$1.4-Billion Loss Likely at Airlines
American Express Co. created an Internet site to help corporate clients such as Aetna Inc. book cheaper airline tickets--and the largest U.S. travel agent had a “giant spike” this year in its online reservations.
Business travelers found new ways to cut flying costs as the economy waned, and U.S. carriers are paying the price. AMR Corp.’s American Airlines, UAL Corp.’s United Airlines and other U.S. carriers are expected to lose $1.4 billion in the second quarter, ended June 30, Salomon Smith Barney estimated.
“When businesses have difficult years, one of the first things they cut is their travel budgets,” said Douglas Parker, chief executive of America West Holdings Corp. “When things start getting better, they don’t immediately restore them.”
Carriers slashed fares after the Sept. 11 attacks to win back passengers and cut costs by laying off workers, trimming capacity and deferring plane deliveries. Passenger traffic remains 10% to 12% below year-earlier levels, with revenue about 20% lower, said David Swierenga, chief economist for the Air Transport Assn. trade group.
Only discounter Southwest Airlines Co. is expected to post a second-quarter profit among the nine largest U.S. carriers based on miles flown by paying passengers. Dallas-based Southwest, which is the largest carrier by market value and is popular with leisure travelers, is expected to earn about 11 cents a share, based on the average forecast in a Thomson First Call poll of analysts.
The unprofitable second quarter follows losses of $2.4 billion in the first quarter and a record $7.3 billion last year.
Business passengers generally pay higher fares for tickets bought just before travel and with few restrictions, and some large carriers depend on such fares for much of their revenue.
With fares at lower levels, even the busy summer travel season isn’t expected to boost revenue much for airlines.
Now, more businesses are using the Internet, discount airlines and earlier ticket purchases to hold down costs.
Use of American Express’ corporate-client Internet site doubled from January to May to 10% of the agency’s transactions, almost reaching the year-end target. “We’ve seen a giant spike in interactive travel reservations by our customers,” spokeswoman Melissa Abernathy said.
Most U.S. carriers will report their second-quarter results next week. The deepest losses are expected at United Airlines, the world’s second-largest carrier, at $7.13 a share, and at US Airways Group Inc. at $3.20 a share, based on the average First Call forecasts.
