AMR, UAL Losses Widen, Tough Times Ahead
Two of the largest US airlines, American Airlines and United Airlines, on Wednesday posted wider quarterly losses and warned that the economic slowdown in 2008 would likely continue this year, causing larger-than-expected job and route cuts.
UAL, parent of United Airlines, said it would cut 1,000 salaried and management positions from its payrolls this year, while AMR, parent of American Airlines, said it would trim capacity more than expected.
American and United are the first two major carriers to report their fourth-quarter earnings, and their statements muddied the outlook for the entire industry as it grapples with volatile fuel prices and the potential for sagging travel demand.
"It's going to be weak, no doubt about it," said Ray Neidl, analyst at Calyon Securities. "The question is can the airlines, with capacity cuts, keep up with the decrease in demand in a weak economy?"
AMR shares fell more than 21 percent to USD$8.24 on the New York Stock Exchange. UAL shares shed more than 7 percent to USD$10.70 on Nasdaq.
The airline industry, including AMR and UAL, slashed capacity last year to offset their high fuel bills and bolster fares as the economic recession eroded travel budgets.
A 75 percent decline in oil prices in the second half of 2008 greatly eased the fuel price burden for airlines. But it also lessened the value of airline fuel hedges, creating a new problem for the embattled industry.
AMR said its quarterly net loss widened as the price it paid for fuel rose 8 percent in the quarter from a year before.
The company said its fourth-quarter net loss was USD$340 million, compared with USD$69 million a year earlier.
Excluding one-time items, AMR said it lost USD$214 million.
Special items included a USD$23 million charge related to aircraft groundings and capacity cuts as well as a non-cash pension settlement charge of USD$103 million.
The airline industry, including AMR, made hefty capacity cuts in the fourth quarter of 2008 to offset volatile fuel prices and to bolster fares as demand sagged in a weak economy.
The company said it expects its mainline capacity to decrease more than 8.5 percent in the first quarter amid economic uncertainty. AMR said its 2009 mainline capacity will decline by more than one percentage point beyond a previous forecast provided in October.
"We intend to continue managing our business -- from capacity and fleet planning to balance sheet repair, fuel hedging and revenue initiatives -- conservatively and with discipline," AMR chief executive Gerard Arpey said in a statement.
AMR reported revenue of USD$5.47 billion, down 3.8 percent. The company said it ended the quarter with USD$3.6 billion in cash and short-tern investments.
AMR said the company now expects to receive 29 Boeing 737-800 aircraft in 2009 as a result of Boeing's delivery delays, compared with 36 expected previously.
UAL said its quarterly net loss widened on erosion in the value of its fuel hedges, as oil prices dropped.
The company said its net loss amounted to USD$1.3 billion, compared with USD$53 million a year earlier.
UAL reported a USD$370 million cash loss on fuel hedges that settled in the quarter, due to the recent fall in fuel prices. The company also suffered non-cash, net mark-to-market losses on its fuel hedges of USD$566 million.
The company, which cut about 7,000 jobs in 2008, said it would cut another 1,000 salaried and management positions in 2009.
UAL said its revenue was USD$4.55 billion in the quarter, down 9.6 percent. The company said it ended the quarter with an unrestricted cash balance of USD$2 billion.
Copyright © 2009 Aviation News Release
