Losses widen at airline giants American, United

Big fourth quarter losses and reports of weak demand from the parent companies of American and United airlines spooked investors Wednesday and sent the shares of most carriers tumbling.

AMR AMR, American's parent, took a particular beating. Its shares lost 24% of their value, or $2.52 a share, to close at $7.94.

Shares of UAL UAUA, United's parent, lost 6.1% of their value, or 71 cents, to close at $10.91. Shares of Continental Airlines and JetBlue also lost 11% and 10.6% of their respctive values. Southwest was the only carrier to see a stock price gain —— 2.95% to $8.38 —— on a day when the Dow Jones industrial average gained 279 points.

The drops came although industry analysts were expecting the losses. They also expect U.S. airlines to be modestly profitable next year. The industry has reduced capacity between 8% and 12% as demand has fallen. Likewise, oil prices have fallen by $100 a barrel less than their peak last summer, reducing fuel costs.

The two U.S. airline giants were the first to report end-of-year earnings. Other big carriers are expected to report later this week and next. Only Southwest, which reports Thursday is expected to show a profit for the quarter, or for all of 2008.

AMR reported losing $214 million, or 77 cents a share, for the fourth quarter, excluding one-time accounting items. That was in line with what analysts expected. United's parent, UAL, lost only $547 million, or $4.22 a share, excluding one-time items, in the quarter ended Dec. 31. Analysts had been expecting a $4.42 a share loss, according to a survey of analysts' estimates by Thomson Reuters.

American's parent reported that advance bookings are off about 4.5% for the first quarter of this year. They're off about 8% in the international markets, on which most big U.S. carriers find profitability. American also projected bigger non-fuel cost increases in 2009 than most of its rivals. It anticipates increased spending on programs and technology to improve on-time reliability and high pension costs.

To reduce non-fuel costs, United will continue downsizing. It added 1,000 jobs to the total number of positions to be eliminated by the end of this year. The job cuts, which began in 2008, will now total around 9,000 positons. United officials hope to meet that goal through attrition, but have not ruled out layoffs.

United also is about half way through reducing its jet fleet by 100. American CEO Gerard Arpey told analysts and reporters during a conference call Wednesday that he wouldn't comment on how the market reacted to his report and insisted he was "guardedly optimistic" about making a profit this year.

United CEO Glenn Tilton said "fundamental improvements" the airline made last year would "hold us in good stead in 2009."

American, United and all other big U.S. airlines responded to record high fuel prices in the first half of 2008 by reducing capacity in the second half of the year. Analysts and industry leaders said the timing was fortuitous because of the falloff in demand. John Tague, United's chief operating officer, said all carriers "are seeing a decline in demand" not just in fewer people buying tickets, but also customers "buying down from business cabin to coach cabin."

For all of 2008, AMR lost $2.1 billion, or $7.98 a share. In 2007 it earned $505 million or $1.78 a share. American paid an average of $3.03 a gallon for jet fuel for the full year versus $2.12 a gallon in 2007. As a result, the carrier spent $2.7 billion more for fuel in 2008. In the fourth quarter AMR paid an average $2.60 a gallon for jet fuel versus $2.40 a gallon in the fourth quarter of 2007.

For all of 2008, UAL lost $5.35 billion, or $42.21 a share. That compares to a profit of $403 million, or $3.34 a share, in 2007. It paid an average price of $3.54 a gallon for jet fuel in 2008 versus $2.18 a gallon in 2007. As a result, it spent $2.7 billion more for fuel in 2008 than in 2009. In the fourth quarter, UAL paid an average price of $3.74 a gallon versus $2.53 a gallon in the fourth quarter of 2007.