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Airline losses continue
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July 19, 2001: 9:45 a.m. ET
Southwest posts 2Q profit; Delta, Northwest losses trail forecast
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NEW YORK (CNNfn) - Losses continued to rain from the airline sector Thursday as the nation's third- and fourth-largest airlines reported smaller-than-expected losses, although discount carrier Southwest Airlines, one of two profitable U.S. airlines, posted net income in line with expectations.
Northwest Airlines (NWAC: up $1.10 to $25.90, Research, Estimates), the nation's No. 4 airline, took the somewhat unusual step of announcing staffing cuts in response to the current conditions in the industry, as it also announced plans to cut back on flights and overall capacity over the next six months. Despite the flood of losses the first half of the year, the industry has basically been spared the layoffs hitting other sectors of the economy.
The Minnesota-based carrier announced it would cut about 1,500 management and contract positions, although it will use attrition and leave vacant positions unfilled to limit layoffs to about 500 people, including 130 managers. The company has 53,000 employees worldwide.
It announced it will close reservations centers in New York and Hawaii and a flight attendant base in Chicago. Five international routes also will be discontinued. The cutbacks are expected to save about $135 million during the second half of the year.
"The decision to reduce staff is a difficult one for us, but Northwest, like the rest of the airline industry, continues to experience the impact of a weak U.S. economy that has resulted in reduced business travel," CEO Richard Anderson said. "In addition, high fuel prices are affecting the cost of flying. We must be fiscally prudent to ensure our costs going forward are in line with our expected revenues."
As for financial results, Northwest posted a loss of $55 million, or 65 cents a share, in the second quarter. That was at the lower end of losses in its previously stated guidance. Analysts surveyed by earnings tracker First Call had forecast a loss of 74 cents a share. A year earlier, Northwest earned $115 million, or $1.26 a share, before special items.
Revenue fell 6 percent to $2.7 billion from $2.9 billion a year earlier.
Delta (DAL: up $0.82 to $45.52, Research, Estimates), the nation's No. 3 airline, lost $123 million, or $1.03 a share, excluding special items. That's better than the company's previous guidance in the quarter, as well as the forecasts of analysts surveyed by earnings tracker First Call, which estimated a loss per share of $1.20. A year earlier, Delta earned $374 million, or $2.85 a share, before special items.
Revenue fell to $3.78 billion from $4.47 billion a year earlier. Both profit and revenue were hit by a pilots strike at its feeder airline unit, Comair Inc., which grounded about half of Delta Connection flights during the quarter. But Delta said better-than-expected traffic in the last part of June helped results.
Discount carrier Southwest (LUV: Research, Estimates), the nation's No. 7 carrier, posted a drop in net income to $175.6 million, or 22 cents a diluted share, from $190.6 million, or 24 cents a diluted share, a year earlier. That brought it in line with First Call's forecast.
Revenue at the Dallas-based carrier rose 6.4 percent to $1.55 billion from $1.46 billion a year earlier, and it said traffic has been good so far in July. The company did not give specific guidance but said it expects to be "solidly profitable" in the third quarter due to lower fuel and other unit costs than a year earlier.
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No. 5 Continental Airlines (CAL: up $0.45 to $51.20, Research, Estimates) is the only other major carrier to report a profit in the second quarter. Southwest and Continental are also the only two carriers to report a first quarter profit.
The outlook may not improve anytime soon. The largest company in the sector, AMR Corp. (AMR: Research, Estimates), owner of American Airlines and Trans World Airlines, warned that losses likely will continue into the third quarter and United Airlines owner UAL Corp. (UAL: Research, Estimates), the industry's second-largest company, posted a wider-than-expected second quarter loss and confirmed it will lose money the rest of the year as well. 
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