Airlines Differ on Their Profit Prospects
By MICHELINE MAYNARD -- NY Times
Published: October 15, 2008
Two of the airline industry’s biggest carriers, American and Delta Air Lines, posted third-quarter losses Wednesday. But they gave differing views on what lies ahead for the industry.
Executives at Delta said the drop in oil prices, coupled with steps to cut flights and routes, might protect the nation’s airlines from feeling the brunt of the economic downturn.
But executives at American Airlines warned that fuel prices could be volatile, and that the fallout from the financial turmoil was showing up in weaker bookings from corporate travelers and those in New York.
Delta said that it lost $26 million in the third quarter, excluding special items, mostly because of fuel prices that peaked in July. It earned $220 million a year ago. Delta closed at $7.44, up 1.2 percent.
American, a unit of the AMR Corporation, and the country’s biggest airline, said it lost $360 million, excluding special items, because of fuel costs. It earned $175 million in last year’s quarter. Shares of AMR closed down 1 cent in regular trading, to $8.78.
The nation’s airlines have cut about 13 percent of the flights within the United States in the fourth quarter, or equal to the size of a major airline. Tighter capacity is allowing airlines to raise ticket prices on some routes. At the same time, fuel prices have dropped to $2.58 a gallon compared with a record $3.97 a gallon in July, according to the Energy Department.
Delta said those factors, as well as new fees on various passenger conveniences that were once built into the price of a ticket, have put the airlines in better shape to deal with any drop in demand.
“When you think about what you would rather manage at an airline, you would rather deal with demand cessation than $150 oil,” Richard H. Anderson, the chief executive at Delta, said in a conference call. “In some respects, with fuel dropping the way it’s dropping, we’re somewhat hedged against the economic downturn.”
If current fuel prices remain steady through the quarter, Mr. Anderson said, Delta potentially could earn “a couple hundred million dollars” in profits. “Fuel dropping like a rock is a big offset to the economy,” he said.
But American’s chief executive, Gerard J. Arpey, was more pessimistic. Current oil prices “are not really a bargain by historic standards, and volatility continues to be a concern,” Mr. Arpey said. “We can’t necessarily depend on oil, one way or another.”
Advance bookings for each airline tell a slightly different story. Delta executives said they expected domestic flights to be fuller in November and December than a year ago, in part because of capacity cuts.
But American said it expected planes to be less full on its domestic routes. Both airlines said they were seeing slightly less demand for international flights.
American’s chief financial officer, Thomas W. Horton, said bookings by corporate travelers had dropped in August and September compared with a year ago. Demand out of New York is softening more than elsewhere, something American said it expected.
Meanwhile, American said it had placed orders with Boeing to purchase 42 of its new 787 jets, with options to buy another 58 planes. American joins Northwest Airlines and Continental Airlines as customers for the plane, which is nicknamed the Dreamliner.
The aircraft, suited for long flights, is expected to be 20 percent more fuel efficient than existing long-range jets. However, development of the plane is more than a year behind schedule, and the jet has not yet made its first test flight. Production at Boeing has been halted for more than a month because of a strike by the International Association of Machinists and Aerospace Workers.
In an interview, Mr. Horton said the delays should be well behind Boeing by 2012, when American expects to take delivery on its first planes.
The switch will mean American will operate an all-Boeing fleet, including the MD-80 series jets made by McDonnell Douglas, now part of Boeing. American is in the midst of retiring its Airbus A300 jets.
Mr. Horton said American had not discussed how it would finance the newer planes, but said the airline was making a “very modest” down payment for them.
Bye Bye--General Lee
