Outlook improves for carriers in 2006
DALLAS -- The US airline industry is coming off an up-and-down year that saw two major carriers file for bankruptcy but others begin to pull out of a nosedive that began in 2001.
Losses at the biggest US airlines since the economic downturn in 2001 were expected to approach $30 billion. Still, 2005 was nearly a good year.
Some companies, including the parent of American Airlines, the largest US carrier, could have turned a profit if fuel prices hadn't shot so high.
Some airlines narrowed losses by sharply cutting costs other than fuel, including wringing wage concessions out of their workers.
Some analysts think 2006 will be a pivotal year. Michael Linenberg of Merrill Lynch said fewer planes flying, rising fares, and lower fuel prices could lift the stock of airlines. He calls it a reversal of the perfect storm -- costly fuel, growth of low-cost carriers, and too many seats on sale -- that swamped the carriers in red ink.
Dallas-based Southwest Airlines has been the only carrier to be consistently profitable in the current slump. Gary C. Kelly, Southwest's chief executive, said trends are looking up.
''The economy is continuing to grow at a healthy rate, business travel is continuing to pick up, and industry capacity (measured in seats times miles flown) has moderated and even shrunk in some areas," Kelly said. ''If all those underlying conditions continue, we ought to have robust revenue production for the industry next year."
Analysts predict five other carriers also will earn a profit in 2006: American's parent, Fort Worth-based AMR Corp.; Houston-based Continental Airlines Inc.; Alaska Air Group Inc.; JetBlue; and AirTran. Of the five, only Alaska Air was expected to be profitable for 2005.
Analysts expect nine of the 10 largest US carriers to increase their revenue next year -- only bankrupt Northwest Airlines Corp. is expected to see sales decline.
Southwest's Kelly said the wild card will be fuel. Southwest insulated itself from high prices by hedging.
Over the past several years, it took options to buy fuel at set prices, a gamble that looked brilliant after prices surged beginning in 2004. Other carriers, such as American, either didn't or couldn't afford to hedge.
