Most major airlines expected to post 3Q losses

DALLAS — There isn’t much suspense around the upcoming third-quarter earnings reports from U.S. airlines — most big carriers likely finished in the red — but a recent uptick in travel may indicate a recovery is about to take off.

The expected losses during the normally hectic summer travel season would continue the industry’s two-year slump. A few, mostly smaller airlines, are expected to show a profit.

But two recent trends have brightened that mixed outlook: A few big airlines raised loads of cash to silence talk of possible bankruptcies, and travel demand may finally be perking up. In the past week, several carriers have said September traffic was better than a year ago.

That has investors and travelers wondering whether an airline recovery may be under way and, if so, whether higher fares are coming soon.

Analysts think five of the six largest U.S. airlines lost money in the July-through-September quarter, with only Continental Airlines Inc. turning a profit.

Delta Air Lines Inc. and Southwest Airlines Co. are expected to post narrow losses, according to analysts surveyed by Thomson Reuters as of Thursday. They forecast bigger losses at American Airlines parent AMR Corp., United parent UAL Corp. and US Airways Group Inc.

Three smaller, low-fare airlines — JetBlue, Alaska and AirTran — made money, analysts forecast. Those carriers are insulated from the slump in international travel, and their lower fares may have helped them win over U.S. passengers during the recession.

Rather than the usual obsession with winners and losers, the third quarter may have been more noteworthy for the large amounts of cash that airlines raised to survive the slower winter travel season. AMR, Delta and UAL all made major cash-raising moves late in the quarter.

“That cash is a bridge into next year,” said Hunter Keay, an analyst for Stifel, Nicolaus & Co. Without it, he said, “one to three major U.S. carriers would have faced a real crisis early next year. Now they can start focusing on demand growth.”

In the past week, there have been signs that demand may be picking up. September traffic rose 8.8 percent at Southwest, 7 percent at Continental and 9.8 percent at JetBlue Airways Corp. compared with a year ago.

Those numbers provided a strong end to the quarter. In July and August, Continental’s traffic was down, JetBlue’s was flat and Southwest’s rose but more slowly.

Because airlines have cut capacity — they’re operating fewer flights and sometimes using smaller planes — planes were much fuller on average in September than a year ago.

Those comparisons looked better because September 2008 was a weak month, as the stock market began a sharp slide. Still, analysts said last month’s numbers were impressive.

The airlines “reduced capacity quite a lot, and we’re starting to see something of a recovery in business travel,” said Helane Becker, an analyst for Jesup & Lamont Securities. “Close-in bookings are up, and those are mostly business travelers.”

The September numbers were helped by a number of fare sales and other promotions. As airlines announce their third-quarter numbers, starting with Southwest next Thursday, the executives will be asked whether they can keep the momentum going.

“I’m looking to hear how is October, and how do November and December bookings look?” Becker said.

The combination of more traffic and less capacity or available seats meant that average occupancy soared in September. That was most dramatic at Southwest, where occupancy or “load factor” jumped to 74.7 percent, a gain of more than 11 percentage points from September 2008.

Those full loads were built with cheap fares. Airlines want to raise fares, but they’ve been able to push through three increases this year, down from 15 last year, according to travel Web site FareCompare.com.

But if occupancy remains high and empty seats grow more scarce, “at some point it’s going to have to translate into pricing power” for the airlines, said Keay, the Stifel, Nicolaus analyst.

Airlines are also raising money by boosting fees. Most of the major carriers recently added a $10 surcharge for peak travel days around Thanksgiving, Christmas, New Year’s and even spring break.

Analysts said it was too early to tell how much those holiday bounties would raise.