Airlines' earnings surprise

2 BWI

Southwest profit higher

US Airways loss is greater

January 18, 2002|By Paul Adams | Paul Adams,SUN STAFF

The top two airlines serving Baltimore-Washington International Airport defied industry earnings expectations yesterday - with one reporting a stronger-than-anticipated fourth-quarter profit and the other reporting a slightly bigger-than-expected loss.

Meanwhile, analysts said overall airline results indicate the worst may be over as the battered industry begins to show signs of recovery after the Sept. 11 terrorist attacks.

Dallas-based Southwest Airlines, BWI's dominant carrier, reported net income of $63.5 million, or 8 cents per share, in the fourth quarter, making it the only one of the nation's nine largest airlines to report a profit for the last two quarters.

The results are off 60 percent from the $154.7 million profit the airline reported in fourth-quarter 2000, but are ahead of Wall Street estimates ranging from a profit of 3 cents per share to a loss of 7 cents.

As rattled air travelers stayed home last fall, revenue at Southwest dropped to $1.24 billion, compared with $1.47 billion in the fourth quarter of 2000.

Analysts say the airline has actually gained market share from rivals in the past three months, capturing customers left behind as US Airways cut service to BWI by 60 percent.

"They came in a little better than expected," said Ray Neidl, an airline analyst with ABN Amro. "I look for them to resume their normal growth of 12 percent by the end of the year."

Southwest shares closed up 39 cents yesterday to $17.90 per share.

By contrast, financially struggling US Airways, the second-biggest carrier at BWI, reported a fourth-quarter net loss of $1.01 billion, or $14.89 per share, as revenue fell by about a third to $1.57 billion, down from $2.35 billion a year earlier.

Excluding one-time charges and other special items, the loss was $552 million, or $8.16 per share, compared with a loss of $89 million, or $1.33 per share, in the corresponding quarter of 2000.

The average estimate of Wall Street analysts polled by Thomson Financial/First Call was for a loss of $7.54 per share.

The Arlington, Va.-based airline was among those affected the most after the terrorist attacks, which prompted federal regulators to restrict traffic at its hub at Washington's Reagan National Airport. Regulators are allowing flights to resume at Reagan gradually, but the restrictions have hampered some of US Airways' most profitable routes.

"US Airways was the only carrier that has done worse than expectations," said Neidl, referring to better-than-expected industry results reported this week.

US Airways shares closed down 41 cents, or 7.3 percent, to $5.20 per share.

US Airways' troubles continue even as Northwest Airlines, AMR Corp.'s American Airlines and Continental Airlines all reported fourth-quarter losses that were less severe than Wall Street expectations, lending momentum to predictions of a rebound in the second half of this year.

The three combined for more than $1.2 billion in losses despite a federal airline bailout that included $5 billion in cash and $10 billion worth of loan guarantees.

In a conference call with analysts, US Airways officials said they have made strides in cutting costs and restructuring routes as a result of the crisis gripping the industry after Sept. 11. The airline has eliminated 10,200 employees, closed its Baltimore-based MetroJet division and mothballed four types of aircraft in an effort to simplify its fleet.

"For all of the wrong reasons, in 2002 we have quite dramatically improved our company's business platform," said Stephen M. Wolf, US Airways' chairman and chief executive officer.

The airline expects to report another large loss in the first quarter of 2002 as it continues to burn through about $3 million a day - an improvement over the $7 million daily cash burn through much of the fourth quarter. However, the airline expects to report positive cash flow in the second quarter and still has $1.08 billion worth of cash reserves to see it through the crisis.

Wolf remains optimistic even as some analysts openly question whether US Airways can continue to avoid bankruptcy while experiencing such massive losses.

"We have no plans, intentions or thoughts of going into bankruptcy," Wolf said. The airline also said it has no plans to apply for a federal loan.

Jon F. Ash, a Washington aviation consultant, agrees that US Airways has made progress and can avoid bankruptcy in the near term. But he joins other industry experts in saying that US Airways has structural problems that go beyond the crisis precipitated by Sept. 11.

"They'll be able to create a bit of a turnaround as long as the economy runs in the right direction," he said. "That doesn't necessarily mean they are viable in the long run."

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