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Losses Pile Up at Delta, Continental
Fare War, High Fuel Prices
Depress Airlines' Hopes
For Any Turnaround Soon
By EVAN PEREZ and MELANIE TROTTMAN
Staff Reporters of THE WALL STREET JOURNAL
January 21, 2005; Page A3
Delta Air Lines reported a $2.2 billion fourth-quarter loss, while Continental Airlines swung to its steepest loss in nearly two years, and both carriers offered little hope of relief soon from high fuel prices and brutal fare competition.
The dismal results and outlook increase the pressure on both carriers. Delta, the third-largest U.S. airline by traffic, said it might tap by the end of March the last of $1.1 billion in financing it got in December, leaving the carrier little room for error as it overhauls its network and fare structure. Continental, the fifth-largest airline, still is seeking about $330 million more in annual wage and benefit cuts to hit a $500 million target that it insists it needs to survive.
Also yesterday, America West Airlines said it is pulling out of three of the five transcontinental markets it serves with nonstop flights, citing fare competition. The move underscores that discount airlines aren't immune to the fare competition they helped spark.
Analysts expect the U.S. airline industry to pile up losses of $2 billion to $3 billion in 2005, compared with an estimated $2.9 billion in 2004. "This industry is not reacting rationally to supply [and] demand levels," said Michael Palumbo, Delta's chief financial officer.
Meanwhile, drastic moves to cut costs and generate new revenue haven't yet offset the agony caused by high fuel prices and sinking fares. Delta said it expects 2005 unit costs, or costs spread over available seat capacity, to decline 9% to 10%, compared with last year, excluding fuel costs. But that target disappointed some analysts and investors, who hoped Delta's restructuring plan, including a 32% pay cut for pilots, would generate larger overall savings this year.
Delta shares fell 58 cents, or 9.8%, to $5.37 in 4 p.m. New York Stock Exchange composite trading, while Continental slipped eight cents to $9.37.
Atlanta-based Delta said its fourth-quarter loss amounted to $16.58 a share, compared with a year-earlier loss of $327 million, or $2.69 a share. Special items totaled a charge of $1.4 billion, primarily from the write-off of goodwill at Delta's Comair and Atlantic Southeast Airlines units. The year-earlier quarter included a pension-related charge of $134 million and a gain of $21 million from the sale of stakes in travel Web sites Orbitz and Hotwire.
Revenue at Delta, which narrowly avoided a bankruptcy filing last fall, rose less than 1% to $3.64 billion, despite improvement in the percentage of seats filled. Unit revenue, which is revenue spread over seat capacity, fell 5.6%, reflecting relentless fare-cutting, particularly on the East Coast, where Delta faces the most competition from discount carriers.
Delta's decision this month to slash its most expensive fares nationwide could further hurt the industry's revenue. Delta acknowledged that the move is likely to hurt revenue for the full year, but Paul Matsen, Delta's chief marketing officer, said that "the magnitude of fare wars has been exaggerated."
Fuel spending at Delta surged 76% to $895 million, and it will need additional cash if oil prices remain above an average of $40 a barrel throughout this year. Delta had $2.1 billion in cash at the end of last month, and is likely to have about $1.5 billion at the end of the current quarter. But the airline doesn't face a looming cash crunch, partly because it postponed more than $375 million in debt due this year.
Houston-based Continental had a fourth-quarter loss of $206 million, or $3.12 a share, compared with a year-earlier profit of $47 million, or 61 cents a share. The latest quarter included charges of $32 million related to aircraft retirement and future costs for frequent-flier reward redemptions. Revenue rose 6.6% to $2.4 billion.
Continental has been slashing its operating costs to compete. The airline already had targeted $1.1 billion in annual cuts, of which $900 million have been achieved. In November, the airline said it would seek an additional $500 million through wage and benefit cuts from employees.
The airline has reached agreements for $169 million. Negotiations with pilots, mechanics and flight attendants are under way, and Continental has set a target date of Feb. 28 for all agreements to be reached.
Continental has said it faces an eventual liquidity crisis if it doesn't bring its costs down. Continental declined to say how much cash it burns a day, but it had about $1.46 billion in unrestricted cash and short-term investments at the end of the fourth quarter.
America West, a Tempe, Ariz., carrier and a unit of America West Holdings Corp., said it no longer will offer nonstop flights between San Francisco International Airport and both Boston and New York's John F. Kennedy International Airport, and between Washington's Dulles International Airport and Los Angeles International Airport. America West will continue to offer nonstop flights on two cross-country routes: Los Angeles-JFK and Los Angeles-Boston.
