Travel	UPDATED: Thursday, January 24, 2008
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Airline execs eye consolidation

Posted on Thursday, January 24, 2008

By CHRIS KAHN
AP Business Writer

PHOENIX (AP) — As U.S. airlines pressure each other with low fares, executives are keeping an eye on consolidation efforts as the one sure way to squeeze profits out of an industry plagued by sky high fuel costs.

Many carriers have tried to boost profits by offering travelers fewer seats. But US Airways Group Inc. Chairman and Chief Executive Doug Parker said Thursday that airlines only have so much capacity left to trim on their own, probably less than 5 percent.

''Consolidation allows you do something much more than that,'' Parker said. He added that when America West Airlines combined with the former, Virginia-based US Airways, it was able to cut capacity by 15 percent as it merged networks.

Alaska Air Group Inc. has tried raising ticket prices, but Chief Financial Officer Brad Tilden said Thursday the company has had mixed results. The Seattle-based carrier hiked prices as much as $20 in certain markets, but it wasn't able to push through any increases in others.

Meanwhile, oil prices soared past $100 a barrel before dropping to about $88 a barrel.

''What would have been a profitable quarter has turned negative because of this large spike in fuel costs,'' Calyon Securities analyst Ray Neidl said.

During the three-month period that ended Dec. 31, US Airways posted its first loss in five quarters, and parent company of Alaska Airlines and Horizon Air said its earnings swung to a loss when adjusted for fuel and special items.

US Airways shares dropped 48 cents, or 3.7 percent, to $12.66 Thursday. Alaska Air Group shares dropped $1.98, or 8 percent, to $22.71.

The news was similar earlier this week with other major U.S. carriers. Delta Air Lines Inc. and the parent companies of United Airlines and American Airlines also posted losses this quarter. Southwest Airlines Co., however, doubled its fourth-quarter profit thanks to superior hedging against high fuel costs.

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''It's frustrating to report a fourth-quarter adjusted loss in what has been a solid year relative to other carriers,'' Alaska Air Group Chief Executive Bill Ayer said in a statement. ''The loss was driven primarily by skyrocketing fuel costs combined with fares that have not kept pace.''

Parker, who has long praised the financial benefits of airline consolidation, wouldn't comment about whether US Airways was talking with another airline about combining.

Ayer said Alaska Air Group plans to remain independent, but he didn't rule out the possibility of consolidating if it makes sense for the company.

''It's not as though we have blinders on,'' Ayer said. ''We understand we're part of the industry, and we need to be aware of what's happening, and if that does produce opportunities for us, then we'll be looking at that.''

Neidl said he expects the industry to consolidate this year. The only other way to turn a profit with fuel costs so high would be to raise prices, Neidl said.

''But they're all afraid to do that in a weakening economy,'' he said.

For the fourth quarter, US Airways reported a loss of $79 million, or 87 cents per share, in contrast to a profit of $12 million, or 13 cents, in the year-ago period. Revenue edged lower to $2.78 billion from $2.79 billion.

Excluding special items, US Airways reported a net loss of $42 million, or 45 cents per share, for the period.

Alaska Air Group posted a profit of $7.4 million, or 19 cents per share, versus a loss of $11.6 million, or 29 cents, a year earlier. Revenue rose 8 percent to $853.4 million, due mostly to rising passenger revenue.

However, adjusted for fuel hedging as well as special charges and benefits, Alaska Air's loss widened to $17.9 million, or 46 cents per share, from $3.4 million, or 8 cents.

US Airways' costs for fuel and related taxes surged 26.9 percent in the fourth quarter to $730 million as oil prices touched new highs. Meanwhile, the Tempe, Ariz.-based company's mainline traffic fell 3.2 percent as it trimmed capacity 4.6 percent.

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AP business writers Elizabeth M. Gillespie and Lauren LaCapra contributed to this story.