This article from NYTimes.com has been sent to you by psa188@xxxxxxxxx /-------------------- advertisement -----------------------\ Explore more of Starbucks at Starbucks.com. http://www.starbucks.com/default.asp?ci=1015 \----------------------------------------------------------/ A Summer Uptick for the Airlines, but Then What? September 11, 2003 By MICHELINE MAYNARD Airline stocks jumped yesterday, continuing a rally in which some shares have doubled or even tripled in value this year. The latest gains were driven by analyst forecasts of even better days ahead. But other experts warned that many of the industry's fundamental problems - particularly a shortage of business travelers - have not gone away, and many airlines face a grim autumn. Strong summer traffic helped airlines to fill more of their seats, prompting a J. P. Morgan analyst, Jamie Baker, to reverse his prediction that the airlines would post a collective $150 million operating loss for the third quarter. Instead, Mr. Baker said in a research report issued yesterday that he expected the industry to earn an operating profit of that amount for the third quarter. That would be the first time the airlines have been in the black on operations since the terrorist attacks in September 2001. But Robert W. Mann Jr., an airline analyst based in Port Washington, N.Y., emphasized that such a performance would be a deviation from the norm. "Third-quarter earnings are fine," Mr. Mann asked. "But are they sustainable? There's nothing on the world stage that would convince me that things are any more secure or predictable than they were two years ago." Some airlines are handling the unpredictable better than others. Yesterday, Mr. Baker gave a nod to Northwest Airlines, adding it to the J. P. Morgan "focus list" of companies. As a result, Northwest rose 27 cents, or about 2.6 percent, to $10.64, in active trading. Over all, Northwest has risen 45 percent this year. Last month, Northwest said it filled 82.6 percent of its seats, the second-highest so-called load factor among major airlines, behind JetBlue at 91.6 percent, according to the Department of Transportation. Load factors have climbed in part because the airlines have reduced service and taken many aircraft out of service, meaning fewer seats are available. In a boost to another company, a Morgan Stanley analyst, William Greene, raised his rating on Southwest Airlines to "outperform" from "equal-weight volatile," saying that Southwest shares had not kept up with the increases in other airlines' stocks in the last few weeks. Southwest gained 48 cents, to $18. It has risen 30 percent since the end of last year. American Airlines, which is owned by the AMR Corporation, and the UAL Corporation's United Airlines were also given a modicum of good news. Standard & Poor's said that a ruling by a federal judge allowing lawsuits against the carriers by families of victims of the attacks on the World Trade Center and the Pentagon would not hurt their credit ratings. In fact, despite his optimism, Mr. Baker said he expected only one major airline, Continental, to earn money in the third quarter. Continental's stock has more than doubled this year. He predicts that the other traditional airlines, American, Delta and Northwest, will lose money. (He does not follow United Airlines, which filed for Chapter 11 bankruptcy protection in December.) The industry's operating profit, he said, will come primarily from the performances of low-fare airlines, including Southwest and JetBlue, and regional services like Atlantic Coast Airlines, ExpressJet and SkyWest, he said. These airlines' stocks have posted the biggest gains, led by America West, which has quadrupled this year. Mr. Baker added that he did not expect business travel, the crucial component of autumn airline business, to pick up this fall. That is the main reason other analysts do not believe that the industry's third-quarter results will be repeated in the fourth quarter or into next year. Kevin P. Mitchell, chairman of the Business Travel Coalition, said business travelers and corporate travel departments, which he represents, had shifted a significant portion of their bookings away from major companies and given increased business to low-fare airlines. Preliminary results of a survey of corporate travel managers showed that 71 percent increased their bookings on low-fare carriers this year, Mr. Mitchell said. Moreover, 71 percent said they had substituted technology, like teleconference meetings or telephone calls, for travel. Mr. Mitchell said most people who responded to his survey felt that the slump in business travel had bottomed out. But he added that an industry recovery could not take place if only low-fare airlines prospered. With no profits at the major companies, "that's like putting perfume on a pig," he said. Mr. Baker, in his research report, estimated that there were now more than 600 destinations across the country that feature walk-up round-trip fares of $299 or less, thanks to the proliferation of low-fare carriers. There will always be isolated markets, like Scranton, Pa., where airlines can get away with charging high fares. But, Mr. Baker said, "people don't want to go to Scranton, at least not enough of them." http://www.nytimes.com/2003/09/11/business/11PLAC.html?ex=1064293727&ei=1&en=ae111751cec40c83 --------------------------------- Get Home Delivery of The New York Times Newspaper. Imagine reading The New York Times any time & anywhere you like! Leisurely catch up on events & expand your horizons. Enjoy now for 50% off Home Delivery! 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