Losses Widen at United, American

By Mary Jane Credeur and Mary Schlangenstein
Bloomberg News
Thursday, January 22, 2009

American Airlines parent AMR and United Airlines parent UAL reported wider fourth-quarter losses and said they will cut more flights because of slowing demand for air travel. Both carriers' shares plunged.

American, the second-largest U.S. airline, and No. 3 United have steadily scaled back operations over the past year, initially because of soaring jet-fuel costs and later as the recession took hold. Demand is "under pressure" across the industry, with some customers flying less and others switching to cheaper coach fares, United said yesterday.

"It's very hard to be optimistic about travel demand given what we know about the economy," said Daniel M. Kasper, managing director of economic consulting firm LECG in Cambridge, Mass. "Maybe expectations for the airlines were a little more optimistic than warranted."

AMR's net loss was $340 million, or $1.22 a share. The deficit was wider than analysts expected, and the shares tumbled the most in almost six years. UAL's net loss was $1.3 billion ($9.91 a share), largely because it bet incorrectly that jet-fuel prices would rise.

Shares of Fort Worth-based AMR fell $2.48, or 24 percent, to close at $7.98 on the New York Stock Exchange. Earlier, they had fallen as much as 30 percent on the day, the most intraday since March 2003. Chicago-based UAL slid 71 cents, or 6 percent, to close at $10.91 on the Nasdaq Stock Market after having fallen earlier as much as 15 percent on the day.

"It's going to be a painful start to 2009, we just don't know how painful yet," said Hunter K. Keay, an analyst at Stifel Nicolaus in Baltimore.

United said it will cut 1,000 additional jobs as it prepares to trim flying capacity by as much as 9.5 percent this year. American said eight Boeing 737 jet deliveries are being delayed by a few months. That will reduce its capacity by 6.5 percent, 1 percentage point more than previously planned.

American said last month that it was "nervous" about demand for February and March.

AMR and UAL are the first major U.S. carriers to report fourth-quarter results. Delta Air Lines, the largest U.S. carrier, is scheduled to release results Tuesday.

The loss at AMR widened from $69 million (28 cents a share) a year earlier, according to its statement. Revenue fell 3.8 percent, to $5.47 billion, the first decline in six quarters.

Excluding costs of $23 million for grounding planes, employee severance and facility write-offs related to capacity cuts and $103 million for a pension settlement because of pilot early retirements, the loss was $214 million (77 cents a share), AMR said.

Replacing older planes has helped "put us on a sounder footing as we face continued economic uncertainty, slower travel demand and fuel-price volatility in 2009," chief executive Gerard J. Arpey said in the statement.

UAL's loss widened from $53 million (47 cents a share) a year earlier, according to its statement. Revenue declined 9.6 percent to $4.55 billion, the first drop in seven quarters.

Excluding items related to fuel-hedge contracts and other one-time costs, the loss was $555 million ($4.22 a share), the company said.

Combined operating deficits at the nine biggest airlines may be $1.25 billion, according to estimates by Kevin Crissey, a UBS Securities analyst in New York. Hundreds of millions of dollars in one-time expenses also are likely as the companies adjust the value of fuel contracts to match slumping prices. Through the first nine months of 2008, the airlines' operating losses totaled $2.86 billion.

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