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Airline 2Q earnings tumble
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July 21, 1999: 2:40 p.m. ET
Sluggish sales growth hits profits at two largest U.S. carriers; TWA posts loss
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NEW YORK (CNNfn) - United Airlines and American Airlines posted sharp falls in profits Wednesday as the end of the major carriers' second quarter reporting season confirmed that the five-year bull run in carrier profits is over.
US Airways also posted a drop in earnings after a series of profit warnings while TWA remains mired after a larger than expected loss.
"This was the fourth consecutive quarter of declining operating earnings and also the fourth when expense growth has outstripped revenues," said Ed Greenslet, chairman of Miami-based independent airline consultant ESG Aviation Services.
United parent UAL Corp. said its fully distributed net earnings fell to $349 million before extraordinary items, compared to $418 million last year. Fully distributed earnings were $2.86 per share -- ahead of the consensus estimate of $2.66 per share -- compared to $3.24 in 1998.
Operating earnings also dipped sharply, to $615 million from $702 million, as the carrier struggled to implement a new fare management system. It said the system is now operational.
Operating revenues rose to $4.54 billion from $4.44 billion, an increase of 2.2 percent. Total capacity climbed 3.6 percent, but United managed to squeeze a 0.9 percent rise in yield, the passenger revenue for each mile traveled.
UAL (UAL) shares advanced 2-1/16 to 64-9/16 in Wednesday morning trade.
Shares firm after sell-off
Airline shares have broadly firmed this week despite the downbeat assessment of traffic and revenue growth, with net earnings buoyed by one-time gains from non-core asset sales.
United and US Airways both benefited from the sale of their stakes in computer ticket reservation service Galileo International. Continental Airlines' (CAL) net was boosted by its sale of priceline.com.
American's parent, AMR Corp., said its second quarter net earnings fell to $288 million from $409 million during the same period last year. American said it was still recovering from its pilots' strike in February.
The result equated to $1.70 per diluted share, down from $2.30 in 1998. Analysts had expected $1.66, according to First Call.
Passenger revenues in the quarter dipped 1 percent to $3.751 billion, though total sales advanced 1.8 percent to $5.011 billion. Total expenses grew by 7.2 percent.
American Airlines president Don Carty said the result was still the second-highest earnings for the quarter in American's history.
AMR (AMR) shares advanced 1/2 to 70.
After the peak
The results from the two largest carriers take operating earnings for the 10 major carriers to $6.8 billion for the quarter, down from the peak of $8.1 billion in the second quarter of last year, Greenslet said. "The main problem is yield -- the average revenue for each passenger carried," he said. "This fell 1.3 percent industry-wide in the last quarter while aircraft load factors also fell."
Loads climbed to historical peaks over the last two years but have slipped back as new capacity has been added. Airlines added 4.3 percent more seats last quarter while passenger traffic grew only 3 percent.
US Airways' results arrived in line with forecasts, though the sixth-largest carrier had been difficult to call after a series of profit warnings for the second, third and fourth quarters, as well as a rapid expansion.
Earnings, excluding a $274 million one-time gain, came in at $1.83 per share as profits reached $136 million, compared to $194 million a year ago. Operating revenues dipped to $2.29 billion from $2.30 billion
The one-time gain, worth $181 million after taxes, was due mainly to the sake of the airline's stake in Galileo.
US Airways ' (U)stock put on 7/16 at 40-15/16.
Trans World Airlines slumped to a $12.07 million loss in its second quarter compared to a net profit of $13.63 million in the same period last year. The 18 cent loss per diluted share compared to a profit of 21 cents a share last year. The consensus estimate had called for a 12-cent loss.
Total revenue fell to $865.99 million from $883.54 million in the last quarter.
TWA (TWA) stock dipped 1/8 to 4-5/8.
A raft of carriers including Delta (DLA), Continental and Northwest (NWA) beat the Street earlier this week after stronger-than-expected revenue growth in the second quarter. Only low-cost Southwest (LUV) failed to beat the Street despite being the only carrier to consistently improve earnings.
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