Posted on Sun, Jan. 23, 2005



LOSING MONEY


Some airlines might not pull out of tailspin

CREDIT HELPS CARRIERS SURVIVE

By Tom Eblen

HERALD-LEADER STAFF WRITER


It's almost as big a mystery as how enormous passenger jets are able to fly: How can airline companies lose hundreds of millions of dollars, year after year, and still stay aloft?

It was a point to ponder last week as Delta Air Lines capped off a week of disastrous airline financial reports by saying it lost $2.2 billion in the fourth quarter, a new industry record. Delta, which has a major hub in Cincinnati and is the main carrier at Lexington's Blue Grass Airport, lost a staggering $5.2 billion for the year.

Meanwhile, Continental reported a quarterly loss of $206 million; American, $387 million; and Northwest, $420 million. The two other major carriers, United and US Airways, are operating under bankruptcy protection.

Southwest, the discount carrier, was the only big airline to report a quarterly profit, and it would have had a loss if not for its favorable fuel-price contracts.

The airlines' long financial tailspin has been made possible by lenders' willingness to keep extending credit because of the airlines' valuable assets and huge daily cash flow from ticket sales.

"They've been mortgaging the furniture for years, but this trend cannot continue much longer," said Raymond Neidl, an airline-industry analyst with Calyon Securities in New York and a co-author of the book Airline Odyssey: The Airline Industry's Turbulent Flight into the Future.

The big airlines have been struggling since 1978, when deregulation opened the door for low-cost discount carriers. But their condition became critical after the Sept. 11, 2001, terrorist attacks scared passengers away and depressed the economy. Passenger traffic has rebounded, but so have fuel prices. And an oversupply of airline seats has led to fare-cutting, which has depressed airline profits.

Neidl said some of the big airlines could stop flying if their financial condition doesn't improve soon, and that could create a vacuum he thinks would quickly be filled by low-cost carriers, including Southwest, AirTran, Jet Blue and America West.

Despite its record loss, Neidl thinks Delta's prospects are better than most. "They're in the forefront of cost-cutting," he said. "It's a race to see who can cut costs the fastest."

Still, Neidl said passengers shouldn't worry yet about booking flights on the big airlines. A few months ago, he was concerned about US Airways' viability, "but it looks like they're going to make it through the winter."

http://www.kentucky.com/mld/kentucky/news/nation/10712408.htm