Air Transport World

A tough end to a good year.

U.S. airlines faced falling yields in the fourth quarter of 1998 but were helped by cheap fuel

The downward spiral in yield per RPM that began last fall continued through December, contributing to lower earnings for U.S. Major airlines in the fourth quarter and full year ended Dec. 31, 1998. Excluding TWA, which did not report results in time to be included, U.S. Majors earned $537 million in the quarter, versus $1.2 billion earned by the same nine airlines in the year-ago period (see tables).

Revenues were virtually flat at $20.6 billion, while operating expenses climbed 1.8% to $19.4 billion. Operating profit fell 17% to 1.2 billion. Results would have been worse but for dramatically cheaper fuel. Fuel prices declined throughout the quarter and by mid-December were at levels not seen in at least 30 years (ATW, 2/99, p. 46).

Comparisons to 1997 are distorted by one-time events including the third-quarter pilot strike at Northwest Airlines that pushed it into the red at the operating and net levels for the quarter and full year. Also, US Airways Group's 1997 fourth-quarter results were inflated by a $436 million tax credit. If results for both airlines for both periods are excluded, industry performance improved slightly year-over-year at the net after-tax level.

At the operating level, however, signs of weakness were plain to see, as eight of the nine reported declining unit revenues. Yield fell an average of 3.8% in the quarter, while RASM declined 3.4% (see tables next page). Lower fuel costs and continuing savings from commission cutbacks contributed to an average 2.1% improvement in CASM, which helped to offset the more difficult revenue environment.

For the full year, the nine airlines earned $4.4 billion, down 15% compared to 1997, although year-to-year comparisons may be misleading owing to the same factors that affected fourth-quarter results. Annual revenues rose 2. …

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