As Airlines Post Results, Capacity Is the Question
Investors are bracing for ugly numbers as U.S. airlines start reporting their first-quarter results this week amid a recession that has pushed industry traffic off a cliff.</br></br>They also will be seeking clues from airline executives on whether passenger demand is starting to rebound or whether they will institute new capacity cuts as they enter the April-August flying season, typically when carriers make most of their money.</br></br>Airlines already slashed their available seat miles by about 7% in the first quarter compared with the same period in 2008. Traffic has fallen further, though, declining at least 10% in March compared with a year earlier. Revenue is being dragged down even more by fare sales and a plunge in pricier cross-border and premium-class bookings.</br></br>Most U.S. airlines are expected to unveil big first-quarter losses, including AMR Corp.'s American Airlines, the first major carrier to report, on Wednesday. Some low-cost carriers, including Southwest Airlines Co., which reports on Thursday, could post small quarterly profits.</br></br>U.S. airlines also likely will be weighed down by further losses from fuel hedges during the first half of 2009 as they continue unwinding derivatives contracts. The contracts -- designed to lock in lower fuel prices after energy costs soared -- began backfiring last year as oil prices plummeted.