American Loses Record $1 Billion in ’92 : Airlines: Last year stands to rank as one of the worst in history for the beleaguered industry.
Plagued by costly air fare wars and special charges against earnings, American Airlines on Wednesday reported a staggering loss of nearly $1 billion for 1992, which stands to rank as one of the worst years yet for the long-struggling airline industry.
Despite the record 1992 loss, the nation’s largest carrier remains strong and is expected to at least break even this year, industry analysts say. But the turnaround will come only after American’s parent company slashes costs and retrenches in the face of slow growth and intense competition.
“We simply cannot have another year like 1992,” said American Chairman Robert L. Crandall in a statement. “Although the economy has recently shown some signs of strength, we think much of the recent optimism is unwarranted. As a result of our concern about the outlook for profitability, we have cut more than $300 million from anticipated 1993 spending and continue to look for other solutions to our earnings dilemma.”
Much of American’s 1992 loss of $935 million reflects changes in accounting rules that require companies to account for retiree medical and life insurance benefits. In addition, the nation’s largest carrier set aside $213 million to cover the costs of scrapping a computer reservation system being developed for hotels and rental car agencies.
However, even after excluding one-time charges, American lost $278 million on revenue of $14.4 billion last year, according to the preliminary results. In 1991, the Dallas-based carrier reported a loss of $241 million and revenue of $12.89 billion.
For the 1992 fourth quarter, losses totaled $200 million for the three-month period ending Dec. 31, versus a $125-million loss during the same quarter of 1991.
On the New York Stock Exchange, American’s stock fell 75 cents to close at $67.125 a share.
“Historically, investors have looked to American Airlines for leadership in one of the world’s most difficult industries,” said airline industry analyst Samuel C. Buttrick at Kidder, Peabody & Co. “They are understandably disappointed when American, by its own accord, under-performs its own competitors.”
American and its competitors in 1992 struggled through the third year of an industry slump marked by an abundance of unfilled seats, costly fare wars and a limp domestic economy. In addition, American was hurt by its “Value Pricing” plan, which cut fares in a gamble to stimulate travel. But American lost the bet and an estimated $200 million in revenue.
American boarded a record number of passengers last year--nearly 21 million. But the rise in traffic was not enough to offset the cheaper fares and increased operating costs.
The airline industry had expected to return to profitability in 1992 after two years of losses. Instead, the airlines’ nose-dive continued and industry losses are expected to total $2 billion for 1992, according to Aviation Weekly, an industry trade publication.
There are some glimmers of hope this year. Airlines have been able to hike underlying fares--despite frequent sales--in recent months while airline fuel prices have fallen.
The industry will not experience substantial relief until the huge inventory of unsold seats is reduced, Buttrick said. With less seats to fill, airlines would be under less pressure to slash fares and profits.
However, only a few hours before American Airlines held a press conference to discuss its financial results, America West Airlines announced a 30% cut in vacation fares.
