US airline profits fall to earth

American and United are set to control about 50% of the US airline market

AMR Corp - the parent company of the world's second biggest air carrier American Airlines - has blamed high fuel prices and bad weather for a sharp drop in fourth-quarter earnings.

US Airways, the number six carrier in the United States, also disappointed investors, reporting heavy losses for the period.

But Continental Airlines - the Houston-based number five player - managed to buck the trend, posting a better-than-expected rise in earnings.

The results followed recent announcements of further consolidation in the sector, as carriers seek to cut costs, reduce competition and achieve greater economies of scale.

Consumer group concerns

Last week, AMR said it was buying veteran carrier Trans World Airlines as well as some assets of US Airways.

Most of US Airways is being merged into United Airlines - the world's biggest carrier - under a $4.3bn deal.

Investors view the merger and acquisition activity as positive for the companies' financial prospects.

But consumer groups have said they are concerned about decreasing competition - with about half the domestic market to be controlled by United and American - and falling levels of service.

"We are at a crossroad in the industry," Business Travelers Coalition president Kevin Mitchell said on Tuesday.

"There is a land rush going on. We need to slow it down and understand the long-term implications."

Lost traffic

AMR had reported a 36% drop in net earnings to $56m, or 34 cents a share, in the fourth quarter.

"In particular it was because of the severe weather that affected not only their hubs in Dallas and Chicago but also operations on the northeast coast," ING Barings analyst Ray Niedl said.

"We had a challenging fourth quarter," American chairman and chief executive Donald Carty said.

"While demand for air travel was strong, severe weather across much of our system resulted in lost traffic and higher operating costs. And of course, fuel prices remained very high."

US Airways had lost a greater-than-expected $89m in the quarter, partly, it said, because of tougher competition.

But Continental put in a cheering performance, lifting quarterly earnings 31% to $38m.

Passenger revenue was up 13% to a record $2.3bn, it said.

"While other airlines were busy doing deals or arguing among themselves, all 54,300 of us at Continental just focused on running a good airline," president Greg Brenneman said.

Boeing earnings increase

Boeing - the world's biggest aircraft maker - also kept investors happy, reporting profits up 36% to $877m in the fourth quarter.

For the full year, Boeing earned $2.51bn. Both figures beat analyst expectations.

"We promised better margins, solid profitability and powerful cash flow in 2000, and we delivered," chairman Phil Condit said.

However, some analysts said Boeing's failure to lift operating margins in its commercial jet unit beyond the 9.9% posted in the third quarter took the gloss off the results.

Margins had risen steadily in previous quarters, attracting investors.

"If we're starting to see margins plateau, that takes away some of the excitement," Deutsche Bank analyst Chris Mecray said.

Boeing reiterated that it expected to deliver about 530 commercial jets in both 2001 and 2002.

United, Northwest Airlines and Delta - the third largest US airline - have yet to report earnings.