This is really getting serious. There is no way these companies can continue to lose this amount of money. The DAL and UAL estimates are eye opening.
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UBS Analyst Sees Bigger '02 Airline Losses, Keeps Ratings
By ANN KEETON
Of DOW JONES NEWSWIRES
CHICAGO -- With first-quarter domestic revenue at U.S. airlines coming in "softer than expected," analyst Sam Buttrick at UBS Warburg said he expects steeper 2002 losses for the group of 10 major U.S. carriers than earlier forecast.
In a report late Thursday, Buttrick believes the airlines will lose $4 billion in 2002, more than his previous expectation of a $3.5 billion loss.
Only Southwest Airlines Co. (LUV) and AirTran Airways, a unit of AirTran Holding Inc. (AAI), are expected to show a profit.
Buttrick said he lowered some estimates for the second quarter, putting them more in line with the Thomson Financial/First Call analyst consensus estimate.
But he now sees a much tougher second half of the year than most analysts. His sharpest downward revisions were for Delta Air Lines Inc. (DAL), Northwest Airlines Corp. (NWAC) and United Airlines , a unit of UAL Corp. (UAL). He now sees Delta with a 2002 loss of $5.80 per share, compared with the Street estimate of a loss per share of $3.71. Buttrick expects Northwest to lose $3.10, worse than the consensus estimate for a loss of $2.61 per share. He sees United losing $23.60 per share, compared with a Street estimate of a $20.54 loss.
In 2003, Buttrick said it's likely that the group will continue to lose money. He called the current consensus from analysts, which indicates a modest return to profitability, "way too high."
Unless there's unexpected good news, such as a massive resumption of corporate travel or a big drop in oil prices, analysts will continue to revise their earnings estimates downward in the next few quarters, Buttrick predicted.
The analyst wrote that he was particularly concerned that revenues, which have improved steadily month by month since last September, showed very small growth from February to March. His earnings revisions Thursday were based on revenue 2% to 3% lower for the balance of 2002.
Except for labor costs, airlines have done well with cost control, Buttrick wrote. Although labor costs have risen in the past six months due to new union contracts, he sees labor, which accounts for 40% of airlines' expenses, beginning to flatten out over the next 18 months.
Keeps Buy Rating On Five Stocks
Buttrick believes that, barring an unexpected shock, airline stocks will remain in a trading range for at least the next six months. Since many stocks are at the low end of their range, he continues to see buying opportunities for investors. He noted that the share price of the 10 major airlines as a group has pulled back 17% from its high in March.
In order of descending preference, stocks with a buy rating from UBS Warburg include Continental Airlines (CAL), AMR Corp. (AMR) unit American Airlines , Northwest Airlines (NWAC), UAL Corp. (UAL) unit United Airlines and Delta Airlines (DAL).
There is risk with the "appalling lack of earnings visibility" in the industry, Buttrick said, adding that "sustained gains cannot be reasonably expected against a backdrop of persistent estimate reduction."`
_________________________________________________
UBS Analyst Sees Bigger '02 Airline Losses, Keeps Ratings
By ANN KEETON
Of DOW JONES NEWSWIRES
CHICAGO -- With first-quarter domestic revenue at U.S. airlines coming in "softer than expected," analyst Sam Buttrick at UBS Warburg said he expects steeper 2002 losses for the group of 10 major U.S. carriers than earlier forecast.
In a report late Thursday, Buttrick believes the airlines will lose $4 billion in 2002, more than his previous expectation of a $3.5 billion loss.
Only Southwest Airlines Co. (LUV) and AirTran Airways, a unit of AirTran Holding Inc. (AAI), are expected to show a profit.
Buttrick said he lowered some estimates for the second quarter, putting them more in line with the Thomson Financial/First Call analyst consensus estimate.
But he now sees a much tougher second half of the year than most analysts. His sharpest downward revisions were for Delta Air Lines Inc. (DAL), Northwest Airlines Corp. (NWAC) and United Airlines , a unit of UAL Corp. (UAL). He now sees Delta with a 2002 loss of $5.80 per share, compared with the Street estimate of a loss per share of $3.71. Buttrick expects Northwest to lose $3.10, worse than the consensus estimate for a loss of $2.61 per share. He sees United losing $23.60 per share, compared with a Street estimate of a $20.54 loss.
In 2003, Buttrick said it's likely that the group will continue to lose money. He called the current consensus from analysts, which indicates a modest return to profitability, "way too high."
Unless there's unexpected good news, such as a massive resumption of corporate travel or a big drop in oil prices, analysts will continue to revise their earnings estimates downward in the next few quarters, Buttrick predicted.
The analyst wrote that he was particularly concerned that revenues, which have improved steadily month by month since last September, showed very small growth from February to March. His earnings revisions Thursday were based on revenue 2% to 3% lower for the balance of 2002.
Except for labor costs, airlines have done well with cost control, Buttrick wrote. Although labor costs have risen in the past six months due to new union contracts, he sees labor, which accounts for 40% of airlines' expenses, beginning to flatten out over the next 18 months.
Keeps Buy Rating On Five Stocks
Buttrick believes that, barring an unexpected shock, airline stocks will remain in a trading range for at least the next six months. Since many stocks are at the low end of their range, he continues to see buying opportunities for investors. He noted that the share price of the 10 major airlines as a group has pulled back 17% from its high in March.
In order of descending preference, stocks with a buy rating from UBS Warburg include Continental Airlines (CAL), AMR Corp. (AMR) unit American Airlines , Northwest Airlines (NWAC), UAL Corp. (UAL) unit United Airlines and Delta Airlines (DAL).
There is risk with the "appalling lack of earnings visibility" in the industry, Buttrick said, adding that "sustained gains cannot be reasonably expected against a backdrop of persistent estimate reduction."`
