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AMR, Delta Results Hurt By High Fuel Costs
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American Airlines parent AMR and Delta Air Lines reported large quarterly net losses on Wednesday, blaming depressed results on rising jet fuel prices that have forced widespread industry downsizing.
The losses for the second quarter - which includes the start of the peak summer travel season - set the stage for what is sure to be a troubling string of reports from major airlines this month.
Airlines shares, however, moved higher as the price of oil dropped more than USD$4 a barrel after a government inventory report showed a surprise increase in crude supplies.
Rising oil prices were the airline industry´s worst enemy in the second quarter and the results of AMR and Delta reflected the burden.
"Q2 is generally the airlines´ second best quarter, with the third quarter normally being the best," said Ray Neidl, airline analyst at Calyon Securities. "So these results have to be disappointing," he said.
Still, excluding one-time items, AMR´s loss was much smaller, and Delta actually posted a small profit.
Even as they have raised fares, airlines have been clobbered as the price of crude oil has notched record highs. The Air Transport Association, the main lobbyist for big airlines, sees a USD$10 billion industrywide loss this year.
Major carriers are cutting planes and routes as well as staff, hoping to simply survive.
AMR said it would trim domestic capacity up to 12 percent in the fourth quarter and head count by 8 percent. Delta has said it plans to cut domestic capacity 13 percent in the second half of the year and eliminate 2,000 jobs.
AMR posted a quarterly net loss, reversing a year-earlier profit, as its fuel bill jumped 47.4 percent to USD$2.42 billion.
The company´s loss, including special charges, amounted to USD$1.4 billion, compared with a profit of USD$317 million a year earlier. Revenue rose 5.1 percent to USD$6.18 billion.
Excluding one-time items, AMR said its loss was USD$248 million.
Items included a USD$1.1 billion non cash accounting charge to write down the value of aircraft. Other charges related to capacity reductions.
The airline said it has hedged 35 percent of its anticipated third-quarter fuel consumption at an average crude oil equivalent cost of USD$95 per barrel.
For the third quarter of 2008, AMR said mainline unit costs are expected to increase 26.1 percent compared with the third quarter of 2007.
The company also said that given the shaky industry conditions, it has decided to place on hold the planned divestiture of its regional affiliate American Eagle.
"Our company continues to be severely challenged by the fuel crisis that has afflicted our entire industry, and we expect these difficulties to continue for the foreseeable future," Chief Executive Gerard Arpey said in a statement.
AMR ended the quarter with USD$5.5 billion in cash and short-term investments, including a restricted balance of USD$435 million.
Delta, which has agreed to buy Northwest Airlines, reported a quarterly net loss of USD$1 billion. Excluding special charges, however, Delta said it earned USD$137 million.
Delta, which said the special charges were mainly for the impairment of goodwill, emerged from bankruptcy at the end of April 2007, so many year-earlier figures were unavailable.
Revenue rose about 10 percent to USD$5.5 billion. Delta ended the quarter with USD$4.3 billion in unrestricted liquidity, including USD$1 billion available under its revolving credit facility.
The airline said it expects capacity for the second half of 2008 to be down 4 percent compared with 2007, with its domestic capacity down 13 percent and international capacity up 14 percent.
During the quarter, Delta hedged 49 percent of its fuel consumption and realized USD$313 million in gains.
Delta said its merger is likely to close in the fourth quarter and it has reached a pre-merger joint bargaining agreement between the Delta and Northwest pilots.
The company upped its forecast for merger-related synergies to USD$2 billion from USD$1 billion by 2012. Delta said the savings and revenue will come mainly from combining the two carriers´ networks.
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