Losses Pile Up at Delta, Continental
Fare War, High Fuel Prices
Depress Airlines' Hopes
For Any Turnaround Soon
By EVAN PEREZ and MELANIE TROTTMAN
Staff Reporters of THE WALL STREET JOURNAL
January 21, 2005; Page A3
Delta Air Lines reported a $2.2 billion fourth-quarter loss, while Continental Airlines swung to its steepest loss in nearly two years, and both carriers offered little hope of relief soon from high fuel prices and brutal fare competition.
The dismal results and outlook increase the pressure on both carriers. Delta, the third-largest U.S. airline by traffic, said it might tap by the end of March the last of $1.1 billion in financing it got in December, leaving the carrier little room for error as it overhauls its network and fare structure. Continental, the fifth-largest airline, still is seeking about $330 million more in annual wage and benefit cuts to hit a $500 million target that it insists it needs to survive.
Also yesterday, America West Airlines said it is pulling out of three of the five transcontinental markets it serves with nonstop flights, citing fare competition. The move underscores that discount airlines aren't immune to the fare competition they helped spark.
Analysts expect the U.S. airline industry to pile up losses of $2 billion to $3 billion in 2005, compared with an estimated $2.9 billion in 2004. "This industry is not reacting rationally to supply [and] demand levels," said Michael Palumbo, Delta's chief financial officer.
Meanwhile, drastic moves to cut costs and generate new revenue haven't yet offset the agony caused by high fuel prices and sinking fares. Delta said it expects 2005 unit costs, or costs spread over available seat capacity, to decline 9% to 10%, compared with last year, excluding fuel costs. But that target disappointed some analysts and investors, who hoped Delta's restructuring plan, including a 32% pay cut for pilots, would generate larger overall savings this year.
Delta shares fell 58 cents, or 9.8%, to $5.37 in 4 p.m. New York Stock Exchange composite trading, while Continental slipped eight cents to $9.37.
Atlanta-based Delta said its fourth-quarter loss amounted to $16.58 a share, compared with a year-earlier loss of $327 million, or $2.69 a share. Special items totaled a charge of $1.4 billion, primarily from the write-off of goodwill at Delta's Comair and Atlantic Southeast Airlines units. The year-earlier quarter included a pension-related charge of $134 million and a gain of $21 million from the sale of stakes in travel Web sites Orbitz and Hotwire.
Revenue at Delta, which narrowly avoided a bankruptcy filing last fall, rose less than 1% to $3.64 billion, despite improvement in the percentage of seats filled. Unit revenue, which is revenue spread over seat capacity, fell 5.6%, reflecting relentless fare-cutting, particularly on the East Coast, where Delta faces the most competition from discount carriers.
Delta's decision this month to slash its most expensive fares nationwide could further hurt the industry's revenue. Delta acknowledged that the move is likely to hurt revenue for the full year, but Paul Matsen, Delta's chief marketing officer, said that "the magnitude of fare wars has been exaggerated."
Fuel spending at Delta surged 76% to $895 million, and it will need additional cash if oil prices remain above an average of $40 a barrel throughout this year. Delta had $2.1 billion in cash at the end of last month, and is likely to have about $1.5 billion at the end of the current quarter. But the airline doesn't face a looming cash crunch, partly because it postponed more than $375 million in debt due this year.
Houston-based Continental had a fourth-quarter loss of $206 million, or $3.12 a share, compared with a year-earlier profit of $47 million, or 61 cents a share. The latest quarter included charges of $32 million related to aircraft retirement and future costs for frequent-flier reward redemptions. Revenue rose 6.6% to $2.4 billion.
Continental has been slashing its operating costs to compete. The airline already had targeted $1.1 billion in annual cuts, of which $900 million have been achieved. In November, the airline said it would seek an additional $500 million through wage and benefit cuts from employees.
The airline has reached agreements for $169 million. Negotiations with pilots, mechanics and flight attendants are under way, and Continental has set a target date of Feb. 28 for all agreements to be reached.
Continental has said it faces an eventual liquidity crisis if it doesn't bring its costs down. Continental declined to say how much cash it burns a day, but it had about $1.46 billion in unrestricted cash and short-term investments at the end of the fourth quarter.
America West, a Tempe, Ariz., carrier and a unit of America West Holdings Corp., said it no longer will offer nonstop flights between San Francisco International Airport and both Boston and New York's John F. Kennedy International Airport, and between Washington's Dulles International Airport and Los Angeles International Airport. America West will continue to offer nonstop flights on two cross-country routes: Los Angeles-JFK and Los Angeles-Boston.
