Catching Up With the Second-Quarter Airline Laggards

UAL didn't do too badly, but there wasn't much to write home about with TWA and US Airways.
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Last week we took a

look at the quarterly financial and operational stats for six of the 10 major airlines. Today we look at the other four. Next week we'll return to normal commentary.

And yes, my apologies for writing just once this week. I am in the throes of planning a move across the country, which has consumed far more time than planned. Maybe I'll do a travelogue for

TSC

readers. That's not necessary? Well, OK, maybe not.

TSC

readers should know that next Tuesday and Wednesday I am off to meetings with new management at

UAL

(UAL) - Get Report

, the parent of

United Airlines

. I appreciate the invite and I'll report back on my impressions.

Back to the Wrap-Up

Last week we provided this handy-dandy chart of second-quarter numbers for your perusal. Here it is again for your reference:

(

Note

: In the chart we provided bottom-line net income and EPS figures for both US Airways and UAL. The figures in today's text are the true operating figures, exclusive of one-time charges or extraordinary items.)

TWA

(TWA)

last week reported disappointing second-quarter earnings. The airline posted $18.4 million in operating income and a net loss of $5.3 million, against year-ago operating income of $45.5 million and net income of $24.8 million. These numbers are awful -- even for TWA, which is generally profitable in the second quarter. Much of the loss was attributable to the fear of a potential strike, which drove high-yield customers elsewhere.

The loss of those profitable customers was reflected in TWA's 4.2% decline in yield for the quarter. (

American Airlines'

yield showed a 4.4% decline for the quarter, placing it last among the major carriers.) Revenue per available seat mile, or RASM, declined as well, dropping 2% from a year ago.

The best news for TWA was that quarter-end cash on hand rose to $288 million from $211 million at the end of the first quarter. As we all know, cash is important for TWA, which never quite seems to be flush.

Northwest Airlines'

(NWAC)

year-over-year comparisons are so screwy that there's not much to say. This will continue to be the case until the third and fourth quarters of this year. If you've forgotten, Northwest was preparing for its pilot strike at this time last year, which skewed the airline's results for the rest of the year.

The airline reported second-quarter net income of $120 million, or $1.29 a diluted share, including a $17 million gain. On the operational side, the airline saw capacity growth outstrip increases in demand, as available seat miles jumped 5.8% and revenue passenger miles rose 4.6%, resulting in a 0.8-point drop in load factor. Yield slipped a modest 0.1% and RASM was down 1.3%, as the airline said the situation in the Pacific may have leveled out.

As many of you know, Northwest takes in some 30% of its revenue from its Pacific routes, and the airline was hard hit last year, as was United, when Pacific business dried up.

Indications from both United and Northwest this quarter seem to indicate some stability in the Pacific.

Northwest's costs dropped 7% from a year ago, leaving costs per available seat mile at 8.72 cents.

Overall assessment here? Completion and on-time performance at the airline have improved dramatically over the last six months, but Northwest has still not regained all the traffic it should have by now.

We think some domestic traffic that was lost previously still has not returned. And it may never do so.

US Airways'

(U)

results, as expected, weren't too good.

The airline posted a 6.2% drop in unit revenue, as RASM is also known. That's a pretty negative number, folks.

For its second quarter, US Airways posted operating net income of $136 million, or $1.83 a share, down from $194 million, or $1.95 a share, a year earlier. That's a 30% drop in dollar terms.

Growth in operating expenses outpaced operating revenue, as revenue slipped 0.5% despite a 4.4% gain in expenses.

Operationally, carnage from the Battle of Dulles was pretty apparent. RASM slid as fares dropped on the East Coast and capacity, which rose 4.8%, wasn't met with adequate demand. That meant a 3.5-point drop in load factor and 1.7% retreat in yield.

We don't see anything on the horizon that's going to make the numbers suddenly jump for joy. In fact, from what we can tell, the mechanics at US Airways, who turned down a recent contract offer, are currently having considerable success at slowing the airline down.

Yes, as with pilots, if mechanics want to slow an airline down they can do so.

United did pretty well this quarter, though it could have done better.

The airline has been in a bit of a holding pattern recently amid major changes in upper management. What will the personality of the new team be? Better? Worse? Just different?

We are eternal optimists.

UAL last week reported second-quarter net income of $2.86 a share before extraordinary items, down from $3.24 a share a year ago.

Operating revenue failed to keep pace with operating expenses, as revenue posted a 2.2% increase and expenses jumped 5%. Salaries and other labor-related issues were the biggest contributors to the increase.

Operationally, the airline put much more capacity into the system then it got back in passenger miles. Capacity rose 3.6% but unit revenue rose just 0.1%. This resulted in a 2.4-point drop in load factor.

But we didn't see the dramatic drop in RASM and yield that we saw with US Airways. RASM slipped 1% and yield fell 0.9%. Nothing major here.

CASM rose 1.3%, settling at 8.82 cents. Acceptable.

Again, events that we already know about are guiding the numbers here, although to be honest, we were happy with the airline's RASM and yield figures. Compared to American's and US Airways', they were pretty darned good -- especially given United's exposure on trans-Atlantic and trans-Pacific routes, in addition to recent domestic expansion on both coasts.

So, overall, we were pleasantly surprised. Results were not as bad as they could have been on the operations side. And in terms of the Battle for Dulles, United seems to have won the first round.

Holly Hegeman, based in Dallas, pilots the Wing Tips column for TheStreet.com. At time of publication, Hegeman held no positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. You can usually find Hegeman, publisher of PlaneBusiness Banter, buzzing around her airline industry Web site at

www.planebusiness.com. While she cannot provide investment advice or recommendations, she welcomes your feedback at

hhegeman@planebusiness.com.