BoeingBoy
Veteran
- Nov 9, 2003
- 16,512
- 5,865
- Banned
- #1
Air Transport
Low Yields Hold Down Big-Six 2Q Results
Aviation Week & Space Technology
07/19/2004, page 72
David Bond
Washington
Because low yields negate high loads, Big Six 2Q results look mediocre at best
More of the Same
Springtime remains a season in which the airline business picks up, but for the Big Six U.S. network airlines, the pickup in 2004 brings little or nothing in the way of profit. As the carriers prepare to report second-quarter financial results this week and next, signs point to better performance than last year's but no hope of substantial earnings.
Two of the airlines, Continental Airlines and US Airways, speculate that their operations for the quarter might break even or come close to it. But neither is optimistic for anything more. CEO Bruce Lakefield says losses at US Airways in the third and fourth quarters could be comparable to those of the first--$177 million net, $143 million on an operating basis--unless the company secures cost concessions from its labor unions beyond what it won in its 2002-03 stint in Chapter 11 bankruptcy protection.
EACH CARRIER is worried about its cash position. Continental intends to decide by mid-September whether to take advantage of pension relief legislation passed this year by Congress, permitting it to shift some of its required pension contributions from 2004 and 2005 to the 2006-08 period, easing immediate problems. And Lakefield sees a "real risk" that US Airways could lose the cash from its federally guaranteed loan if it fails to stay in compliance with the loan's restrictive covenants. Earlier this year the carrier renegotiated near-term loan restrictions, winning relaxation of mid-year requirements by paying back $250 million of the $1 billion total ahead of schedule. "Without a lower cost structure, US Airways could just run out of steam sometime next year," Lakefield said in a message to employees.
Delta had bad news for investors last week in the runup to announcing its financial results. The carrier said it will take $1.53 billion in non-cash charges in the quarter, dropping substantially all of its deferred income tax assets because "it is now unclear as to . . . when the company will be able to generate sufficient taxable income" to use the assets as a deduction. Accounting rules require that a company take such a charge if it no longer can say it is more likely than not that it will be able to use such reserves. Delta said it also will stop recording income tax benefits in its quarterly financial statements "for the foreseeable future."
The company said its financial projections for the rest of 2004 worsened because of high fuel costs and low domestic yields, and it acknowledged that this news "may prompt further concern about Delta's financial condition." The airline is seeking cost concessions from its pilots but doesn't appear to be close to getting what it says it needs. It is conducting a strategic review of all aspects of its business, and it has cited the possibility of a Chapter 11 filing if it can't cut costs enough.
Northwest, too, seeks union concessions, and United might have to go back to labor in an attempt to reduce costs further to deal with the Air Transportation Stabilization Board's third and final rejection of a federal loan guarantee. United's pension plans, which will need about $4 billion through 2008 as currently structured, are widely seen as a potential target for reductions, and the carrier took a step in that direction last week, deferring a decision on whether to make $72.4 million in quarterly minimum pension funding contributions past the July 15 due date. United said the deferral enables it to "best manage its resources and preserve its options going forward" as it seeks the financing it needs to exit Chapter 11.
Yields have been low since 2001, and in the second quarter this diluted much of the benefit to Big Six carriers from load factor gains (see tables). The load factors are remarkable, in several cases setting company records even though each carrier increased capacity dramatically during the quarter. Monthly capacity increases, measured year-over-year, were mostly in double-digit percentages, but so were traffic improvements. Five of the Big Six logged 80%-plus load factors in June--American lagged at 79%.
Little change in yields or load factors is expected in coming months. Low-cost competitors Southwest Airlines, JetBlue Airways, AirTran Airways and others already have launched fare sales for late summer-early fall. The sales should hold down yields even as they fill airplanes.
Load Factors Are Strong . . .
April May June
United 79.9%, up 8.5 pt. 80.1%, up 2.9 pt. 86.0%, up 4.0 pt.
American 74.9%, up 4.4 pt. 73.1%, down 0.5 pt. 79.0%, up 0.2 pt.
Delta 74.4%, up 3.9 pt. 73.9%, down 0.4 pt. 81.9%, up 1.4 pt.
Northwest 80.2%, up 8.3 pt. 80.7%, up 5.3 pt. 86.4%, up 4.6 pt.
Continental 77.0%, up 4.6 pt. 74.7%, down 1.2 pt. 82.4%, up 1.4 pt.
US Airways 79.8%, up 5.7 pt. 75.4%, up 1.9 pt. 81.6%, up 3.0 pt.
Source: Company reports. Comparisons are year-over-year.
. . . But Yields Aren't . . .
April May June
Cents/Revenue 12.07, up 0.7% 11.56, down 1.8% N.A.
Passenger Mile
Source: Air Transport Assn., from domestic fare data reported by Big Six, plus Alaska Airlines and America West Airlines.
Comparisons are year-over-year. N.A.=not available.
