US Airlines Face Quarterly Losses As Demand Drops
The number of empty seats on planes flown by US airlines is rising this year despite aggressive fare sales and capacity cuts, darkening the outlook for industry earnings in the first quarter and beyond.
Airline data on March load factors showed a third consecutive month of declines and the largest drop for some carriers this year.
"We're seeing some real good fare sale activity, but load factors are still dropping," said Jim Corridore, airline analyst with Standard & Poor's Equity Research. "So they are not able to get their planes full right now, and that is a bad sign."
The airline industry has been battered since last year by economic recession that has eroded travel budgets. Carriers have fought back with sweeping capacity cuts and fare sales designed to generate spring and summer travel.
But March traffic data show that despite carriers' best efforts to stoke demand, the decline in load factors is accelerating.
Delta Air Lines saw its March load factor drop 4.4 percentage points to 80.5 percent, following a 2.7 point dip in February. The carrier's capacity was down 7.9 percent in the month.
American Airlines saw its load factor slump 4.8 points to 79.2 percent as capacity fell 5.6 percent. In February, the carrier's load factor declined 2.9 points.
IMPACT ON EARNINGS
Declining load factors will hurt first-quarter results, which airlines will begin posting next week, said Morningstar equity analyst Basili Alukos.
"It's such a high fixed-cost business. So basically you have the same cost per flight," Alukos said. "They're having fewer people in the planes, so it means you're going to have way lower earnings."
Alukos noted, however, that a year-to-year drop in the price of jet fuel will offset some of the damage done by falling travel demand. The price of a barrel of oil, which influences the price of fuel, fell 50 percent from the end of the first quarter of 2008 to the end of the first quarter of 2009.
But fuel prices did rise 14 percent rise between January and March 2009, mitigating some of airlines' accounting losses from fuel hedge write-offs, Alukos said.
Carriers wrote down millions of dollars in losses in the second half of 2008 as oil plummeted 75 percent, diminishing the value of their fuel hedges. Hedge losses will continue to factor into first-quarter earnings. UAL has said it expects to see an USD$80 million loss related to its hedges.
