American carriers bleed billions in second quarter losses

American Airlines parent company, AMR Corp., has posted a $1.45 billion second quarter net loss, on account of heavy non-cash impairment charges and record fuel prices. This reverses a $317 million profit from the same time a year ago.

The non-cash charges that were announced earlier in the month include a $1.1 billion write down in the value of certain aircraft and related assets, and around $55 million in employee severance-related costs.

If these were excluded, AMR's second-quarter loss would work out to $284 million.

Company chairman and CEO Gerard Arpey said that his company continues to be ''severely challenged'' by the fuel crisis and he expects these difficulties to continue for the foreseeable future.

Arpey added that recent decisions "have better prepared us to face these challenges" but "we remain committed to taking action, whether that relates to capacity reductions, revenue enhancements, fleet changes or other efforts to improve our financial foundation." Those actions include $720 million in new financing, which the company has secured through the sale and leaseback of aircraft, and newly issued mortgage debt. It has also announced the retirement of its 34-strong A300 fleet by the end of 2009, and has scheduled the retirement of 30 MD-80s, 10 A300s and 26 Saab turboprops this year in addition to 37 regional jets.

Additionally, the airline's full-year consolidated capacity would drop 3.7 per cent, with more reductions slated for 2009. AMR is also placing on hold its plans to divest regional subsidiary American Eagle till industry conditions improve.

Year-on-year second-quarter revenues were up 5.1 per cent,  at $6.18 billion, against a 38 per cent surge in expenses to $7.47 billion.

Fuel costs jumped 47.4 per cent, to $2.42 billion, and the operating loss was $1.29 billion once again reversing a $467 million profit a year ago for the same period.
Meanwhile, Delta Air Lines CEO Richard Anderson also announced a $1.04 billion second quarter loss representing a reversal from the $164 million profit from a year-ago in the same quarter. Excluding special charges that resulted in the final figure, the company posted a $137 million profit.

Anderson said faced with unprecedented fuel prices, Delta reacted quickly and decisively with strong top line growth, domestic capacity rationalisation, cost initiatives, fuel hedging and a focus on liquidity.

Delta has sought to cancel regional contracts with ExpressJet Holdings and Pinnacle Airlines, and expects the second-half system capacity to fall 4 per cent year-on-year. The airline said it will cover 75 per cent of the $4 billion impact of rising fuel costs through revenue and cost-cutting initiatives, international expansion and hedging.
Second-quarter revenues rose 9.9 per cent to $5.5 billion, while costs spiralled 45.9 per cent to $6.59 billion. Operating losses were at $1.09 billion compared to a $345 million profit in the same quarter a year ago.

Another major carrier, Continental Airlines, too reported a second quarter loss citing the same reasons as the first two airlines – high fuel prices, a weak US dollar and a weakening economy.

Continental's second-quarter net loss totalled $3 million, or 3 cents a share, as compared to a profit of $228 million a year ago, or $2.03 a share.
Excluding special items, the loss was $25 million after one-time gains and expenses, or 25 cents per share.

Continental's president Jeff Smisek said that the airline was unable to generate enough revenues despite solid operational and financial performance, which resulted in losses on account of ''the stratospheric increase in fuel prices". Continental says that average price per gallon of fuel, including fuel taxes, was up by 66.2 per cent year-on-year.

The airline's quarterly revenues rose 9 per cent to $4 billion, aided by hikes in fuel surcharges, fees and fares. It also posted some international growth at a time when most US airlines are cutting routes, capacity and jobs.

Continental expects its cuts to result in a 10 per cent decline in domestic mainline capacity by the fourth quarter of 2008, as compared to the same period in 2007. Continental is also fast tracking the retirement of 67 Boeing 737-300 and 737-500 aircraft, which will in turn drive its recent decision to cut 3,000 jobs.

The airline has hedged 63 per cent of its projected fuel requirements for the third and fourth quarters of 2008, and 29 per cent of its projected fuel needs for the first six months of 2009.

The airline closed the second quarter with $3.4 billion in unrestricted cash and short-term investments.