Low-Cost, Legacy Airlines Struggle

Just how bad are things in the airline business?

So bad that JetBlue Airways Corp., of Forest Hills, the low-cost carrier that has been the darling of the industry for years, expects to post a loss in the fourth quarter, its first quarterly loss since it started selling shares to the public in April 2002 -- even as it continues to affect its competitors' bottom lines.

The earnings season for the fourth quarter of 2005 got off to a bad start yesterday when Continental Airlines, the nation's fifth-largest carrier, announced it lost $ 43 million in the last three months of the year.

Continental's chief executive, Larry Kellner, was unusually frank in assessing the Houston-based airline's problems -- and placing some of the blame on JetBlue.

"JetBlue has invaded our Newark hub, Delta is using its bankruptcy advantage to expand into our profitable international markets and United Airlines, flush with $ 3 billion in exit financing and greatly reduced costs, is coming out of bankruptcy," Kellner said in an announcement.

Delta Air Lines filed for Chapter 11 bankruptcy protection in September. United has said it expects to emerge from bankruptcy next month.

Airlines' fourth-quarter reports are awash in red ink.

First Call/Thomson Financial forecasts fourth-quarter losses for every major airline except Southwest, the Dallas-based leader of the low-cost carriers. JetBlue is expected to lose 14 cents a share when it announces results Feb. 1, First Call said. Higher fuel costs have, for the time being, snagged JetBlue's profits.

This morning, American Airlines, the world's largest carrier, is expected to report a "significant" loss in the last three months of 2005. First Call/Thomson Financial said it could be as large as $ 2.55 a share.

As bad as things were last year, a number of airline analysts say they hold out hope for improvement -- although probably not profitability -- in 2006. They said much will depend on whether fuel prices continue to rise, carriers are able to raise fares and sustain those increases, and some airlines can reach new agreements with their employees.

Raymond Neidl, who follows airlines for Calyon Securities in Manhattan, said in a note to investors last week that he believes the industry will lose about $ 1.7 billion in 2006. But, Neidl said, with further cost-cutting and restructuring anticipated in the coming months, "the U.S. industry may lose as little as half a billion dollars" this year.

For an industry that has lost $ 38 billion since 2000, a $ 500-million loss in one year signals progress, analysts said.

"These days, if the industry moves sideways, people would be happy," said Robert W. Mann, an independent airline consultant in Port Washington. "They would just like to eliminate the negative rate of descent."

But fuel costs are not cooperating. Crude oil yesterday surged to $ 66 a barrel, a three-month high, on concern Iranian shipments may be disrupted.

And some labor issues remain contentious. Bankrupt Northwest Airlines yesterday asked a federal judge to allow it to toss out contracts with its unions to enable the carrier to cut costs. The judge urged the airline and the unions to keep talking.

Nonetheless, investors optimistic that the carriers will do better in '06 have been bidding up airline stocks, with the airline index up almost 40 percent since hitting a low in September.

-----

To see more of Newsday, or to subscribe to the newspaper, go to http://www.newsday.com Copyright (c) 2006, Newsday, Melville, N.Y.

Distributed by Knight Ridder/Tribune Business News.

For information on republishing this content, contact us at (800) 661-2511 (U.S.), (213) 237-4914 (worldwide), fax (213) 237-6515, or e-mail [email protected]. JBLU, CAL, DALRQ, UALAQ, TOC, CRARF, ACA, NWACQ,

News stories provided by third parties are not edited by "Site Publication" staff. For suggestions and comments, please click the Contact link at the bottom of this page.