American, Continental show a profit

Airlines' earnings in 2nd quarter at least double Street estimates

July 21, 2005|By James F. Peltz | James F. Peltz,LOS ANGELES TIMES

After four years of huge losses, the parent of American Airlines yesterday posted its largest quarterly profit since the 2001 terrorist attacks sparked an industrywide financial crisis that most carriers are still struggling to overcome.

Continental Airlines Inc. also reported a second-quarter profit, and both airlines attributed the black ink to aggressive cost-cutting, efficiency gains, strong passenger traffic and slightly higher fares.

But the earnings, while ahead of Wall Street's expectations, were modest. And both companies said they continued to battle soaring fuel costs, stiff competition and ticket prices that, while higher, are still historically low.

"Our challenges remain great," Gerard J. Arpey, chairman of American parent AMR Corp., said in a conference call with analysts. He noted that American's second-quarter fuel bill soared by $434 million, or 47 percent, from a year earlier even as the nation's largest airline consumed 1.7 percent less fuel.

Indeed, earnings remain the exception in the airline business. Several other major U.S. carriers continue to suffer losses, including Delta Air Lines Inc. and Northwest Airlines Corp., which have yet to report second-quarter results.

Two others, UAL Corp.'s United Airlines and US Airways Group Inc., which has agreed to merge with America West Holdings Corp., remain in Chapter 11 bankruptcy protection. Even at Continental, "we still expect to have a substantial loss for this year" despite the profitable second quarter, Jeff Misner, the airline's chief financial officer, said in a conference call.

The industry "is starting to come up out of the trough," said Jon Ash, a principal at InterVistas GA2, an aviation consulting company in Washington. But high fuel prices, along with substantial labor expenses at airlines such as Delta and Northwest, "remain a very tough nut to overcome," he said.

Still, the reports from Fort Worth, Texas-based AMR and Houston-based Continental, the fifth-largest U.S. airline, provided notes of optimism that haven't been heard for years in the airline industry, which has lost $32 billion since the Sept. 11 attacks.

AMR reported a net profit of $58 million, or 30 cents a share, for the three months ended June 30. That was well above the Wall Street forecast of 15 cents.

A year earlier, AMR posted net income of $6 million, or 3 cents a share, but that included a one-time gain of $31 million. Excluding the gain, AMR lost $25 million. Revenue rose 10 percent to $5.3 billion from $4.8 billion. AMR has posted only one other quarterly profit since 9/11 - $1 million in the third quarter of 2003.

Passenger traffic, having finally returned to its pre-Sept. 11 levels industrywide, "is very strong" and advance bookings in the current quarter are also robust, Arpey said.

Before the second quarter, AMR had lost nearly $7 billion since Sept. 11, and two years ago it was on the brink of filing for Chapter 11 itself. Then it promoted Arpey to CEO, and the airline has since undergone an extensive streamlining that, combined with $1.8 billion in wage-and-benefit concessions from labor, have made it profitable again.

AMR's stock rose 24 cents to $14.47 yesterday and Continental's shares gained 20 cents to $15.90.

Continental said its second-quarter profit was $100 million, or $1.26 a share, compared with a loss of $28 million a year earlier. Its revenue rose nearly 12 percent to $2.9 billion from $2.6 billion.

Excluding a one-time gain related to pensions, Continental said its latest profit was $53 million or 69 cents a share, far higher than the 20 cents forecast by analysts. The results "bode well for the [airline] sector near term," analyst Jamie Baker of J.P. Morgan Securities Inc. said in a note to clients.

But serious problems remain. American and other large airlines continue to struggle against the growing presence of lower-cost discount rivals such as Southwest Airlines Co. and JetBlue Airways Corp.

And while American and Continental have made strides in lowering their operating costs, notably their labor expenses, other airlines such as Delta and Northwest are struggling to do the same and still maintain harmony with their employees.

The Los Angeles Times is a Tribune Publishing newspaper.

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