Three major US airlines reported losses sapped by soaring fuel costs, but stocks in the sector rose sharply as investors hoped falling crude oil prices signaled relief ahead.United Airlines parent UAL Corp, US Airways Group Inc and JetBlue Airways Corp all reported second-quarter losses - with UAL alone suffering a quarterly loss of $2.7 billion. All three blamed skyrocketing fuel costs that have forced layoffs and capacity cuts.
Asked why shares were broadly higher, Calyon Securities analyst Ray Neidl said: “Probably, 80%-90% (of it is) oil being down.”
UAL shares closed up 69%, or $3.42, to $8.41 on Nasdaq. US Airways shares jumped 59% or $1.58, to $4.27 on the New York Stock Exchange. JetBlue shares were up 15.7%, or 61 cents, to $4.50 on Nasdaq.
“Airlines stocks are totally sensitized to what happens to oil prices, for the very simple reason that fuel costs now exceed labor costs,” said Julius Maldutis, president of consulting firm Aviation Dynamics.
Oil prices fell $5 a barrel to a six-week low Tuesday as dealers anticipated a tropical storm moving over the Gulf of Mexico would miss most major oil and gas installations offshore. The losses come after the biggest weekly price decline in oil's history last week, when $17 was chopped off the cost of a barrel.
UAL said its net loss totaled $2.73 billion, or $21.47 per share, compared with a profit of $274 million, or $1.83 per share, a year earlier. Excluding one-time charges, UAL lost $1.19 per share.
UAL took a $2.6 billion non-cash charge, including $2.3 billion to write down the impairment of goodwill.
Operating revenue increased by 3% to $5.37 billion. The company paid $1.85 billion for fuel, an increase of 53.2%. The company ended the quarter with an unrestricted cash balance of $2.9 billion.
UAL said it will cut more jobs and reduce its fourth-quarter mainline domestic capacity by up to 16.5%, up from a previously announced 14%.
“Our industry is challenged as never before by the unrelenting price of oil, and United is taking aggressive action to offset unprecedented fuel costs and to strengthen the competitiveness of our business,” said Glenn Tilton, the chief executive, in a statement.
UAL also said it reached a deal with Chase Bank USA, its frequent flyer miles partner, and Paymentech, a credit card processor, that will boost liquidity by $1.2 billion. United expects the transactions will improve cash flow by $200 million in the next two years.
US Airways recorded a net loss of $567 million, or $6.16 per share, compared with a profit of $263 million, or $2.77 per share, a year earlier.
Excluding one-time charges, US Airways, formed by a 2005 merger with America West, lost $101 million, or $1.11 per share.
Operating revenue rose 3.2% to $3.26 billion. The carrier paid $1.09 billion for fuel in the quarter, an increase of 65.1% from a year ago.
US Airways reported a $622 million non-cash charge to write off goodwill.
The company ended the quarter with $2.8 billion in total cash and investments, of which $2.3 billion was unrestricted.
US Airways said it would reduce its fourth-quarter and 2009 capacity by an additional 1% to 2%, making the total reduction 4% to 6%.
JetBlue lost $7 million, or 3 cents per share, compared with a net profit of $21 million, or 11 cents per share, a year earlier. Operating revenue rose 17.7% to $859 million.
“Revenue gains are clearly not keeping pace with the extraordinary increase in the price of jet fuel,” CEO Dave Barger said in a statement.
JetBlue, whose fuel bill rose 63.7%, will suspend near-term growth plans in September, when capacity will be down about 10% year over year. The airline said it does not plan to grow in 2009.
JetBlue ended the quarter with cash and cash equivalents amounting to $846 million.
The latest losses followed deficits reported last week by AMR Corp, parent of American Airlines, and Continental Airlines Inc and underscore the reality that high fuel costs are crippling the business and that drastic action is needed. (Reuters)