Delta, AMR post combined US$2.5 billion second quarter loss

By Harry R. Weber, The Associated Press

ATLANTA - The red ink is mounting for U.S. airlines amid soaring fuel costs, leaving them little choice but to further hike ticket prices. As Delta Air Lines and American Airlines reported big second-quarter losses Wednesday, they signalled customers should expect more hits to their chequebooks.

The airlines said they already see signs of a possible tipping point in terms of demand, but industry observers insisted that will not stop rising fares, more fees and fewer domestic flights.

"The first thing they have to do is forget about the butts in the seats and worry about the bucks in the till," Minneapolis airline expert Terry Trippler said.

That point was underscored as Atlanta-based Delta Air Lines Inc. reported a US$1.04 billion loss in the April-June quarter and Fort Worth, Texas-based AMR Corp., the parent of American, posted a $1.45 billion loss for the quarter.

One-time charges and unprecedented fuel costs impacted both airlines, which saw their shares soar as their results beat Wall Street expectations and oil prices dropped.

The two carriers have posted combined net losses of $9.2 billion since the start of the year.

"Clearly, with fuel at these record levels, there's no question ... airfares need to go up," Delta president Ed Bastian told reporters.

He added, "Will there be a tipping point, where demand is going to be affected? I think there already is a bit of a tipping point."

According to Department of Transportation statistics released last week, the number of domestic passengers carried by U.S. airlines decreased 3.3 per cent in April from a year earlier. Fares have risen across the United States since January over 20 per cent, and much higher in smaller cities, according to Rick Seaney of FareCompare.com. Oil prices have doubled in the last year.

AMR chairman and chief executive Gerard Arpey described American's fare and fee increases as moves that are "bumping up against a couple of hard realities."

"In a sluggish economy, consumers are even more sensitive to price, and when we raise fares we inevitably motivate some would-be travellers to just stay home," he said in a memo to employees.

Passengers feel squeezed.

At Minneapolis-St. Paul International airport on Wednesday, Mark Davidson of Atlanta said he and his wife and four teenage daughters usually fly twice a year from Minneapolis to Fargo, N.D., to visit family in northern Minnesota. But after pricing those tickets at $700 apiece recently, he said they'll probably fly into Minneapolis and drive the rest of the way next time.

"I've got four daughters and price becomes prohibitive," he said.

Airlines find themselves in a fight for survival, as they furiously try to conserve cash to keep their operations going.

Delta said it expects $2 billion in cost savings by 2012 from its planned acquisition of Northwest Airlines Corp. That is double what it estimated when it announced the deal on April 14. It also said it expects to spend only $600 million in cash to integrate the two companies, compared to an earlier projection of $1 billion.

Bastian said he is looking at unspecified cash-raising opportunities, including a fee on the first piece of checked baggage.

Delta's loss for the three months ending June 30 amounted to $2.64 a share, compared to a profit of $1.59 billion a year ago when Delta emerged from bankruptcy protection. It did not provide a per-share figure for the year-ago period.

Excluding one-time items, Delta earned a profit of $137 million, or 35 cents a share, in the second quarter. Analysts polled by Thomson Financial, on average, forecast profit of 10 cents a share. Their estimates usually do not include one-time items.

Revenue rose 10 per cent to $5.5 billion.

Delta recorded special charges totalling $1.2 billion in the second quarter.

Delta ended the quarter with $3.3 billion in unrestricted cash and short-term investments. It also has $1 billion available under a revolving credit line.

Delta spent $1.68 billion on aircraft fuel and related taxes in the second quarter, compared to $1.11 billion a year ago.

Delta intends to cut domestic capacity by 13 per cent during the second half of the year.

American's parent AMR, meanwhile, said its loss in the second quarter was equivalent to $5.77 a share, compared to a profit of $317 million, or $1.08 per share, a year ago.

Excluding special charges to write down the value of its fleet, AMR said it would have lost $284 million, or $1.13 per share.

Analysts expected AMR to lose $1.40 per share. The company's revenue rose 5.1 per cent to $6.18 billion. Fuel costs spiked to $2.42 billion - an increase of about $780 million from a year ago.

Delta shares rose $1.20, or 25.7 per cent, to $5.87 in afternoon trading. Shares of AMR jumped $1.35, or 30.4 per cent, to $5.76.

-

AP Business Writers David Koenig in Dallas and Joshua Freed in Minneapolis contributed to this report.