Airlines Post Grim Results but Beat Expectations

Continental, Northwest and Southwest post declines in quarterly results.
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Earnings from the major airlines show an industry still grappling with sliding ticket prices, evaporating demand and deep losses -- which are expected to hit $8 billion in 2002.

Southwest

(LUV) - Get Report

,

Continental

(CAL) - Get Report

and

Northwest

(NWAC)

all released grim earnings Thursday, following bleak reports recently from

Delta Air Lines

(DAL) - Get Report

and

AMR

(AMR)

. Also, Delta on Thursday said it would cut between 7,000 and 8,000 more jobs.

Nevertheless, there was a bright spot in Tuesday's earnings reports: All three airlines managed to beat analysts' expectations. The sector got a boost from this news, with Continental shares jumping 12.5% to $5.40, and Northwest shares adding 8.6% to $6.93. Southwest rose 6.3% to $14.14.

Southwest posted a third-quarter net profit of $74.9 million, or 9 cents a share, down 50% from $151 million, or 19 cents a share, in the year-ago quarter. Southwest remains the only profitable major carrier in the industry.

Excluding all items, Southwest earned $50.5 million, or 6 cents a share, topping analyst estimates by a penny, according to Thomson Financial/First Call. Last year the company earned $82.8 million, or 10 cents a share. Revenue, aided in part by the expansion of Southwest's route structure, rose 4.2% to $1.39 billion from $1.34 billion.

Southwest told investors that it isn't certain whether it can remain profitable in the next quarter because of "significantly higher aviation insurance premiums, security fees and other cost challenges," echoing statements made by airline executives to Congress at hearings a few weeks back.

Continental Swings to Loss

Continental Airlines, meanwhile, announced a third-quarter net loss of $37 million, or 58 cents a share, topping analysts' estimated 74-cent loss, according to Thomson Financial/First Call. Continental's revenue slid 2% to $2.18 billion from $2.22 billion on the year.

But while Continental's recent quarter is much worse than the year-ago quarter, the comparison is deceptive: In the third quarter of 2001, Continental had a profit of $3 million, or 5 cents a share, because of $243 million in federal grants. Without those grants, Continental had a loss of $97 million, or $1.76 a share.

"Winning is defined as outperforming your competition, and we clearly have," said Gordon Bethune, Continental's chairman and chief executive, in a statement. "Continental Airlines has led all major hub-and-spoke airlines in every respect. Although our industry's future remains uncertain, our team is best positioned for success."

Northwest Posts a Loss

Separately, Northwest announced a third-quarter net loss of $46 million, or 55 cents a share, which topped analysts' estimated 82-cent loss, according to Thomson Financial/First Call. While the recent earnings are lower than the profit of $19 million, or 20 cents a share, booked a year ago, last year's quarter was profitable only because of a $158 million federal grant in the wake of Sept. 11. Without it, Northwest posted a net loss of $100 million, or $1.18 a share, in the year-ago quarter.

"Northwest, like the rest of the industry, continues to address the impact of diminished revenue resulting from a post-September 11 drop in passenger demand and the continued depressed levels of business travel," said Richard Anderson, CEO, in a release. "While we cannot forecast when the airline will return to profitability in this difficult period, the performance of Northwest to other network carriers compares favorably."

Nonetheless, revenue was weaker than last year's, and Northwest still plans to hack at costs in order to improve its earnings situation. The company said third-quarter operating revenue came in at $2.56 billion, down 1.2% from last year, but operating expenses were down 7% to help recoup the difference. Going forward, the company said it plans to reduce an additional $300 million in costs by closing reservation centers and ticket offices.

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