BAD or GOOD news ??
FORECAST - Fuel costs pressure U.S. airlines' Q3
Reuters, Friday, October 11, 1996 at 16:10
By Jessica Hall
NEW YORK, Oct 11 (Reuter) - While U.S. airlines will post
record high third quarter results, earnings will fall short of
Wall Street's previously bullish estimates.
The industry's results will show the strain of higher fuel
and security costs, an industry-wide legal settlement and the
return of the passenger excise tax, analysts said.
"The good news is that the September quarter will be the
best third quarter ever," said PaineWebber's Samuel Buttrick.
"The bad news is that results will likely fall measurably
shorter than earlier expectations. We'll see some operating
earnings down from last year."
The industry's third quarter operating profits are expected
to reach $2.6 billion, up from $2.4 billion last year, but
falling short of earlier estimates of $3 billion, analysts
said.
During the quarter, airline industry analysts pared back
earnings estimates for several carriers including Southwest
Airlines Co (NYSE:LUV) and AMR Corp (NYSE:AMR) , citing increased fuel
costs.
Jet fuel costs increased to an average of $0.66 a gallon
during the third quarter, up from an average of $0.55 a gallon
last year. Fuel prices edged as high as $0.74 a gallon during
the quarter.
Higher jet fuel costs added about $425 million in third
quarter expenses for the industry as a whole, analysts said.
Southwest had said that higher fuel costs, the return of
the passenger excise tax and a 4.3 cent a gallon fuel tax, none
of which were in place last year, were hurting efforts to keep
costs down.
Although Southwest saw strong bookings and load factors,
the company estimated that the total additional costs from the
taxes and rising fuel costs were about $128 million a quarter.
Some analysts expect Southwest third and fourth quarter
results to fall below last year's levels.
But not all companies were slammed by higher fuel costs.
Continental Airlines Inc's (NYSE:CAI.A) fuel costs were capped at
$0.62 a gallon due to an oil futures investment that shielded
that airline from rising fuel costs.
Overall, third quarter traffic increased nine percent over
last year despite a 10 percent fare increase in late August and
an additional 2.5 percent increase after Labor Day.
Strong traffic volumes and gains from the lapsed passenger
excise tax helped offset higher fuel costs, analysts said.
The industry as a whole gained about $500 million to $600
million before the federal excise tax was reinstated on August
27. Industry experts, however, had expected the excise tax to
become effective in November, which would have given the
industry an even greater windfall.
Higher promotional costs from summer fare wars and
settlement costs from the legal battles with the American
Society of Travel Agents also clouded third quarter results,
analysts said.
Delta Air Lines Inc (NYSE:DAL) and AMR Corp said they will
record third quarter charges to cover the settlement.
Both Trans World Airlines Inc's (AMEX:TWA) and ValuJet Inc's
(NASDAQ:VJET) third quarter results will show the lingering effects
of plane crashes earlier this year.
TWA (AMEX:TWA) expects its third quarter pre-tax results to
fall below last year's level, due in part to short-term losses
of international bookings following Flight 800 crash in July.
ValuJet, which returned to the skies September 30, also
said it expected to record charges in the third and fourth
quarters, due to the May crash of Flight 592 in the Florida
Everglades.
The additional charges will be less than the $19.6 million
after-tax charge taken in the second quarter, ValuJet said
said.
Company...EPS Estimate*..Year Ago Actual*...Date Expected
AMR Corp (NYSE:AMR) ...................3.05....2.68...10/16
Continental Airlines Inc (NYSE:CAI.A) ..1.27....1.34...10/16
Delta Air Lines Inc (NYSE:DAL) (Q1))..3.20....2.57...10/23
Northwest Airlines (NASDAQ:NWAC) ........2.49....2.64...10/17
Southwest Airlines Co (NYSE:LUV) ......0.39....0.45..late Oct.
Trans World Airlines Inc (AMEX:TWA) ...0.58....n/a....10/24
UAL Corp (NYSE:UAL) ...................3.36...2.53....10/22
USAir Group Inc (NYSE:U) ..............0.50...0.35....10/21
ValuJet Inc (NASDAQ:VJET) ............(0.37)...0.38...early Nov.
*According to First Call.
-- New York Newsdesk 212-859-1610 |
