The first quarter financial results for US carriers were an improvement over the previous quarter, but still among the worst ever recorded.

The US majors ended the March quarter showing a loss of some $2 billion before special items and netted closer to $2.5 billion including a handful of charges and accounting changes. In the words of UBS Warburg analyst Sam Buttrick, you can view the result either as great improvement on the $3 billion lost in the final quarter of 2001, or as the third worse loss in history. The second was notched up in the June quarter last year when the precipitous decline in business traffic began.

Once again Southwest Airlines took its reserved place as the sole moneymaker, although at $21 million it earned its lowest quarterly profit since 1995.

At the other end of the spectrum both the American and United Airlines groups managed red ink of around the $500 million mark. United's was the seventh straight deficit in a row. While an abysmal result, United's revenues did not fall as sharply as in the December quarter, with domestic unit revenue down by only 13% against a 22% drop at the end of last year.

The majors overall saw passenger yields come down by nearly 13% in the quarter, suggesting that the bottoming out in the traffic losses are being stimulated at the expense of fares. Traffic came in for the quarter at just under 11%, which helped load factors to edge up above 70%. More modest was a 1.6% cut in seat costs.

Financial analysts polled by First Call, a Wall Street service, see about $1 billion in industry losses in the second quarter, with only Southwest and Continental Airlines as likely moneymakers. Continental lost $166 million in the quarter as yields fell by almost 15%, although it made a $25 million profit in March. Continental chief executive Gordon Bethune is wary of predicting profit before the third quarter, though, and he blames low fares. "The business people are on the plane but business fares have declined," he says. Bethune also blames the chronic culprit of overcapacity; Continental had anticipated a 15% decrease in industry capacity but pegs the real drop at about 8%.

That takes care of two of the usual suspects, low fares and capacity. Add fuel costs, and the whole gang is there, but some add a new worry: insurance costs. Delta's Leo Mullin told analysts that liability insurance could reach $1.7 billion for the industry this year. "We need to find an industry answer to the huge rise in war-risk costs."

Source: Airline Business