Delta, American Report Bleak Financials

Crippled by fuel prices, airlines report billions in losses.

July 15, 2008, 3:47 PM

July 16, 2008— -- Brace yourselves for a rough landing. It's getting ugly for the nation's airlines.

This morning, Delta Airlines reported a $1.0 billion net loss for the second quarter while American reported a net loss of $1.4 billion. Financial reports also scheduled for release Thursday by Continental and other carriers next week will give travelers and investors a closer look at the health of the airline industry. With carriers paying higher prices for jet fuel than ever before, quarterly earnings reports could also reveal which airlines are most in danger of taking a nosedive.

Excluding special charges, Delta saw a second quarter profit of $137 million and American saw a second quarter loss of $284 million.

Highlighting just how pressing the fuel crisis is, US Airways pilots published a newspaper ad today saying they're being pressured to reduce the amount of fuel onboard to save money. The pilots say they feel their jobs are threatened if they don't comply.

Watch "World News with Charles Gibson" TONIGHT at 6:30 p.m. ET for the full report.

"We're looking at the very real possibility of one, two, maybe even three major bankruptcies that are not chapter 11, but park the airplanes and liquidate," ABC News aviation consultant John Nance said earlier this week.

"It's very unfortunate -- matter of fact, it's a national tragedy," Nance added.

Although the Air Transport Association, the group that represents the airlines, estimates that, on average, fuel expenses are ranging from 35-50 percent of airlines' operating costs, not all airlines pay equal bills.

That's one reason Southwest Airlines may be doing better than most, due to the fact that the carrier locked in jet fuel at a far lower price per barrel years ago by hedging its bets and securing future payments.

Other airlines hope flying more modern, fuel-efficient planes instead of older gas guzzlers that burn more fuel will pay off.

Although "that in and of itself doesn't guarantee success," said John Stilmar, an analyst with Friedman, Billings, Ramsey & Co. who follows the airplane leasing business, "modern, fuel-efficient aircraft are an essential element to any airline strategy."

According to estimates from Boeing, the fuel savings of operating modern, fuel-efficient aircraft instead of older MD-80 series jets could be nearly $3 million per year.

American and Delta, for instance, fly many MD-80s, but it's not that airlines don't realize they're flying the Hummers of the skies. Some carriers have already announced plans to retire their older planes, but the problem is they don't have the money to purchase new planes to replace them.

Still, Ray Niedl, airline analyst for Calyon Securities told Tuesday that a carrier's decision to fly more fuel-efficient planes will not be apparent in their earnings.

"At this point, fuel efficiency in an aircraft is good, but at $140 a barrel it doesn't make a heck of a lot of difference," Niedl said. "Whether you have a fuel-efficient aircraft or not, you're still going to lose money.

"Even airlines with new fleets are going to lose a lot of money," he said.

On Tuesday, ATA said in a statement that it was forecasting losses of approximately $10 billion for U.S. airlines this year. Speaking Tuesday before a Senate subcommittee, ATA's executive vice president and chief operating officer, John Meenan, said, "We are literally seeing the industry melting down before our eyes."

On Wednesday, Delta reported having $3.3 billion in unrestricted cash, cash equivalents and short-term investments. American reported having $5.5 billion in total cash. American reported that fuel prices accounted for $838 million in higher costs than a year ago.

"American Airlines expected to spend $5 billion in fuel this year, their fuel bill is going to be $10 billion," Nance said Monday. "Nobody has that kind of spare change lying around."

According to research from Thomson Financial, Southwest is also expected to report a second quarter gain of 12 cents per share, compared with a gain of 25 cents per share during the same time last year. Those analysts predict Continental will report a loss this quarter of 52 cents per share, compared with a gain of $2.10 per share during the same time last year.

Meantime, carriers are doing all they can to trim their fuel bills, trying to reduce both the weight and speed of their planes since lighter, slower planes burn less fuel than heavier, faster ones.

Last week, US Airways President Scott Kirby told ABC News the carrier plans to lighten its load and save about $10 million per year by removing heavy in-flight entertainment systems. The carrier will also make some money by charging passengers for sodas.

"The airlines are bleeding money today and our business is transporting customers from point A to point B, not serving Cokes," Kirby said.

Still, some say the little things will simply not add up.

"You cannot nickel-and-dime your way to profitability, and you cannot shrink your way to profitability," Nance said. "And we have the entirety of the airline industry in the United States right now in a complete meltdown financially."

"I think that if oil keeps going up, if we hit the $200 level, you'll see more bankruptcies this winter," David Field, U.S. editor of Airlines Business Magazine told ABC News late last week. "And I don't want to name names, but big brand-name airlines are going to face some very tough choices."

ABC News' Lisa Stark and Matt Hosford contributed to this report.

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