Airlines' Earnings Expected to be Bad

Third-quarter earnings are expected to be dismal. The chief culprits -- high oil prices and the skyrocketing cost of jet-fuel refining.


By some measures, this should be a good time for the airline industry.

Traffic demand ballooned this summer, with airlines reporting record passenger loads. And a series of price increases pushed fares up, boosting revenues. Meanwhile, airlines have continued to cut costs.

Nonetheless, third-quarter earnings, which airlines will begin reporting this week, are expected to be dismal. The chief culprits -- high oil prices and the skyrocketing cost of jet-fuel refining.

"At $60-a-barrel oil prices, we do not believe that the industry can achieve profitability," said airline analyst Ray Neidl of Calyon Securities in New York, in a report to investors.

Neidl expects the industry to lose $900 million during the quarter, which is traditionally one of the strongest of the year for the airlines.

Fort Worth-based AMR Corp., parent of American Airlines, will report its earnings today. Dallas-based Southwest Airlines will announce its earnings Thursday.

Most analysts expect AMR to post a loss for the quarter. First Call/Thompson Financial's survey of analysts found an average loss prediction of 49 cents per share of common stock, or about $80 million.

Southwest is widely expected to report a profit, with analysts expecting earnings of 16 cents per share, or about $125 million. That airline is protected in part from high fuel prices with hedging contracts that locked in fuel purchases at lower prices.

Continental Airlines, based in Houston, posted a profit of $61 million Tuesday. Northwest Airlines, Delta Air Lines and United Airlines are all expected to report losses.

And in an ominous sign for the low-fare segment of the industry, high flyer JetBlue Airways could post the first quarterly loss in that carrier's short history. JetBlue, a New York-based discount airline that became a Wall Street darling after its 2002 initial public offering, is expected to report near break-even results, with either a small profit or loss.

JetBlue, like most other carriers, is struggling with high fuel prices. But it is also particularly vulnerable to high costs after Hurricanes Katrina and Rita, which devastated Gulf Coast refineries.

"John F. Kennedy Airport, which accounts for 32 percent of JetBlue's departures, actually receives its jet [fuel] directly from the Gulf," said analyst Jamie Baker of JP Morgan Securities, in an investment report.

For AMR, a third-quarter loss means that the second quarter will mark that airline's only profitable period in 2005. Like all airlines, AMR is expected to report a heavy loss during the fourth quarter, which is typically a slow period for airlines.

All this doom and gloom comes despite a bright few months, in terms of traffic and fares. At American, for example, traffic was up 9 percent in September, 4 percent in August and 8 percent in July.

Industrywide, fares rose 6 percent in August and 5 percent in July, according to the Air Transport Association, an industry trade group. Fares for September were not available.

ONLINE: www.aa.com;

www.southwest.com

Fort Worth Star Telegram


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