OAG Travel News

The airlines' struggles with the high cost of jet fuel and the weakening economy hit home Wednesday with both the AMR Corporation, the parent of American Airlines, and Delta Air Lines reporting losses in the second quarter.

In Fort Worth, American Airlines said it had a loss, including one-time charges, of $1.45 billion, or $5.77 a share, compared with a profit of $317 million, or $1.08, in the period a year ago. Without the one-time charges, American said its loss was $248 million, or $1.13 a share.

Revenue rose 5.1 percent, to $6.18 billion.

In Atlanta, Delta reported a loss of $1.04 billion, or $2.64 a share compared with a profit of $1.59 billion a year ago in the quarter a year ago.

Much of the loss came as the result of one-time charges of $1.2 billion. Excluding those special charges, Delta said it had net income of $137 million or 35 cents a share compared with $274 million in the period a year ago. On that basis, analysts polled by Thomson Financial expected a profit of 10 cents.

"It was better than we thought - quite a bit better," Michael Derchin, an analyst for FTN Midwest Securities, said of Delta.

Derchin said Delta was helped by a "pretty good" fuel hedging program and from fees for checked luggage.

"Nobody ever paid attention to other revenue up until now," Derchin said, adding that passenger fees were $170 million more than he had expected. "That's one we haven't got a handle on yet, so I think it's that line is going to be better for every airline."

The airline, which in April agreed to merge with Northwest, said its revenue rose 10 percent to $5.50 billion from $5 billion in the period a year earlier. Airlines like Delta have been hit hard by higher fuel prices. Oil prices, which closed at $138 a barrel on Tuesday, have doubled in the last year, and Delta has estimated it will pay an extra $4 billion for fuel this year.

Delta said it hedged nearly half of its fuel consumption during the second quarter, leading to an average fuel price of $3.13 a gallon, a 50 percent increase from last year when it paid $2.09 a gallon.

AMR said it paid $2.42 billion for fuel in the quarter, up 47.4 percent from $1.64 billion in the quarter a year earlier.

Delta which is based in Atlanta, said the $1.2 billion in one-time charges stemmed from a goodwill write-down, employee buyouts and the closing some airport operations. The amount includes a $1.1 billion non-cash charge, $96 million in severance costs and $6 million for facilities restructuring.

Delta also said that it expected to cut overall capacity in the second half of 2008 by 4 percent - domestic capacity will be reduced by 13 percent, but the airline will increase international capacity by 14 percent.

The airline said its mainline revenue passenger miles - or one paying passenger flown one mile - grew 2.9 percent from last year as the number of available seats rose 2.4 percent.Delta is waiting for its shareholders to vote on a possible merger with Northwest Airlines that, if approved, would create the world's largest carrier. Both airlines filed for Chapter 11 protection in 2005, when fuel prices spiked in the wake of Hurricane Katrina and emerged last year.

In June, negotiators for pilots at Delta and Northwest Airlines said that they had a tentative agreement with Delta management on a joint contract to cover both pilot groups when the companies combine.

Source: http://www.iht.com By: Abha Bhattarai