=20 ---------------------------------------------------------------------- This article was sent to you by someone who found it on SF Gate. The original article can be found on SFGate.com here: http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2003/04/14/f= inancial1433EDT0131.DTL ---------------------------------------------------------------------- Monday, April 14, 2003 (AP) Airline earnings expected to be turbulent BRAD FOSS, AP Business Writer (04-14) 11:33 PDT (AP) -- The first quarter may turn out to be the worst three-month period ever f= or the major airlines, culminating a miserable two-year stretch marked by economic anemia, terrorism, two wars and the outbreak of a deadly mysterious virus. "The industry seems to get hit with one crisis after another," said Blaylock & Partners airline analyst Ray Neidl. With Continental, Delta and Northwest releasing earnings reports this week, Wall Street analysts are predicting quarterly losses of as much as $3.5 billion -- 40 percent worse than originally forecast. To put that into perspective, the nine largest U.S. airlines lost a combined $3.3 billion during the first complete quarter following the Sept. 11 attacks. Notwithstanding the impact of a new $3 billion federal aid package -- the second multibillion-dollar bailout for the industry in less than two years -- analysts recently lowered their earnings expectations for the second quarter, too, warning that an industrywide recovery might not arrive until sometime in 2005. The outlook remains grim for several reasons. The economy is still weak, with joblessness high and corporate earnings low, and that bodes poorly for any significant increase in spending by business travelers. The war in Iraq caused a sharp dropoff in European travel that has yet to rebound. And fear about the spread of SARS, or severe acute respiratory syndrome, has caused an even steeper decline in travel to Asia, where the flu-like illness is believed to have originated. Trans-Pacific travel had been a relative bright spot for the industry prior to the onset of SARS, but North American bookings to Hong Kong were down more than 85 percent one month after the World Health Organization advised in early March against travel to the region, according to an analysis of booking trends by Sabre Holdings' Airline Solutions consulting unit of Fort Worth, Texas. The extended travel slump has dragged United Airlines down, pushing the carrier into Chapter 11. While US Airways recently emerged from bankruptcy court in better shape, American Airlines could file for Chapter 11 as early as this week if its employees don't formally accept by Tuesday $1.8 billion in annual concessions that were tentatively agreed upon two weeks ago. Under the current gloomy conditions, experts said airlines must continue restructuring in three key areas: they need to lower labor costs, reduce service and simplify airfare pricing. "The pricing has fallen apart," said Michael Allen, chief operating officer at Back Aviation Solutions of New Haven, Conn. The problem, Allen said, is that the biggest airlines offer too many different fares for each flight, giving consumers the incentive to shop around for the cheapest seats available. That benefits low-fare carriers such as AirTran, JetBlue and Southwest. Allen said the big hub-and-spoke carriers need to convince consumers that their product is more convenient and more valuable than that of low-fare competitors, whose flight schedules are made up of city pairs that are not interconnected. Delta, meanwhile, aims to siphon away customers from AirTran and JetBlue with its Tuesday launch of Song, a new low-fare airline that will serve select East Coast markets. Despite widespread cost-cutting over the past year and a half, experts said the industry has to reduce operational expenses even further in the current low revenue environment. American and United are trying to squeeze billions of dollars in annual wage and benefits concessions from employees. If they are successful, the theory goes, employees at competing airlines would be hard-pressed not to accept similar changes. Another area where the industry has been slow to cut back, experts said, is in capacity. Even though demand is down, carriers have been reluctant to reduce service on the most competitive routes out of fear of losing market share, analysts said. The Air Transport Association reported last week that domestic traffic w= as down 15 percent for the week ended April 6, compared with a year ago. Capacity, though, was down just 5 percent. =20 ---------------------------------------------------------------------- Copyright 2003 AP