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10/21/2004

Major airlines report loss

By Harry R. Weber
The Associated Press

ATLANTA — Three of the nation’s largest airlines reported a combined $911 million in third-quarter losses on Wednesday. The largest by far was at Delta Air Lines Inc., where bankruptcy looms unless it can quickly win concessions from its pilots and debt holders.

Soaring fuel prices were the main culprit for the red ink at AMR Corp., parent of American Airlines, Northwest Airlines Corp. and Delta, whose situation also has been exacerbated by the cost of servicing its $20.6 billion in debt. All three reported higher revenue.

Delta said its unrestricted cash reserves fell to $1.45 billion as of Sept. 30 from $2 billion on June 30. The nation’s third-largest carrier said it desperately needs $1 billion in cuts from its pilots and new debt terms from some of its creditors.

The pilots’ union said in a memo late Wednesday that its talks with management will continue through the weekend. The memo said that “because of the time constraints presented by Delta’s worsening financial condition,” the union’s executive committee will reconvene on Monday for an update. The union will not update members again “until the process concludes,” the memo said, suggesting talks are winding down one way or another.

Fuel prices, meanwhile, continue to hit the major carriers hard.

“Fuel costs are ultimately going to affect all of the airlines in some way,” said Frank Werner, an industry expert who teaches finance at Fordham University in New York. But “the big carriers are still flailing along searching for the answer, and they don’t have it yet.”

For the three months ending Sept. 30, Atlanta-based Delta said it lost $651 million, or $5.16 a share, compared to a loss of $168 million, or $1.36 a share, in the same period a year ago. Delta said it was affected by the four major hurricanes that hit Florida, a major destination for Delta travelers. Even so, its revenue in the quarter rose 5.9 percent to $3.87 billion.

The quarterly loss at AMR of Fort Worth, Texas, whose American unit is the nation’s largest carrier, was $214 million, or $1.33 per share; a year earlier, it posted a $1 million profit. Revenue rose 3.3 percent to $4.76 billion, but that was below the $4.81 billion forecast by analysts. Chief executive Gerard Arpey said American would take steps to raise revenue and cut costs, including job cuts and a 5 percent reduction in the airline’s capacity, by the first quarter of next year.

Eagan, Minn.-based Northwest, the No. 4 U.S. carrier in terms of revenue, said it lost $46 million, or 54 cents a share, in the third quarter. That compared to a profit of $42 million, or 49 cents a share, a year earlier. Revenue rose more than 13 percent to $3.05 billion.

AMR’s shares fell 20 cents, or nearly 3 percent, to close at $6.49 in trading Wednesday. Northwest shares fell 20 cents, or 2.5 percent, to close at $7.72. And shares of Delta fell 6 cents, or 2 percent, to close at $2.93, a new 52-week low. AMR and Delta trade on the New York Stock Exchange; Northwest trades on the Nasdaq Stock Market.

Several carriers in recent days have raised fuel surcharges on flight tickets to help offset the high fuel prices.

Houston-based Continental Airlines, the nation’s No. 5 airline in terms of revenue, reported Tuesday a $16 million loss in the quarter. Elk Grove Village, Ill.-based UAL Corp., parent of No. 2 U.S. carrier United Airlines, and No. 6 carrier US Airways Group Inc. of Arlington, Va., both of which are in bankruptcy, have not yet reported their third-quarter earnings.

Known as legacy carriers, the big six airlines had a large presence in multiple regions before deregulation in 1978. US Airways before deregulation was a collection of regional carriers that merged into a legacy carrier.

The big carriers had benefited in the past by operating a hub-and-spoke system, using big cities as bases from which connecting flights to smaller markets are routed. Their market share in those areas has dwindled, however, as low-fare carriers have increasingly moved into the big carriers’ turf. That is most evident in the case of Delta, which has faced stiff competition from Orlando, Fla.-based AirTran Airways and JetBlue Airways Corp.

Analysts believe Delta has only a few weeks left to win concessions from pilots and restructure its heavy debt to avoid a Chapter 11 filing.