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Watch the trailer at: http://www.foxsearchlight.com/theclearing/index_nyt.html \----------------------------------------------------------/ Airlines Are Looking at a Long, Hot Summer April 15, 2004 By MICHELINE MAYNARD The airline industry is beginning to see what was supposed to be a promising year slip away, because of rising fuel costs, brutal competition - especially on cross-country routes - and its own lingering financial headaches. While no one is predicting this summer will be as bad operationally as the infamous "summer from hell" in 2000, when one of four flights was delayed, canceled or diverted, there are fears that a difficult season lies ahead. "In the past, a good summer could have paved its way to a break-even year; this summer, it probably won't," said Darin Lee, senior managing economist with LECG, a consulting firm in Cambridge, Mass. Problems are already appearing. Yesterday, Delta Air Lines said it lost $387 million in the first quarter, kicking off what analysts fear will be a string of poor quarterly results for major airlines. Some industry analysts say first-quarter losses could reach $1 billion or more for the carriers, even though traffic is rebounding to levels last seen before the September 2001 terrorist attacks. Delta's loss, though an improvement from its $466 million shortfall in the quarter last year, came as its cash dropped by $500 million in the quarter, to $2.2 billion. The performance was labeled "clearly unsustainable" by its chief executive, Gerald A. Grinstein, who took charge of the airline this year. Speaking to analysts and reporters, Mr. Grinstein repeatedly pushed for concessions from Delta's pilots, whom he called the "major boulder" blocking competitiveness. Delta is trying to win a 30 percent reduction in pay and benefits from its pilots, who have said they are willing to take a 9 percent cut and give up a wage increase scheduled for next month. But the pilots, whose contract expires in 2005, are not required to open negotiations before August. Yesterday, the pilots union said the company's bargaining stance did not lend itself to an early deal. Even if that happens, the airline may not get everything it is seeking, said Philip A. Baggaley, an airline industry analyst with Standard & Poor's Ratings Services, which downgraded Delta's debt last month. And little improvement is expected soon. While Mr. Grinstein has started a top-to-bottom strategic review, he said yesterday that Delta did not expect to present a restructuring plan to its board before late summer. Already, Delta and its competitors have been significantly affected by soaring prices for jet fuel. According to the Air Transport Association, the industry's trade group, each 1-cent increase in the price of fuel, now over $1 a gallon, costs the industry $180 million. Higher fuel prices are a reason that Continental Airlines is pulling back on its forecast of a break-even year. Like other major airlines, with the exception of Southwest Airlines, Continental did not hedge enough against higher fuel prices last year. Continental and its rivals tried several times this winter to raise ticket prices, only to rescind the increases when low-fare rivals refused to go along. "In this particular pricing environment, any of these costs we have not been able to pass on to the customer," Jeffrey J. Misner, Continental's chief financial officer, said. "Nothing sticks." Given that reality, airlines might be expected to rein in their operations, conserving fuel where they can by scheduling fewer flights and packing planes more fully. But the opposite is happening. In recent weeks, airlines have expanded their summer schedules, both domestically and internationally, hoping to lure vacationers. Nowhere is the battle for customers more intense than on transcontinental routes, long the purview of major airlines, which charged high prices and catered to customers willing to pay for legroom and luxury. But over the last year, low-fare airlines, including Southwest, JetBlue, America West and Frontier, have invaded the transcontinental market, with a visible impact on their operations. The average flight at JetBlue in the first quarter was nearly 1,300 miles, according to BACK Aviation, an industry consulting firm. Even Southwest, known for its short trips, has seen its average flight length climb 50 percent the past decade to about 600 miles, as it added trips between cities like Baltimore and Los Angeles. That is prompting the big airlines to fire back with fare wars, frequent-flier offers and extra flights of their own. As soon as JetBlue announced last month that it was introducing service between Sacramento and Washington Dulles airport, United reinstated the route after dropping it. United, which is in bankruptcy protection, also introduced a frequent-flier special this week, with double miles from selected cities to San Francisco and Los Angeles. Not to be outdone, Delta has an extra-miles deal for connecting flights through Dallas-Fort Worth, which is American's home base. American is a unit of AMR. Yet such offers only divert attention from the fact that customers are primarily interested in low prices, said Jan K. Brueckner, professor of economics at the University of Illinois. "There is hardly a more competitive industry out there," Professor Brueckner said. "There are fares that change on a minute-to-minute basis. You throw into the mix the low-cost guys and it's not going to be possible for them to make much money." With such a season on the horizon, the Federal Aviation Administration last month announced a plan to ward off summer delays. It calls for planes heading to congested airports to be held briefly on the ground, so that delays can be cleared before more traffic builds. Looming over all of the bad earnings news and passenger battles are security scares, which have lately been pushed to the background as the industry sorts through more immediate problems like fuel prices. That burden alone could guarantee another year of red ink or worse, according to Mr. Misner of Continental. US Airways, which emerged from bankruptcy last year only to encounter financial problems, has started a drive to slash its costs, while United, a unit of UAL, has yet to finalize its restructuring plan. "There are a number of carriers that are teetering on the edge, and this is one those things that could put them into bankruptcy or extinction," Mr. Misner said. http://www.nytimes.com/2004/04/15/business/15air.html?ex=1083036336&ei=1&en=ffe503e840524257 --------------------------------- 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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