Dav8tor
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United Air, JetBlue May See a Reversal of Fortunes: Doron Levin
Aug. 3 (Bloomberg) -- About the worst name you could call a big U.S. airline used to be ``legacy carrier,'' a term that fit an old-line transport industry marked by serial mismanagement, bloated wages and low worker productivity.
UAL Corp.'s United Airlines, one of four major American airlines that filed for bankruptcy in recent years, was just such a basket case.
By contrast, upstarts like JetBlue Airways Corp., a newcomer with pristine aircraft, leather seats, young employees and moderate pay scales, made the tradition-bound carriers and their loss-riddled operations seem lame and helpless.
Now there's change in the air. United and some other big airlines, under duress of bankruptcy, have slashed costs, renegotiated labor contracts and are beginning to post their first profits in years.
A quarter or two of profit hardly signifies a trend, of course, and the rise in oil prices has some forecasters predicting a recurrence of losses. The world's airlines may lose $3 billion this year, according to the International Air Transport Association, the industry trade group.
Some U.S. carriers such as JetBlue are suffering rising costs as well as growing pains. The airline, based in Forest Hills, New York, has been forced to scale back plans for growth as profitability becomes more difficult. Like other so-called low-cost carriers, it now must also compete against more formidable legacy airlines.
On July 25, JetBlue said second-quarter net income rose slightly to $14 million, its first year-over-year quarterly improvement since 2003. Still, the company said it may not be profitable for the year; it delayed delivery of 12 new airplanes and agreed to sell five this fall.
Discouraging Trend
JetBlue's share price, which reached a peak of $31.43 in October 2003 following its initial public offering in April 2002 at $27 a share, closed at $10.42 yesterday.
Southwest Airlines Co., the best-managed and most successful low-cost carrier, doubled its profit in the second quarter but cautioned that higher ticket prices -- it raised fares at least four times this year -- are discouraging some travelers.
``The lines are blurring, there's less and less meaningful distinction among the categories of airlines,'' noted John Heimlich, chief economist for the Air Transport Association, the U.S. airline industry's trade group based in Washington.
Between June 2001 and June 2005, the six major U.S. carriers, including United, reduced their fleets by 816 aircraft, to 2,690. That helped airlines fill a bigger percentage of seats and even raise prices. ``Revenue is the story of the quarter,'' Ray Neidl, an analyst at Calyon Securities in New York, told Bloomberg News on July 25.
Shaky Profits
In addition to United, Delta Air Lines Inc., Northwest Airlines Corp. and US Airways Group Inc. are major carriers that filed for bankruptcy in the recent past. These companies as well as Continental Airlines Inc., which emerged from bankruptcy in the 1990s, and American Airlines are considered legacy carriers.
AMR Corp., the parent of American Airlines and a company that dodged bankruptcy by a whisker, on July 19 posted second- quarter profit of $291 million, its first quarterly profit in a year.
American Airlines remains on shaky legs, as does US Airways, which had a profit of $305 million for the quarter. US Airways merged with America West, a low-cost carrier, in September last year and came out of bankruptcy.
Through the first six months of 2006, U.S. airlines by virtue of more travelers and higher prices improved revenue per available seat to 10.97 cents for each mile flown, up 14.5 percent from a year earlier.
UAL Shrinks
United this week said second-quarter net income was $119 million, or 93 cents a share. The Elk Grove Township, Illinois- based airline emerged from bankruptcy on Feb. 1, after filing for protection in December 2002.
Three years of losses, layoffs, cutbacks and intense negotiations with unions and creditors finally resulted in a new United that appears stable and poised to grow. UAL's chief executive officer, Glenn Tilton, said he's still only halfway to a goal of cutting 1,000 more salaried and management jobs by year's end.
According to the Air Transport Association, the U.S. airline industry shed 28 percent of its workforce, or 152,000 jobs, from 2001 to 2006, helping to reduce labor costs by $8.3 billion while raising productivity by 30 percent.
The soaring spot price of jet fuel, almost 30 percent higher than a year ago, and tighter control of costs by competitors are forcing managements to find even more ways to reduce spending. ``You can't just say we've had a good quarter'' and stop cutting, Heimlich said.
Bankruptcy Fix?
Some airlines are having trouble keeping pace. Northwest Airlines, the Eagan, Minnesota-based legacy carrier in bankruptcy since September, this week said it will impose a concessionary labor contract on flight attendants to save $195 million.
Flight attendants have rejected a proposed compromise and are threatening to strike. If they do and Northwest's operations are crippled, it could be decisive and lead to the airline's liquidation or an eventual merger. Many think the six majors could shrink to three via mergers.
United's turnaround, if sustained, may be a model for how a broken business can be fixed in bankruptcy. It might have been done quicker and cheaper, though some companies can't seem to find compromise without a judge.
JetBlue, whose prospects seemed sky-high when United and its like were stumbling, must reconfigure quickly just to stay in the game. Nowadays everyone is striving to be a low-cost carrier.
(Doron Levin is a Bloomberg News columnist. The opinions expressed are his own.)
