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Bloomberg Article on Airline Financials

Old 01-30-2009, 10:00 AM
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Default Bloomberg Article on Airline Financials

I apologize if this article has already been posted, but I haven't seen it, and I thought it was of some interest. To recap some of what I consider to be some of the more interesting points:

American: Changing reduction in capacity from 1% to 6.5%

Continental: Changing reduction in capacity from 6% to 7%

United: Reduce capacity up to 8% and eliminate 1,000 more salaried positions

Delta: Reduce capacity between 6-8% equating to 50 mainline jets, eliminating 2,000 jobs with voluntary buyout program

JetBlue: Reduce capacity by 2%

Southwest: Reduce capacity by 4%


In 2008, the 9 largest US airlines parked 460 aircraft and eliminated 26,000 jobs. They had an operating loss of $3.8 Billion and a net loss of $15.1 Billion.


Bloomberg.com: Worldwide

Continental, US Air Bring Group Loss to $1.35 Billion (Update2)

By Mary Jane Credeur and Mary Schlangenstein

Jan. 29 (Bloomberg) -- Continental Airlines Inc. and US Airways Group Inc. posted wider fourth-quarter losses on wrong- way bets on fuel contracts, bringing the combined operating deficit for the 9 biggest U.S. carriers to $1.35 billion.

Continental, the fourth-largest U.S. airline, reported a $266 million net loss, while No. 6 US Airways lost $541 million. Their sales trailed analysts’ estimates. JetBlue Airways Corp. and Alaska Air Group Inc. also announced deficits.

The results showed the fallout from the industry’s use of advance-purchase contracts to lock in prices after jet fuel soared to a record in July. Prices then plunged 65 percent in 2008’s second half, leaving airlines locked in to above-market rates even as the recession damped travel demand.

“Everyone’s expectations are more tempered going into 2009,” said Hunter Keay, an analyst at Stifel Nicolaus & Co. in Baltimore, who recommends buying shares of airlines including Delta Air Lines Inc. and Continental. “We’re seeing more fare sales and bookings are getting closer in because of the uncertainty.”

The collective fourth-quarter operating losses for the 9 biggest U.S. carriers exceeded the $1.25 billion loss estimated by UBS Securities LLC analyst Kevin Crissey.

Including costs for fuel-hedge contracts at above-market rates and other accounting items, the quarterly net loss for the group was $4.19 billion.

Reduced Flying

For the full year, the operating loss for the group was $3.8 billion. The net loss was $15.1 billion, which included some costs to eliminate 26,000 jobs, park 460 jets and write down the value of assets and goodwill.

Continental, based in Houston, said today it will cut domestic mainline flying as much as 7 percent this year, more than its earlier target of up to 6 percent.

Load factors, a measure of how full planes are, will decline this quarter and the revenue outlook is “not encouraging,” Chief Executive Officer Larry Kellner said on a conference call.

JetBlue, based in New York, now plans to trim capacity by as much as 2 percent this year, a reversal from last year when it added 1.7 percent while others were pulling back.

Delta, the world’s largest carrier after buying Northwest Airlines in October, plans to pull as many as 50 jets from its mainline fleet as it reduces flying by 6 percent to 8 percent this year. The Atlanta-based company will eliminate 2,000 more jobs through voluntary buyouts, after cutting 6,000 last year.

Cutting Capacity

American Airlines parent AMR Corp. on Jan. 21 deepened its target for reducing capacity by 1 percentage point, to 6.5 percent, because the delivery of 8 Boeing Co. 737-800 jets has been delayed by several months. The No. 2 carrier’s traffic, measured in miles flown by paying passengers, tumbled 10 percent in the fourth quarter. AMR is based in Fort Worth, Texas.

United Airlines parent UAL Corp. plans to eliminate 1,000 additional salaried jobs as the Chicago-based company moves to reduce capacity by as much as 8 percent this year.

Southwest Airlines Co., the largest discount carrier, will break a 20-year expansion streak this year when it trims flying by 4 percent. The Dallas-based airline said traffic slid 1.4 percent in the quarter.

“Now is not the time to be growing,” Southwest Chief Executive Officer Gary Kelly said in a Jan. 22 interview.

Poised for Profits

The U.S. airline industry is poised for its first year of profits in a recession. UBS’s Crissey, FTN Midwest Research Securities analyst Michael Derchin and Calyon Securities analyst Ray Neidl had each estimated about $5 billion in combined profits for the major U.S. carriers in 2009.

Those projections may be too high after several of the carriers said this month that demand for air travel may weaken further because of the recession.

U.S. companies have cut 557,000 jobs since November, according to data compiled by Bloomberg News and Challenger, Gray & Christmas, the Chicago-based outplacement consulting firm.

Five analysts including Keay of Stifel Nicolaus lowered their first-quarter projections for Delta this week, and five have trimmed their estimates for American parent AMR, according to a Bloomberg survey. Four trimmed their outlooks for UAL, and three lowered projections for Southwest.

Continental dropped $1.72, or 11 percent, to $14.51 at 4:15 p.m. in New York Stock Exchange composite trading, and US Airways fell 83 cents, or 11 percent, to $6.47. The Bloomberg U.S. Airlines Index, which consists of 13 carriers, declined 6.3 percent.

To contact the reporters on this story: Mary Jane Credeur in Atlanta at [email protected]; Mary Schlangenstein in Dallas at [email protected].

Last Updated: January 29, 2009 16:27 EST
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Old 01-30-2009, 06:04 PM
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who will be ch 7. first?

United or US Airways?
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Old 01-31-2009, 05:24 AM
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and if they do...you better hope you are not flying an RJ for them. Careful what you wish for. This is old news too. UAL announced their capacity reduction last summer....others have increased their reductions...as far as capacity goes.
An extra 1000 management position reduction at UAL is recent news....and still would be needed in the event of a merger. Don't really need all those managers.

Last edited by contrail67; 01-31-2009 at 05:27 AM. Reason: none
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Old 01-31-2009, 06:51 AM
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Either someone will fail or all of the combined companies will continue cutting capacity.

Same number of jobs will be lost either way. For the industry to become profitable someone does need to fail imo.
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Old 01-31-2009, 07:45 AM
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Don't worry, they'll get a bailout long before anyone goes bankrupt.
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Old 01-31-2009, 08:39 AM
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I don't think USAIr going OOB will be enough to really help the over capacity problem. United, or both USAir and United, going OOB would probably help.
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Old 01-31-2009, 10:27 AM
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Originally Posted by Free Bird View Post
Either someone will fail or all of the combined companies will continue cutting capacity.

Same number of jobs will be lost either way. For the industry to become profitable someone does need to fail imo.
Very true statement. I don't see them stepping in here because of the fact that the capacity needs to come down, one way or another. Throwing money at carriers to keep them afloat results in cut backs in service. Either way, people end up out of work.

Sorry for those it ends up hurting, but sometimes you have to let something die. I'm sitting here floating away with a clock on my pool time, so trust me, I don't like the situatuion either. I'd rather be seeing double diget growth for all the carriers, but those days are over. . . for now.
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