AirTran, Continental reports offer airlines some relief

AirTran Airways reported a record first-quarter profit yesterday, and Continental Airlines Inc. reported a smaller-than-expected loss, offering a spot of relief to a beleaguered industry and beating Wall Street estimates.

So far, the largest U.S. airlines, including Delta Air Lines Inc., United, and American, reported first-quarter results that were not as bad as Wall Street had expected.

But no one is ready to bet the worst of the downturn is over.

Airlines have slashed jobs, flights, and seats to offset a sharp falloff in travel.

"There remains a lot of uncertainty," said Continental president and chief executive officer Jeffrey Smisek. "We don't yet know how deep or long this recession will be. Whether or not we have bottomed, how long we'll bump along the bottom once we hit it, and what our rate of climb out of that bottom will be."

US Airways Group Inc. reports first-quarter earnings today.

Shares of AirTran Holdings Inc. surged 24.19 percent, after posting a $28.7 million quarterly profit, despite a 9 percent drop in revenue.

The low-cost carrier said, excluding special items, the company earned 20 cents a share, significantly beating analysts' consensus estimate of 4 cents a share.

AirTran CEO Robert Fornaro said AirTran took bold steps before other airlines to cut costs. Included were: sold or deferred delivery of 46 airplanes, raised $375 million in cash, closed unprofitable routes, and relocated aircraft to new cities.

"We were one of the first airlines to react to the changing economic environment last year," Fornaro said. "There has been a lot of conversation about whether the industry is at a bottom. I don't think anybody knows."

Continental posted a $136 million loss, or $1.07 a share, excluding special charges, which beat analysts' average estimate of a $1.19-per-share loss.

Delta, United, and American reported hefty losses, but still beat expectations. Airline stocks have rallied in recent days. Many have doubled since hitting bottom in March.

"We've seen some signs of stabilization," Delta's chief executive Richard Anderson said. "But it's still a bit early to call, and we expect to face significant headwinds throughout 2009."

US Airways executives said last month that the carrier could turn a profit this year, even if passenger revenue fell 15 percent.

"We think US Airways should outperform the industry over the summer," Merrill Lynch & Co. Inc. analyst Michael Linenberg said in a note to clients.

The reason: The bulk of US Airways' flights are domestic. US Airways is less dependent on revenue that is most affected by the global downturn: international, cargo, and premium first- and business-class travel, he wrote.

Linenberg noted that rival Southwest Airlines Co. "continues to contract at a rate that is unprecedented for the low-cost airline." Southwest said it would not grow in 2009 and expected to trim seats and flights 5 percent this year.

"US Airways is uniquely positioned to benefit the most, given its disproportionate amount of route overlap with Southwest," Linenberg said.

The nation's largest low-fare carrier, Southwest reported a loss in the first quarter - wider than expected - and said it would offer voluntary buyouts to trim jobs.

Southwest CEO Gary Kelly said that March traffic improved over February, but looking ahead to May and June, revenue will likely be lower because 2008 fares were higher.

Scrambling to fill seats, airlines have slashed ticket prices for spring and summer.

Traffic on U.S. airlines fell 10 percent in March over the same month last year, while passenger revenue fell 23 percent in March, the Air Transport Association said.

U.S. airlines have cut 27,500 jobs since February last year, or 6.6 percent of their employees, and have been cutting capacity - seats and flights - since crude oil peaked at $147 a barrel in July.

The initial capacity cuts took effect in September just as financial markets collapsed and credit tightened.

A sharp decline in fuel costs and further capacity reductions have helped airlines counter a significant falloff in travel.

However, another spike in fuel prices or continued softening in passenger demand could change analysts' projections that some airlines may post a profit in 2009.

Jamie Baker and Mark Streeter, analysts with JPMorgan Chase & Co., said in a research note that revenue trends improved in April, but could give way to "May disappointment," leading some airlines to more aggressively raise capital to survive the recession.

"U.S. airlines have historically had a challenging time earning a net profit during a recession."