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Airlines predict cloudy skies in 2005

DALLAS - The divide between the airline industry's winners and losers was on stark display Wednesday as Southwest Airlines reported a fourth-quarter profit despite high fuel prices and low fares, while American Airlines and Northwest Airlines lost more than $800-million.

Still, there is evidence that the chasm separating the haves and the have-nots narrowed in 2004 and that business will again be tough for all carriers in 2005. Investors sent shares of all airline stocks lower in a sign that they don't see a quick end to the industry's turbulence.

Airline executives were cautious to grim in describing their outlook. Gerard Arpey, chairman and chief executive of American's parent company, AMR Corp., called the fourth quarter "a disappointing end to a very difficult year," even though 2004 was American's best performance in four years, thanks in part to significant cost cutting over that period.

For Southwest Airlines Co., 2004 was its second smallest profit in eight years, a sign of just how difficult business conditions were for the fuel-intensive industry.

There was no brave talk of an imminent turnaround. "Our outlook for 2005 doesn't look a whole lot brighter," Arpey said.

Analysts expect more heavy losses this year. Ray Neidl, an analyst with Calyon Securities, predicted U.S. carriers will lose $1.9-billion in 2005, a big improvement from 2004, though his estimate assumes oil prices will drop.

With little hope of raising fares significantly - Delta Air Lines Inc. touched off a new round of fare cuts this month - and no control over fuel prices, carriers say they are left with one option: cutting costs.

Northwest Airlines Corp., which had its worst performance ever in 2004, may have to seek more than the $950-million in annual labor cuts it is demanding from workers, said chief executive Doug Steenland.

American has announced it would defer delivery of 54 of 56 jets from Boeing Co, postponing $1.4-billion in spending through 2007.

AMR said it spent $477-million more on fuel in the fourth quarter than it would have if fuel had remained at 2003 prices. AMR's fourth-quarter costs jumped 6 percent - wiping out a 3.4 percent increase in revenue.

Southwest insulated itself from high fuel prices by locking in lower prices years ago - a gamble that could have backfired if prices fell. Southwest estimated that it saved $174-million but saw fuel costs rise 20 percent per gallon.

[Last modified January 20, 2005, 00:12:19]