By Dan Reed and Marilyn Adams, USA TODAY
Big fourth quarter losses and reports of weak demand from the parent companies of American and United airlines spooked investors Wednesday and sent the shares of most carriers tumbling.
AMR (AMR) , American's parent, took a particular beating. Its shares lost 24% of their value, or $2.52 a share, to close at $7.94.
Shares of UAL (UAUA), United's parent, lost 6.1% of their value, or 71 cents, to close at $10.91. Shares of Continental Airlines and JetBlue also lost 11% and 10.6% of their respctive values. Southwest was the only carrier to see a stock price gain —— 2.95% to $8.38 —— on a day when the Dow Jones industrial average gained 279 points.
The drops came although industry analysts were expecting the losses. They also expect U.S. airlines to be modestly profitable next year. The industry has reduced capacity between 8% and 12% as demand has fallen. Likewise, oil prices have fallen by $100 a barrel less than their peak last summer, reducing fuel costs.
The two U.S. airline giants were the first to report end-of-year earnings. Other big carriers are expected to report later this week and next. Only Southwest, which reports Thursday is expected to show a profit for the quarter, or for all of 2008.
FIND MORE STORIES IN: Dow Jones | United Airlines | JetBlue | Thomson Reuters | CEO Gerard Arpey | Tilton | Arpey | CEO of AMR
AMR reported losing $214 million, or 77 cents a share, for the fourth quarter, excluding one-time accounting items. That was in line with what analysts expected. United's parent, UAL, lost only $547 million, or $4.22 a share, excluding one-time items, in the quarter ended Dec. 31. Analysts had been expecting a $4.42 a share loss, according to a survey of analysts' estimates by Thomson Reuters.
American's parent reported that advance bookings are off about 4.5% for the first quarter of this year. They're off about 8% in the international markets, on which most big U.S. carriers find profitability. American also projected bigger non-fuel cost increases in 2009 than most of its rivals. It anticipates increased spending on programs and technology to improve on-time reliability and high pension costs.
To reduce non-fuel costs, United will continue downsizing. It added 1,000 jobs to the total number of positions to be eliminated by the end of this year. The job cuts, which began in 2008, will now total around 9,000 positons. United officials hope to meet that goal through attrition, but have not ruled out layoffs.
United also is about half way through reducing its jet fleet by 100. American CEO Gerard Arpey told analysts and reporters during a conference call Wednesday that he wouldn't comment on how the market reacted to his report and insisted he was "guardedly optimistic" about making a profit this year.
United CEO Glenn Tilton said "fundamental improvements" the airline made last year would "hold us in good stead in 2009."
American, United and all other big U.S. airlines responded to record high fuel prices in the first half of 2008 by reducing capacity in the second half of the year. Analysts and industry leaders said the timing was fortuitous because of the falloff in demand. John Tague, United's chief operating officer, said all carriers "are seeing a decline in demand" not just in fewer people buying tickets, but also customers "buying down from business cabin to coach cabin."
For all of 2008, AMR lost $2.1 billion, or $7.98 a share. In 2007 it earned $505 million or $1.78 a share. American paid an average of $3.03 a gallon for jet fuel for the full year versus $2.12 a gallon in 2007. As a result, the carrier spent $2.7 billion more for fuel in 2008. In the fourth quarter AMR paid an average $2.60 a gallon for jet fuel versus $2.40 a gallon in the fourth quarter of 2007.
For all of 2008, UAL lost $5.35 billion, or $42.21 a share. That compares to a profit of $403 million, or $3.34 a share, in 2007. It paid an average price of $3.54 a gallon for jet fuel in 2008 versus $2.18 a gallon in 2007. As a result, it spent $2.7 billion more for fuel in 2008 than in 2009. In the fourth quarter, UAL paid an average price of $3.74 a gallon versus $2.53 a gallon in the fourth quarter of 2007.

 

My biggest immediate concern is cash on hand going forward. I believe I read that they are down to $2.1 billion in cash. This was down nearly $900 million in one quarter. I doubt they will be allowed to go down to $1.2 billion in cash. At DAL the magic number last time was around $1.5 billion. Failure to maintain cash above that helped trigger the bankruptcy. They need to have a much better quarter this next time or things are/will get much rougher. Good luck to all my friends over there. I'm still in awe that your Board allows the gutting of UAL to continue until Tilton's unbelievably long and plunderous reign.

 

If Tilton was in China....

"A court in the northern city of Shijiazhuang gave a life sentence to Tian Wenhua, 66, the former general manager and chairwoman of Sanlu Group Co., the dairy at the center of the crisis. She was the highest-ranking official charged in the food safety scandal, which was exposed in September.

During her Dec. 31 trial, Tian admitted she had known of problems with her company's products for months before informing authorities. Tian pleaded guilty to charges of producing and selling fake or substandard dairy products.

Some of the relatives of the victims, who gathered outside the court in cold weather in northern China, said Tian got off lightly."


....he would be in jail, or worse.

 

I don't think they are down that low in cash, more like mid 2's. They sold off American Beacon for something close to .5bln and here is the link to their 2007 and 2008 financials. 2007 was also a .5bln profit.

AMR AMR Corporation releases financial results for fourth quarter and full year 2008

 

But yes, they are stretching the glide a bit, but who isn't.

 

Heyas

As for UAL or others...as Frontier showed, all it takes is one skittish credit card company and you're bankrupt overnight.

Nu

 

As it appears that United is trying to shrink their way to profitability, they have forgotten their fixed costs - buildings, HQ staff and the like.

from the WSJ:

United's cost per available seat mile increased 1.6% to 14.97 cents amid the company's cost cutting and capacity reductions.

Hard to make money when your cost per mile is going up, not down WHILE cost cutting!

I don't know - I just see a rudderless ship that is casting around for a buyer - any buyer to rescue them from their executive leadership.

 

Wow. I didn't think their costs were nearly 15 cents ASM. I thought I read where they were around 9 cents. Luckily ours is down around 6.8 cents right now.

 

I think the 6.8 cents/mile cost is without fuel - at least that's what I remember Richard saying in one of his Right from Richard. I imagine their 15 cents includes fuel - but we'll find out more when Delta release results next week.

 

I am just amazed how UAL can keep scooping up credit. I know the Chase Credit card has ton's of members so that has to be part of it but really losing a billion in the 4th Q. How much money has UAL lost in the past 8 yrs? 20 billion?

This business sucks!!! I am pulling for UAL guys and hope they can get rid of Glenn..