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Airline Stocks Drop on Bad News

Aviation: The struggling industry is poised to suffer an additional $6 billion in pre-tax losses this year.

June 04, 2002|JAMES F. PELTZ | TIMES STAFF WRITER

Airline stocks fell sharply Monday after a spate of reports signaled that the industry still is struggling from the decline in business and leisure travel.

The global airline industry is poised to suffer an additional $6billion in pre-tax losses this year after a record $12billion in losses in 2001 following the Sept. 11 attacks, according to the International Air Transport Assn.

The trade group, which is holding its annual meeting in Shanghai, largely attributed the deficits to the industry's basic problem: a continuing slump in air travel and the carriers' inability to raise fares without further dampening passenger traffic.

The third effort this year by U.S. airlines to hike leisure fares failed over the weekend. Continental Airlines Inc., which led the price hike by raising round-trip fares by $20 last week, rescinded the increase after Northwest Airlines Corp. and some other carriers refused to follow suit.

Although good news for consumers, the aborted fare hike and other negative news prompted investors to dump airline stocks on a down day for the market overall. American Airlines parent AMR Corp. fell 62 cents, or 3%, to $20.33; United parent UAL Corp. lost 9 cents to $12.10; Delta Air Lines Inc. tumbled $1.32, or 5%, to $24.93 and Continental fell $1.22, or 5.5%, to $21.05, all on the New York Stock Exchange. Northwest skidded 79 cents, or 4.7%, to $15.93 a share on Nasdaq.

AMR added to the grim outlook by saying the "significant" loss it expects in the current quarter reflects "a slower sequential rate of earnings recovery" than in the first quarter of this year. A key culprit: a "disappointing rate of recovery in business travel demand," the airline said in a government filing.

The number of business passengers, who typically pay higher fares and thus generate most of an airline's income, will still "likely be 20% to 25% below their peak levels of 2000," and the "decline in business air travel has not yet bottomed out," according to a survey being released today by the Business Travel Coalition, an advocacy group for business fliers.

The survey, which queried business travelers, showed 73% of the respondents said "expensive air fares were an important or very important reason for continued cutbacks in air travel during 2002." As a result, more business travelers are booking cheaper leisure seats, even though they typically require reservations well in advance of flying, the survey said.

Business travelers on average now book 10.2 days in advance, and they "indicated they would be willing to purchase tickets even further in advance if they were offered more affordable air fares that did not include the onerous Saturday-night-stay requirement," the survey said.

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