Airline Ills Outlast Last Resort

The US Airways merger was unique in that a low-fare, low-cost carrier took over management of a legacy carrier. In the past, legacy carriers have taken over lower-cost airlines, including California's AirCal, Western and PSA, but haven't retained their lower-cost advantages. US Airways shares have more than doubled since the carrier emerged from bankruptcy last fall.

Speculation is widespread that there will be additional industry mergers when Delta and Northwest approach the ends of their bankruptcies, since bankruptcy law would enable the carriers involved in a merger to shed unwanted assets such as aircraft leases, just as US Airways and America West did.

Decreased Capacity, Increased Outlook

Delta reported Friday that, excluding one-time costs primarily for restructuring, it lost $356 million in the first quarter, compared with a $684 million net loss a year earlier. The third-largest carrier has been operating under bankruptcy-court protection since September.

It raised hopes by noting that its March loss, excluding one-time costs, was just $6 million, and that its RASM rose by 12.5%, while its costs fell. Operating expense, excluding special items, was $4.1 billion, down 1.2%, despite a fuel-expense increase of $266 million. Excluding fuel and special items, mainline cost per available seat mile was 7.82 cents, down 1%. "There are some encouraging signs, but other airlines are still outperforming them on RASM," Miller says.

Delta is at the "bottom of the pack," says Merrill Lynch airline analyst Mike Linenberg in a recent report. "The carrier's results equates to a -9.6% pretax margin, ranking its March-quarter performance the worst among the carriers in our coverage universe," Linenberg writes. "Granted, the carrier is in bankruptcy restructuring, but we would have thought Delta would see some benefit from improving East Coast flows, especially to/from Florida in March." Merrill Lynch has no financial relationship with Delta.

Delta said that a strike threat by its pilots cost it millions of dollars in lost bookings in April, which raises questions about its April performance. Pilots are expected to begin voting on a new contract this week.