As financial results for the period ended June 30th started to roll in, U.S. airlines faced fuel cost increases of 40% to 50% over the prior year’s second quarter. UAL Corp., parent of United Airlines, was unable to hedge fuel costs while in Chapter 11 protection, a fact which contributed to its second-quarter loss of $1.43 billion (substantially higher than the $247 million loss reported for the same period in 2004).
The regional point-to-point model of low-fare passenger airlines clearly offered an advantage as Southwest posted a $159 million profit in the second quarter, up from $113 million for the same period in 2004. But this is cold comfort for shippers, Southwest is the ninth largest cargo carrier. Combination carriers with a strong presence in cargo told a different story.
Northwest, which is the largest cargo carrier among the combination carriers (FedEx and UPS dominate the U.S.-based air freight market), reported a $225 million loss for the second quarter, a drop from the $182 million it lost in the same period a year earlier. “Losses of this magnitude are not sustainable,” according to Neal Cohen, executive vice president and chief financial officer. “During the first six months of 2005, Northwest has been averaging losses of $4 million per day. The company needs to reduce costs and achieve positive results by, in particular, addressing labor expenses and pension funding.”
American Airlines, the next largest cargo carrier, reported a quarterly profit of $58 million, its first quarterly profit (without benefit of special items) since the fourth quarter of 2000. The airline’s first half bears the weight of those continued losses. American said its first half loss was $104 million, an improvement from a $160 million loss for the first half of 2004.
Number five on the cargo line up, United Airlines was plagued by fuel costs it could not control through hedging due to its current Chapter 11 bankruptcy protection. United’s losses for the quarter were $1.43 billion, well above the $247 million loss for the prior-year’s second quarter. The airline also reported a $2.5 billion loss for the first half, three and a half times the loss it reported at the end of the first half of 2004.
Delta Air Lines, the next combination carrier by cargo volume, is said to be flirting with bankruptcy, according to Jamie Baker, an analyst with J.P. Morgan.
Continental, next on the list, reported a $100 million profit for the second quarter but an $86 million loss for the first half.