4% year-over-year plunge in earnings.

Controlling costs had been the principal achievement of the recovery, but record fuel prices caused expenses to spiral out of control in the first quarter. Even excluding the goodwill impairment charges, cumulative expenses rose 17.4% to $30.68 billion, far outpacing revenue's 9.7% growth rate. American Airlines Executive VP-Finance and Planning and CFO Tom Horton predicted that the final three quarters of 2008 will be "steep climbing" for US carriers. "Fuel seems to be hitting record prices every few days," he said, conceding that "there's really no playbook" for contending with per barrel crude oil prices well over $110 for a sustained period. "That means the revenue and expense equation is broken," he said.

As noted, DL and NWA, which both are spending considerable time touting the potential benefits of their proposed merger, skewed the quarter's cumulative results by reporting onetime noncash charges. …

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