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Huge losses saddle top airlines

Published Sep. 10, 2005

The nation's largest airlines reported massive second-quarter losses Wednesday, blaming their troubles on the high costs of labor and fuel and reduced spending by business travelers.

UAL Corp. posted a wider-than-expected loss, while AMR Corp. and US Airways Group Inc. managed to exceed Wall Street's modest expectations.

The industry slump is expected to continue for at least another quarter, analysts said, as carriers slash ticket prices to encourage travel, thereby crimping profits.

"Air traffic is holding because of fare sales," said Ray Neidl, an airline analyst at ABN Amro Inc. "The losses won't be as severe in the third quarter but the conditions will be pretty much the same _ good traffic, weak yields."

UAL, the parent company of United Airlines, lost $292-million in the second quarter, its fourth money-losing quarter in a row after more than five years without one.

The second-quarter loss amounted to $5.50 a share, which exceeded the $4.73 consensus estimate by analysts surveyed by Thomson Financial/First Call. That compared with a profit of $336-million, or $3.08 a share, in the same period of 2000, before the airline hit severe turbulence with labor disruptions, the slowing economy and its ill-fated May 2000 proposal to acquire US Airways.

UAL's second-quarter loss will end up being as much as $116-million higher if the merger proposal fails within the next month, as is widely expected. The airline said it has deferred $66-million in merger-related costs and acknowledged it may have to pay a $50-million termination fee if the acquisition doesn't take place.

UAL shares were down 76 cents a share Wednesday, closing at $34.98.

At AMR, the parent of American Airlines posted a net loss of $507-million in the second quarter and expects to report a loss for the full year.

The airline's loss amounted to $3.29 per share, compared with a net profit of $321-million, or $1.96 per share, a year earlier. Excluding one-time items, AMR said its second-quarter operating loss was 68 cents per share, compared with $1.75 per share, a year earlier. Analysts surveyed by Thomson Financial/First Call had expected a loss of 69 cents per share.

Don Carty, AMR chairman and chief executive, said fuel prices added to the airline company's problems despite its effort to hedge costs.

AMR shares fell 96 cents to close at $35.44.

Problems continued at US Airways, which lost $24-million in the second quarter, vexed by intensifying competition from low-cost carriers such as Southwest, AirTran and JetBlue.

Still, the beleaguered airline outperformed forecasts. The loss of 36 cents a share was better than the 63-cent per-share loss predicted by analysts surveyed by Thomson Financial/First Call. During the same period last year, US Airways had net income of $80-million, or $1.17 a share.

Separately, US Airways management presented to its board Wednesday several options for the airline's survival as an independent carrier, in the event the proposed acquisition by United falls through. The alternative plans were kept secret, but airline executives told employees in a recorded message Tuesday that if the merger did not happen, the airline "will need to build on our assets."

Shares of US Airways were up 89 cents to close at $17.61.

_ Information from the Philadelphia Inquirer was used in this report.