Carriers warned to slow UP

Airline analysts say one of their top concerns at the start of 2004 is that the industry could slow its own recovery by adding capacity too quickly. Scheduled to begin reporting their fourth-quarter earnings this week, major carriers are expected to post more than $1 billion in losses, a significant improvement from the same period a year ago, when the industry had roughly $3 billion in red ink. Blaylock & Partners airline analyst Ray Neidl said Monday that the industry did a ‘’commendable’’ job of reducing non-labour expenses in 2003, primarily by using aircrafts more efficiently. But he’s worried, he added, that carriers may have become too optimistic about their near-term turnaround prospects. Neidl and other analysts fear that the number of available seats will grow too fast in 2004, negating the potential benefits of the anticipated increase in passenger demand by putting downward pressure on ticket prices and profit margins, or “yields.”

Neidl predicted that industrywide capacity will grow by 8 to 9 percent in 2004, while Lehman Brothers airline analyst Gary Chase put the figure at 7 to 8 percent. Forecasts for increased passenger demand are in roughly the same range. Chase wrote in a report published Monday that carriers had ‘’experienced yield weakness, which we believe is due in part to capacity creep,’’ or growth. He added that he expects a ``very challenging 2004 in the absence of a meaningful improvement in demand.’’ According to Neidl, the factors underlying the anticipated $1.1 billion net loss in the fourth quarter are the weaker-than-expected holiday travel, higher fuel costs and bargain hunting by business travelers. Neidl said he did not expect hub-and-spoke carriers like American and Delta to report profits. In contrast, he anticipates that low-cost carriers like AirTran Airways, JetBlue and Southwest, along with some regional carriers, will be profitable and help bring total industry losses below $1 billion.

Industrywide losses for 2003 are expected to fall somewhere between $5 billion and $6 billion, according to industry officials. The industry lost more than $9 billion in 2002. James C May, the chief executive of the Air Transport Association, the industry’s main trade group, said last week that he expects losses to come in at the low end of that range, in part because carriers have reduced their annual expenses by $10 billion. On Wednesday, Delta, which lost $734 million in last year’s fourth quarter, will be the first major carrier to report earnings. Delta is the largest carrier at Fort Lauderdale-Hollywood International Airport.