Carriers Slash Fares as UAL Posts Big Loss
A nationwide fare sale broke out Friday even as United Airlines parent UAL Corp. posted a huge second-quarter loss, capping a $1.4-billion total quarterly loss for the major carriers that they largely blame on falling ticket prices. UAL and other airline stocks plunged as a result.
Near-bankrupt US Airways Group Inc. launched the sale Thursday, and industry leader American Airlines, a unit of AMR Corp., then expanded the promotion to almost its entire domestic system, analysts said.
American’s move then was matched by United, Northwest Airlines Corp., Continental Airlines Inc. and others, with prices cut 35% or more depending on the route.
The sale, although good news for consumers, indicates that American and others aren’t pleased with advance bookings going into the fall. But it left some analysts baffled about why airlines are slashing fares--even for a brief period--when they’re suffering enormous losses. The current sale requires tickets to be bought by Thursday for travel before Oct. 1 on domestic routes.
“This is bizarre,” said Bob Jones, an analyst with the online travel site OneTravel.com. “For consumers, it means a temporary gain, but eventually some of these carriers are going to go belly up if this nonsense doesn’t stop.” American declined to comment.
United’s round-trip fare between Los Angeles and New York dropped to $316 from $509, and its Los Angeles-to-San Francisco fare fell to $136 round-trip from $154, said spokesman Chris Brathwaite. The sale fares require a seven- or 14-day advance purchase and a Saturday night stay and exclude various fees and taxes.
The big airlines routinely match low fares posted by discount carriers on select routes, but they’ve infrequently joined in a systemwide price cut in recent months.
The sale is ironic for an industry loudly complaining that its leisure ticket prices are too cheap because of sluggish travel demand in the face of the weak economy and the aftermath of Sept. 11.
Earlier this week, for example, AMR Chairman Donald Carty cited a 15-year low in average leisure fares as a key reason his company had a $495-million loss in the second quarter.
American also has helped lead several recent efforts to boost leisure fares by $20 per round-trip ticket, only to rescind the increase after other airlines--usually Northwest--failed to follow suit.
But Northwest and the others say they have no choice but to match rivals’ price cuts. With travel still down from a year ago, they can’t afford to lose passengers to other airlines. That’s especially true for airlines such as American and United, which heavily depend on business traffic, which now is so depressed.
UAL’s chief executive, Jack Creighton, likewise cited “the weak revenue environment” at United as a key reason UAL lost $392 million, or $6.99 per diluted share, before a one-time gain in the three months ended June 30. Including the gain, UAL had a net loss of $341 million, and its revenue tumbled 19% to $3.8 billion from $4.7 billion.
UAL also is staring at a “significant deficit for the year” because business and leisure travel, which started to pick up in the first quarter of this year, now “have stalled,” Creighton said in a statement from UAL’s headquarters in Elk Grove Village, Ill.
The grim outlook added to the stock market’s sell-off Friday. UAL shares plummeted $1.48, or 20%, to $6.05, and AMR skidded 86 cents, or 7%, to $12.01, both on the New York Stock Exchange. The American Stock Exchange’s index of airline shares lost 3.51 points, or 6%, to 52.92.
UAL and US Airways are both seeking bailouts in the form of federal loan guarantees. U.S. officials already have given conditional approval to US Airways’ petition for a $900-million guarantee, and UAL is requesting a $1.8-billion guarantee.
The only major airline to receive a guarantee so far is America West, whose Phoenix-based parent, America West Holdings Corp., on Friday said its second-quarter loss narrowed to $8.5 million, or 25 cents a share, from $42.5 million, or $1.26 a share, a year earlier.
