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Analysts See Little Relief in Airline Slump

From Reuters

Generally disappointing May air traffic figures and fare cuts have dimmed airline hopes for a return to profitability in the second quarter, industry analysts said Tuesday.

After a dismal first quarter, when a group of major carriers posted combined operating losses of $600 million, many airlines were banking on an improvement in second-quarter traffic to boost profits. Lower oil prices were expected to reduce fuel costs in the second quarter, but that may not be enough to turn around results, analysts said.

“The airlines got a tremendous break on fuel costs, but that’s old news,” said Mark Daughtery of Dean Witter Reynolds, who last week recommended that his clients take profits in selected airline stocks. “It won’t be enough to help profits because of weak traffic and fares.”

Revenue passenger miles in May were hurt by continued heavy competition in the industry and drop-offs in international travel, particularly to southern Europe, because of fears of terrorism.

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Looking beyond the softness in May traffic, analysts said the return to stronger summer traffic patterns--at higher, more stable prices--did not seem to be materializing.

“I have a sense that traffic really isn’t as good as it ought to be at this point,” said Hans Plickert, who follows airlines for E. F. Hutton.

Plickert said carriers were exposing themselves to additional problems by slashing transcontinental fares during a period when traffic is supposed to be strong at full prices. Trans World Airlines and Pan Am recently cut crosscountry fares to as low as $99.


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