American, Delta post third quarter losses – assess operating environment differently

Two top US carriers, American Airlines and Delta Air Lines, reported losses for the third-quarter but provided differing assessments on the industry's operating environment.

Even as Delta affirmed that the drop in oil prices, coupled with cost-cutting measures such as flight and route reduction, were likely to shield US carriers from the brunt of a global economic downturn, executives at American warned that fuel prices could be volatile, and that the ongoing financial turmoil was resulting in a fall in business class travel.

Delta reported a loss of $26 million for the third quarter, mostly because of fuel prices, as compared to net earnings of $220 million for the same period a year ago. American, the biggest US airline, reported a loss of $360 million, mainly on account of fuel costs. 

It had posted earnings of $175 million for the same period last year. 

The airline said it had paid 64 per cent more for its jet fuel in the third quarter than in the same period a year ago, a rise of $1.1bn for the three months.

US airlines have reduced the number of flights within the United States by 13 per cent for the fourth quarter, raised prices on some routes and are also benefiting from slumping fuel prices. New fees from various passenger conveniences, once taken for granted by passengers, have also added to the revenue base and all put together have now created a buffer against falling demand for these carriers.  

"When you think about what you would rather manage at an airline, you would rather deal with demand cessation than $150 oil," Richard Anderson, the chief executive at Delta, said in a conference call. "In some respects, with fuel dropping the way it's dropping, we're somewhat hedged against the economic downturn."

Anderson also said if current fuel prices held through the quarter then Delta potentially could earn "a couple hundred million dollars" in profits. "Fuel dropping like a rock is a big offset to the economy," he said.

While Delta is upbeat about domestic prospects in November and December, American was less so. Both airlines reported less demand for international flights.

Meanwhile, American said it had placed orders with Boeing for the purchase of 42 new 787 Dreamliners, with options for another 58. The aircraft is expected to be 20 per cent more fuel-efficient than existing long-range jets. 

However, development of the plane is more than a year behind schedule, and production at Boeing is in limbo for more than a month because of a strike by the International Association of Machinists and Aerospace Workers.

American officials said they expect delays to be well behind Boeing by 2012, when the carrier expects to take delivery of its first planes.