Airline Profits May Get a Lift in Quarter

Airlines will likely have weak first-quarter earnings, as they usually do, but company results may be given a lift by fare increases and declining fuel costs, industry analysts said.

Higher air fares, which began inching up last month and will rise again next week at the instigation of Texas Air Corp.’s Continental Airlines, should offset normally slack wintertime travel.

“It’s typically a money-losing quarter,” said Louis Marckesano of Janney Montgomery Scott Inc., Philadelphia.

Fuel Costs Down

More travelers took trips than usual to qualify for the airlines’ enhanced frequent flyer programs, where heavy travelers earn free trips by amassing mileage. Participants were given triple mileage awards in the popular programs this year.

Kevin Murphy of Morgan Stanley & Co. said: “The first quarter will be a mixed bag. In the second and third quarters you’ll really start getting the best of both worlds” from higher fares and lower fuel costs.

This year’s slide in oil prices has cut fuel costs for the airlines, analysts agreed.

“The initial expectation was that earnings would be down industrywide in the first quarter,” said Timothy Pettee of Bear, Stearns & Co. “But now we’re looking at flat comparisons, with some bright spots and some weak spots.”

Despite most analysts’ optimism, Janney Montgomery’s Marckesano sees the industry’s losses widening in the first quarter to about $370 million from $305 million in 1987.

“As the airlines get bigger, the first-quarter losses get bigger,” he said.

He says that first-quarter traffic and fares will not support the large systems the airlines have built to capitalize on heavy spring and summer travel.

“Some of the benefit from the fare increases falls into March, but not much. Most will fall into the second and third quarters,” he said.