. . . And Most of Big Six Have a Lot To Come Back From
Operating Profit (Loss),
Second Quarter 2003
United ($431 million)
American ($271 million)
Delta ($202 million)
Northwest ($73 million)
Continental $62 million
US Airways ($147 million)
Source: Company reports, adjusted to eliminate security-fee refunds
Low Yields Hold Down Big-Six 2Q Results
Aviation Week & Space Technology
07/19/2004, page 72
David Bond
Washington
Because low yields negate high loads, Big Six 2Q results look mediocre at best
More of the Same
Springtime remains a season in which the airline business picks up, but for the Big Six U.S. network airlines, the pickup in 2004 brings little or nothing in the way of profit. As the carriers prepare to report second-quarter financial results this week and next, signs point to better performance than last year's but no hope of substantial earnings.
Two of the airlines, Continental Airlines and US Airways, speculate that their operations for the quarter might break even or come close to it. But neither is optimistic for anything more. CEO Bruce Lakefield says losses at US Airways in the third and fourth quarters could be comparable to those of the first--$177 million net, $143 million on an operating basis--unless the company secures cost concessions from its labor unions beyond what it won in its 2002-03 stint in Chapter 11 bankruptcy protection.
EACH CARRIER is worried about its cash position. Continental intends to decide by mid-September whether to take advantage of pension relief legislation passed this year by Congress, permitting it to shift some of its required pension contributions from 2004 and 2005 to the 2006-08 period, easing immediate problems. And Lakefield sees a "real risk" that US Airways could lose the cash from its federally guaranteed loan if it fails to stay in compliance with the loan's restrictive covenants. Earlier this year the carrier renegotiated near-term loan restrictions, winning relaxation of mid-year requirements by paying back $250 million of the $1 billion total ahead of schedule. "Without a lower cost structure, US Airways could just run out of steam sometime next year," Lakefield said in a message to employees.
Delta had bad news for investors last week in the runup to announcing its financial results. The carrier said it will take $1.53 billion in non-cash charges in the quarter, dropping substantially all of its deferred income tax assets because "it is now unclear as to . . . when the company will be able to generate sufficient taxable income" to use the assets as a deduction. Accounting rules require that a company take such a charge if it no longer can say it is more likely than not that it will be able to use such reserves. Delta said it also will stop recording income tax benefits in its quarterly financial statements "for the foreseeable future."
The company said its financial projections for the rest of 2004 worsened because of high fuel costs and low domestic yields, and it acknowledged that this news "may prompt further concern about Delta's financial condition." The airline is seeking cost concessions from its pilots but doesn't appear to be close to getting what it says it needs. It is conducting a strategic review of all aspects of its business, and it has cited the possibility of a Chapter 11 filing if it can't cut costs enough.
Northwest, too, seeks union concessions, and United might have to go back to labor in an attempt to reduce costs further to deal with the Air Transportation Stabilization Board's third and final rejection of a federal loan guarantee. United's pension plans, which will need about $4 billion through 2008 as currently structured, are widely seen as a potential target for reductions, and the carrier took a step in that direction last week, deferring a decision on whether to make $72.4 million in quarterly minimum pension funding contributions past the July 15 due date. United said the deferral enables it to "best manage its resources and preserve its options going forward" as it seeks the financing it needs to exit Chapter 11.
Yields have been low since 2001, and in the second quarter this diluted much of the benefit to Big Six carriers from load factor gains (see tables). The load factors are remarkable, in several cases setting company records even though each carrier increased capacity dramatically during the quarter. Monthly capacity increases, measured year-over-year, were mostly in double-digit percentages, but so were traffic improvements. Five of the Big Six logged 80%-plus load factors in June--American lagged at 79%.
Little change in yields or load factors is expected in coming months. Low-cost competitors Southwest Airlines, JetBlue Airways, AirTran Airways and others already have launched fare sales for late summer-early fall. The sales should hold down yields even as they fill airplanes.
Load Factors Are Strong . . .
April May June
United 79.9%, up 8.5 pt. 80.1%, up 2.9 pt. 86.0%, up 4.0 pt.
American 74.9%, up 4.4 pt. 73.1%, down 0.5 pt. 79.0%, up 0.2 pt.
Delta 74.4%, up 3.9 pt. 73.9%, down 0.4 pt. 81.9%, up 1.4 pt.
Northwest 80.2%, up 8.3 pt. 80.7%, up 5.3 pt. 86.4%, up 4.6 pt.
Continental 77.0%, up 4.6 pt. 74.7%, down 1.2 pt. 82.4%, up 1.4 pt.
US Airways 79.8%, up 5.7 pt. 75.4%, up 1.9 pt. 81.6%, up 3.0 pt.
Source: Company reports. Comparisons are year-over-year.
. . . But Yields Aren't . . .
April May June
Cents/Revenue 12.07, up 0.7% 11.56, down 1.8% N.A.
Passenger Mile
Source: Air Transport Assn., from domestic fare data reported by Big Six, plus Alaska Airlines and America West Airlines.
Comparisons are year-over-year. N.A.=not available.
. . . And Most of Big Six Have a Lot To Come Back From
Operating Profit (Loss),
Second Quarter 2003
United ($431 million)
American ($271 million)
Delta ($202 million)
Northwest ($73 million)
Continental $62 million
US Airways ($147 million)
Source: Company reports, adjusted to eliminate security-fee refunds