To contact the writer of this column
oron Levin in Southfield, Michigan at [email protected]
Aug. 3 (Bloomberg) -- About the worst name you could call a big U.S. airline used to be ``legacy carrier,'' a term that fit an old-line transport industry marked by serial mismanagement, bloated wages and low worker productivity.
UAL Corp.'s United Airlines, one of four major American airlines that filed for bankruptcy in recent years, was just such a basket case.
By contrast, upstarts like JetBlue Airways Corp., a newcomer with pristine aircraft, leather seats, young employees and moderate pay scales, made the tradition-bound carriers and their loss-riddled operations seem lame and helpless.
Now there's change in the air. United and some other big airlines, under duress of bankruptcy, have slashed costs, renegotiated labor contracts and are beginning to post their first profits in years.
A quarter or two of profit hardly signifies a trend, of course, and the rise in oil prices has some forecasters predicting a recurrence of losses. The world's airlines may lose $3 billion this year, according to the International Air Transport Association, the industry trade group.
Some U.S. carriers such as JetBlue are suffering rising costs as well as growing pains. The airline, based in Forest Hills, New York, has been forced to scale back plans for growth as profitability becomes more difficult. Like other so-called low-cost carriers, it now must also compete against more formidable legacy airlines.
On July 25, JetBlue said second-quarter net income rose slightly to $14 million, its first year-over-year quarterly improvement since 2003. Still, the company said it may not be profitable for the year; it delayed delivery of 12 new airplanes and agreed to sell five this fall.
Discouraging Trend
JetBlue's share price, which reached a peak of $31.43 in October 2003 following its initial public offering in April 2002 at $27 a share, closed at $10.42 yesterday.
Southwest Airlines Co., the best-managed and most successful low-cost carrier, doubled its profit in the second quarter but cautioned that higher ticket prices -- it raised fares at least four times this year -- are discouraging some travelers.
``The lines are blurring, there's less and less meaningful distinction among the categories of airlines,'' noted John Heimlich, chief economist for the Air Transport Association, the U.S. airline industry's trade group based in Washington.
Between June 2001 and June 2005, the six major U.S. carriers, including United, reduced their fleets by 816 aircraft, to 2,690. That helped airlines fill a bigger percentage of seats and even raise prices. ``Revenue is the story of the quarter,'' Ray Neidl, an analyst at Calyon Securities in New York, told Bloomberg News on July 25.
Shaky Profits
In addition to United, Delta Air Lines Inc., Northwest Airlines Corp. and US Airways Group Inc. are major carriers that filed for bankruptcy in the recent past. These companies as well as Continental Airlines Inc., which emerged from bankruptcy in the 1990s, and American Airlines are considered legacy carriers.
AMR Corp., the parent of American Airlines and a company that dodged bankruptcy by a whisker, on July 19 posted second- quarter profit of $291 million, its first quarterly profit in a year.
American Airlines remains on shaky legs, as does US Airways, which had a profit of $305 million for the quarter. US Airways merged with America West, a low-cost carrier, in September last year and came out of bankruptcy.
Through the first six months of 2006, U.S. airlines by virtue of more travelers and higher prices improved revenue per available seat to 10.97 cents for each mile flown, up 14.5 percent from a year earlier.
UAL Shrinks
United this week said second-quarter net income was $119 million, or 93 cents a share. The Elk Grove Township, Illinois- based airline emerged from bankruptcy on Feb. 1, after filing for protection in December 2002.
Three years of losses, layoffs, cutbacks and intense negotiations with unions and creditors finally resulted in a new United that appears stable and poised to grow. UAL's chief executive officer, Glenn Tilton, said he's still only halfway to a goal of cutting 1,000 more salaried and management jobs by year's end.
According to the Air Transport Association, the U.S. airline industry shed 28 percent of its workforce, or 152,000 jobs, from 2001 to 2006, helping to reduce labor costs by $8.3 billion while raising productivity by 30 percent.
The soaring spot price of jet fuel, almost 30 percent higher than a year ago, and tighter control of costs by competitors are forcing managements to find even more ways to reduce spending. ``You can't just say we've had a good quarter'' and stop cutting, Heimlich said.
Bankruptcy Fix?
Some airlines are having trouble keeping pace. Northwest Airlines, the Eagan, Minnesota-based legacy carrier in bankruptcy since September, this week said it will impose a concessionary labor contract on flight attendants to save $195 million.
Flight attendants have rejected a proposed compromise and are threatening to strike. If they do and Northwest's operations are crippled, it could be decisive and lead to the airline's liquidation or an eventual merger. Many think the six majors could shrink to three via mergers.
United's turnaround, if sustained, may be a model for how a broken business can be fixed in bankruptcy. It might have been done quicker and cheaper, though some companies can't seem to find compromise without a judge.
JetBlue, whose prospects seemed sky-high when United and its like were stumbling, must reconfigure quickly just to stay in the game. Nowadays everyone is striving to be a low-cost carrier.
(Doron Levin is a Bloomberg News columnist. The opinions expressed are his own.)
To contact the writer of this column
oron Levin in Southfield, Michigan at [email protected]
