July 17, 2008

Big Losses at 2 Airlines Fuel Takes a Toll on Delta and American

By Abha Bhattarai

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

American Airlines said that, including one-time charges, it lost $1.45 billion, or $5.77 a share, compared with a profit of $317 million, or $1.08 a share, a year earlier. Without the charges, American said its loss was $248 million, or $1.13 a share. American's revenue rose 5.1 percent, to $6.18 billion.

Delta reported a loss of $1.04 billion, or $2.64 a share, compared with a profit of $1.59 billion a year earlier. Much of Delta's loss came from 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 a year earlier. On that basis, analysts polled by Thomson Financial expected a profit of 10 cents a share.

"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 that line is going to be better for every airline."

Delta, which in April agreed to merge with Northwest, said its revenue rose 10 percent to $5.5 billion from $5 billion in the period a year earlier.

Airlines have been hit hard by fuel prices. Oil prices have doubled in the past 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, or 83 cents a liter, a 50 percent increase from last year, when it paid $2.09 a gallon

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

Delta said the $1.2 billion in one-time charges stemmed from a goodwill write-down, employee buyouts and the cost to close 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 it expected to cut overall capacity in the second half of 2008 by 4 percent. Delta's 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, or 1.6 kilometers - rose 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 merger with Northwest Airlines that, if approved, would create the world's largest carrier. Both airlines filed for bankruptcy protection in 2005, when fuel prices spiked in the wake of Hurricane Katrina, and they emerged from the filing 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.

Originally published by The New York Times Media Group.

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