Losses will continue, analysts say

Airline finances are expected to worsen in the fourth quarter.
CHICAGO TRIBUNE
CHICAGO -- The summer travel season was pretty chilly for the nation's airlines.
Major carriers reported a collective $1.1 billion loss, two airlines declared bankruptcy and others are teetering on the edge of insolvency. Fuel and labor costs remain high, and competition makes it difficult to raise ticket prices.
As bad as things are, they will likely get worse, some analysts predict.
"There will probably be "more severe losses than in the third quarter simply because of the normal seasonal pattern," said Philip Baggaley, an airline analyst with Standard & amp; Poor's.
Red ink
The summer travel months of July, August and September typically make up the most profitable quarter for the airline industry. But this year most airlines sunk further into the red.
In September, US Airways sought bankruptcy protection. Last week, ATA Airlines did the same, becoming the first low-cost carrier to file Chapter 11. UAL Corp.'s United Airlines and Hawaiian Airlines are still struggling to emerge from bankruptcy.
Three years after the Sept. 11 attacks, "profit recovery remains elusive despite an economic recovery, strong traffic patterns and aggressive cost cutting by the major carriers," according to an analysis of the quarter released Tuesday by Ray Neidl of Calyon Securities.
The biggest problem is rising fuel prices. Crude oil prices have dropped slightly in recent days, but remain about 70 percent higher than they were a year ago.
The price of fuel has added about $4.6 billion to the annual fuel costs for the industry, Neidl's analysis found.
If fuel costs had remained where they were a year ago, "most major carriers would have reported healthy profits," according to an industry update from Michael Linenberg of Merrill Lynch. For example, he found that instead of losing $177 million, United Airlines would have made $69 million in the quarter.
High fuel prices "threaten to undo much of the cost reduction initiatives that have been put into place the past few years," Linenberg said.
Can't raise prices
In most industries, rising costs are covered by raising prices. But that solution no longer works for airlines. Customers have demonstrated they will look for the airline that has the lowest prices, said Glenn Tilton, United chairman and chief executive, in a recorded message to employees this week.
Customers "have a wide range of airline products to pick from," he said.
Just how bad it has gotten for some airlines is amazing even for those who follow the industry, Baggaley said.
"To see Delta Airlines lose more than $600 million in the strongest quarter of the year was remarkable," he said.
Delta is trying to restructure its finances while avoiding bankruptcy court. The airline has arranged financing and reached a tentative agreement on $1 billion in wage cuts and other concessions with its pilots' union. Without the cuts, Delta has said it may not be able to avoid bankruptcy.