From: Reuters
Published January 29, 2008 12:34 PM

Soaring jet fuel prices hamper airlines' results

By Kyle Peterson

CHICAGO (Reuters) - Northwest Airlines Corp <NWA.N>, AirTran Holdings Inc <AAI.N> and JetBlue Airways Corp <JBLU.O> all posted fourth-quarter losses on Tuesday as soaring jet fuel prices continued to weigh on major U.S. carriers.

But the airlines' shares rose on executives' optimistic comments that demand is holding strong despite the slowing U.S. economy. JetBlue, which said it sees sharp gains in passenger revenue, surged 16 percent.

The quarterly losses follow those posted in the last few weeks by American Airlines parent AMR Corp <AMR.N>; United Airlines owner UAL Corp <UAUA.O>; and Delta Air Lines Inc <DAL.N>, underscoring the industry's vulnerability to oil prices, which have come off peak levels but remain high.


"Fuel is the key issue," AirTran Chief Executive Bob Fornaro told Reuters in an interview. "The level of oil prices is even more important in the short run than even demand in the economy.

"That is something the whole industry feels, and we're all seeing a cost increase."

With the slowing economy threatening to stall demand and oil prices boosting costs, the airline industry is battling to rescue a recovery that began in 2006 by raising fares and reducing plans to increase capacity.

While airlines did a good job at reining in costs and boosting revenue in the fourth quarter, the future is still cloudy.

"We're seeing some good revenue increases," said Bill Hochmuth, an analyst at Thrivent Asset Management. "But given the economic outlook and the obvious reluctance of the low-cost carriers to raise fares, raising fares from here on will likely prove more difficult."


Northwest, the No. 5 U.S. airline, which exited bankruptcy last year, said it lost $8 million, or 3 cents per share, in the fourth quarter. A year earlier, when results were skewed by bankruptcy items, it lost $267 million.

Results for the fourth quarter included a $14 million pretax charge related to the sale of its remaining stake in regional carrier Pinnacle Airlines Corp <PNCL.O>. Excluding that charge, Northwest said it broke even for the quarter.

Wall Street analysts had expected the company to lose 8 cents per share, according to Reuters Estimates.

Northwest, which has been reported in merger talks with Delta, said revenue rose 3.9 percent to $3.1 billion. Its fuel expense rose 16 percent.

Northwest ended the quarter with $3 billion in unrestricted cash.


Low-cost carrier JetBlue said its quarterly net loss was $4 million, or 2 cents per share, compared with a profit of $17 million, or 10 cents per share, a year earlier.

Operating revenue totaled $739 million, representing growth of 16 percent. Operating expenses per available seat mile were up 4.5 percent to 5.4 cents, excluding fuel. Fuel prices rose 21 percent to $2.34 per gallon.

The company forecast that its passenger revenue likely would increase by 10 percent to 12 percent year-over-year in the current quarter, while its costs were seen rising 9 to 11 percent. Excluding fuel, the carrier said its costs were likely to decline as much as 2 percent in the quarter.

JetBlue announced plans to sell six aircraft this year and defer delivery of 16 new craft from 2010-2011 to 2012-2013 as it reins in expansion.

"It's a very smart move in this environment to curtail their growth rate and concentrate on where they fly now instead of opening new markets, which is expensive and risky," said Calyon Securities analyst Ray Neidl.

AirTran posted a wider-than-expected fourth-quarter loss, burdened by a 35 percent jump in its fuel bill.

AirTran, whose hub is in Atlanta, posted a net loss of $2.2 million, or 2 cents per share. Analysts' average forecast was a loss of 1 cent per share, according to Reuters Estimates.

But the latest quarterly loss was narrower than the loss of $3.6 million, or 4 cents per share, a year earlier, as the company raised fares and packed more passengers on its planes.

Shares of Northwest were up 3 percent at $18.51 in midday trade on the New York Stock Exchange, while AirTran shares rose nearly 4 percent to $8.78, also on the NYSE.

JetBlue shares jumped 79 cents to $5.73 on Nasdaq.

(Additional reporting by Chris Reiter in New York and John Crawley in Washington; editing by John Wallace)

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