UAL may help push U.S. air carriers to $1 billion 2Q loss

United Airlines parent UAL Corp., Continental Airlines Inc. and other major U.S. carriers may have combined losses of $1 billion, their seventh straight quarterly deficit, as the recession curbs business travel and fares.

Second-quarter losses at the eight biggest U.S. airlines may be $1.2 billion, said Michael Linenberg, a Bank of America Corp. analyst in New York. Michael Derchin of FTN Equity Capital Markets Corp. in New York projects a $1 billion deficit for the nine largest companies, which start reporting results tomorrow.

The losses show the strain of dwindling revenue as carriers failed to lure back corporate travelers, the most-profitable passengers, while the H1N1 flu damped demand for business and leisure trips. Jet-fuel prices also climbed 32 percent in the quarter.

"It's putting the airlines in a squeeze," said Philip Baggaley, a Standard & Poor's analyst in New York. "Normally they would expect that high fuel prices would accompany a strong economy, so at least they'd be generating good revenue. But they're getting the worst of both worlds now."

American Airlines parent AMR Corp. reports results tomorrow, followed by Continental, UAL and Southwest Airlines Co. on July 21, Delta Air Lines Inc. and Orlando, Florida-based AirTran Holdings Inc. July 22, and JetBlue Airways Corp. in New York, US Airways Group Inc. and Seattle-based Alaska Air Group Inc. July 23.

Limited Fuel Fallout

The $1.59-a-gallon average for jet fuel last quarter was still 58 percent less than a year earlier. While some airlines locked in some of their needs at higher prices when fuel reached a record $4.36 a gallon in 2008, fallout from wrong-way hedges is limited, said Hunter Keay, a Stifel Nicolaus & Co. analyst.

"There are so many other things I'm more concerned about, like revenue and the economy," said Keay, who is based in Baltimore.

Yield, or average fare per mile excluding taxes, has fallen each month this year, led by a 16 percent decline in May, according to the latest figures available from the Air Transport Association.

U.S. carriers said they have pushed through just two domestic price increases this year, both in June. Yield on trans-Atlantic flights tumbled 22 percent in April and 24 percent in May.

Reduced fares filled planes with vacationers flying economy class while failing to persuade recession-wary companies to increase travel spending. A first- or business-class ticket generates as much revenue as eight or 10 coach fares, said Robert McAdoo, an analyst with Avondale Partners LLC.

Business Travel

"If a business has decided not to send employees to Europe, a sale on the price of a business-class ticket doesn't really change the business's policy," said McAdoo, who is based in Prairie Village, Kansas.

Southwest, which doesn't fly outside the U.S., is the only carrier among the six biggest that analysts expect to report a profit. The earnings would end three straight quarterly losses that were the first since 1991 for the Dallas-based airline.

The flu outbreak reduced demand, prompting Continental and other international carriers to trim Mexico flights. Continental said May revenue slid by about $30 million, with Tempe, Arizona- based US Airways forecasting about $20 million in lost revenue.

Delta, the world's largest carrier, said the flu wiped out about $150 million in second-quarter revenue, much of it in Asia.

Worsening Results

Results worsened as the quarter progressed. Continental said revenue for each seat flown a mile fell at least 20 percent in May and June, worse than a 12 percent drop in April.

"The second quarter was weaker than investors hoped," said Matthew Jacob, a Majestic Research LLC analyst in New York.

The Bloomberg U.S. Airlines Index of 13 carriers has tumbled 44 percent this year, paced by a 74 percent plunge for US Airways and a 70 percent drop for Chicago-based UAL.

Airlines may announce further cuts in seating capacity for after the U.S. Labor Day holiday as demand wanes, said McAdoo and Keay.

Delta, based in Atlanta, said in June it will cut 5 percent more international flying and must "reassess staffing needs," and AMR will shrink capacity by an additional 1 percentage point to 7.5 percent for the year as it sheds 1,600 more jobs.

Continental is cutting capacity 6 percent instead of its previous target of 5 percent, and the carrier has asked as many as 700 flight attendants to take leaves. The Houston-based carrier said today it expects to report $44 million in one-time charges for the second quarter for reducing the value of some Boeing 737 planes and parts and selling jets.

US Airways said today it will eliminate 600 ground jobs, after last month's request for 400 attendants to go on leave.

'Cut More'

"It's absolutely necessary that they cut more because once the summer travel season is over, business travel's not bouncing back this year," Keay said.

U.S. carriers have eliminated 31,700 jobs and parked more than 500 jets since the start of 2008 as they prune operations. Traffic at the six biggest domestic airlines has declined for 13 straight months.

Analysts say they plan to watch cash reserves at the airlines, particularly at companies with debt maturing in the next year. Fort Worth, Texas-based AMR amended loan terms last quarter, while UAL sold $175 million of three-year debt.

"It's probably going to be roughly a cash-neutral quarter, when it should be the strongest quarter for generating cash," Keay said.