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Airline Industry

Continental, US Air bring group loss to $1.35 Billion

Continental, US Air bring group loss to $1.35 Billion
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By bloomberg.com | Jan 29, 2009

Continental Airlines Inc. and US Airways Group Inc. posted wider fourth-quarter losses on wrong- way bets on fuel contracts, bringing the combined operating deficit for the 9 biggest U.S. carriers to $1.35 billion.

Continental, the fourth-largest U.S. airline, reported a $266 million net loss, while No. 6 US Airways lost $541 million. Their sales trailed analysts’ estimates. JetBlue Airways Corp. and Alaska Air Group Inc. also announced deficits.

The results showed the fallout from the industry’s use of advance-purchase contracts to lock in prices after jet fuel soared to a record in July. Prices then plunged 65 percent in 2008’s second half, leaving airlines locked in to above-market rates even as the recession damped travel demand.

“Everyone’s expectations are more tempered going into 2009,” said Hunter Keay, an analyst at Stifel Nicolaus & Co. in Baltimore, who recommends buying shares of airlines including Delta Air Lines Inc. and Continental. “We’re seeing more fare sales and bookings are getting closer in because of the uncertainty.”

The collective fourth-quarter operating losses for the 9 biggest U.S. carriers exceeded the $1.25 billion loss estimated by UBS Securities LLC analyst Kevin Crissey.

Including costs for fuel-hedge contracts at above-market rates and other accounting items, the quarterly net loss for the group was $4.19 billion.

Reduced Flying

For the full year, the operating loss for the group was $3.8 billion. The net loss was $15.1 billion, which included some costs to eliminate 26,000 jobs, park 460 jets and write down the value of assets and goodwill.

Continental, based in Houston, said today it will cut domestic mainline flying as much as 7 percent this year, more than its earlier target of up to 6 percent.

Load factors, a measure of how full planes are, will decline this quarter and the revenue outlook is “not encouraging,” Chief Executive Officer Larry Kellner said on a conference call.

JetBlue, based in New York, now plans to trim capacity by as much as 2 percent this year, a reversal from last year when it added 1.7 percent while others were pulling back.

Delta, the world’s largest carrier after buying Northwest Airlines in October, plans to pull as many as 50 jets from its mainline fleet as it reduces flying by 6 percent to 8 percent this year. The Atlanta-based company will eliminate 2,000 more jobs through voluntary buyouts, after cutting 6,000 last year.

Cutting Capacity

American Airlines parent AMR Corp. on Jan. 21 deepened its target for reducing capacity by 1 percentage point, to 6.5 percent, because the delivery of 8 Boeing Co. 737-800 jets has been delayed by several months. The No. 2 carrier’s traffic, measured in miles flown by paying passengers, tumbled 10 percent in the fourth quarter. AMR is based in Fort Worth, Texas.

United Airlines parent UAL Corp. plans to eliminate 1,000 additional salaried jobs as the Chicago-based company moves to reduce capacity by as much as 8 percent this year.

Southwest Airlines Co., the largest discount carrier, will break a 20-year expansion streak this year when it trims flying by 4 percent. The Dallas-based airline said traffic slid 1.4 percent in the quarter.

“Now is not the time to be growing,” Southwest Chief Executive Officer Gary Kelly said in a Jan. 22 interview.

Poised for Profits

The U.S. airline industry is poised for its first year of profits in a recession. UBS’s Crissey, FTN Midwest Research Securities analyst Michael Derchin and Calyon Securities analyst Ray Neidl had each estimated about $5 billion in combined profits for the major U.S. carriers in 2009.

Those projections may be too high after several of the carriers said this month that demand for air travel may weaken further because of the recession.

U.S. companies have cut 557,000 jobs since November, according to data compiled by Bloomberg News and Challenger, Gray & Christmas, the Chicago-based outplacement consulting firm.

Five analysts including Keay of Stifel Nicolaus lowered their first-quarter projections for Delta this week, and five have trimmed their estimates for American parent AMR, according to a Bloomberg survey. Four trimmed their outlooks for UAL, and three lowered projections for Southwest.

Continental dropped $1.18, or 7.3 percent, to $15.05 at 1:42 p.m. in New York Stock Exchange composite trading, and US Airways fell 39 cents, or 5.3 percent, to $6.91. The Bloomberg U.S. Airlines Index, which consists of 13 carriers, declined 2.6 percent.

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