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Airlines going south in 1999
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January 21, 1999: 12:43 p.m. ET
Analysts look for 15% to 20% drop in 1999 results, 4Q saved by low fuel prices
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NEW YORK (CNNfn) - Despite a healthy crop of earnings reports from the airline sector Thursday, analysts say the benefits of low fuel prices masked the airlines' underlying weakness. Some analysts said results for the industry could be up to 20 percent lower in 1999.
"If it weren't for low fuel prices, industry profits would be down significantly in the fourth quarter," said Goldman Sachs analyst Glenn Engel.
Going forward, he said, quarter-over-quarter comparisons will become more difficult to beat. "It'll be a tougher 1999 than 1998," he said. "The numbers should be down 15 percent to 20 percent."
Moreover, Engel said the confirmed merger talks between United Airlines' parent company, UAL, and America West Holding Co. aren't likely to get off the ground.
"We haven't really had consolidation in this industry in awhile and the Justice Department doesn't seem likely [to approve any new proposals]," he said.
According to Engel, the government "wasn't happy" with Northwest's acquisition in December of a controlling stake in Continental, pairing the nation's fourth and fifth largest airlines. The Justice Department, in fact, filed a lawsuit to block the alliance.
It therefore stands to reason, Engel said, that regulators would frown upon attempts by UAL, owner of the world's largest airline, to boost its market share through acquisition.
But now, Delta Air (DAL) is pulling up to the negotiating table with America West, sources tell Reuters. The new suitor, with a smaller market share than UAL, could have more leeway with regulators.
UAL beats Street
UAL Corp. said Thursday its fourth-quarter net income fell to $189 million from $231 million a year ago before special charges in both periods.
Those earnings, which are reported on a fully distributed basis that takes into account the company's employee stock-ownership program, were $1.52 a fully distributed share, before a $52 million, or 27 cents a share foreign exchange charge related to the appreciation of the yen.
This compares to earnings of $1.74 a share a year ago, before a $9 million or 7 cents a share charge for early retirement of debt.
UAL also said its Asian market operations were "roughly at break even" in 1998, and are expected to produce a profit this year.
Analysts predicted UAL would earn $1.45 for the quarter, according to First Call.
Shares of UAL (UAL) were off 1/16 at 61-1/8 Thursday afternoon on the New York Stock Exchange, down significantly from its 52-week high of more than 97-1/2 a share last spring.
Continental divide
Continental Airlines, the nation's fifth-largest airline, saw its fourth-quarter net income slip nearly 10 percent to $66 million, or 91 cents a diluted share - but managed to beat Wall Street estimates by a wide margin.
Analysts polled by First Call expected the company to earn 77 cents a share.
Revenue reached $1.95 billion, up from $1.84 billion last year.
For the year, Continental (CAIB) posted profits of $383 million, or $5.02 a diluted share, including special charges.
The company's stock fell ¼ to 33-1/16 on the Big Board Thursday afternoon, down from its year high of 65-1/8 set back in July.
Southwest
Low-cost carrier Southwest Airlines (LUV) posted net income of $100 million, or 29 cents a diluted share, for the fourth quarter ended Dec. 31, up nearly 25 percent over profits of $81 million, or 23 cents a diluted share, last year.
The results were in line with Wall Street estimates.
Revenue climbed to $1.1 billion, from $976 million last year.
Profits for the full year were $433 million, or $1.23 a share, up 36 percent from $318 million, or 93 cents a diluted share in 1997.
"We are extremely pleased with our fourth-quarter 1998 results," said Herbert D. Kelleher, Southwest's chairman, president and chief executive officer. "Our quarterly earnings were also enhanced by lower overall unit costs, attributable to lower jet fuel prices."
Shares of Southwest (LUV) were down 1/16 at 26-9/16 on the New York Stock Exchange following the report. 
--from staff and wire reports
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