Delta sets industry record for yearly losses

ATLANTA -- Delta Air Lines Inc. blamed high fuel prices, low fares and hefty charges as it reported the worst annual financial performance in the industry's history on Thursday, culminating with a $2.2 billion fourth-quarter loss.

Continental Airlines Inc. cited similar difficulties and posted a smaller-than-expected $206 million loss, bringing cumulative fourth quarter losses reported so far by five large U.S. airlines to $3.17 billion.

A year earlier the same five carriers, which include American, Northwest and Southwest, reported a combined fourth quarter profit of $33 million. The soaring cost of jet fuel was a huge drain on the industry in 2004, undermining the growth in passenger traffic as well as carriers' efforts to reduce labor expenses.

Delta shares plunged 58 cents, or 9.8 percent, to close at $5.37 in Thursday trading on the New York Stock Exchange, where Continental shares fell 8 cents to close at $9.37.

Analysts said Delta, Continental and other struggling airlines must find a way to alter the path they're on. "Losses can't be sustained forever," said Bill Warlick, an airline analyst at Fitch Ratings in Chicago.

Delta's results, which missed Wall Street's lowered expectations, pushed the Atlanta-based carrier's annual loss to $5.2 billion for all of 2004, dwarfing the previous record loss of $3.5 billion reported in 2002 by AMR Corp.

While 2005 is likely to be another tough year, Delta executives said their efforts to cut costs and attract more fliers is the right long-term strategy for the nation's third-largest carrier.

"If Delta is to survive, we must develop a fundamentally different way of doing business, which is what we're doing," chief executive Gerald Grinstein said during a Web-based conference with investors.

Grinstein told analysts that the airline's results are clearly disappointing. But, he said, he believes the carrier is making progress on its transformation plan.

The plan includes job cuts, pilot wage reductions, restructured financing and a fare overhaul that has lowered Delta's most expensive fares by up to 50 percent on routes nationwide. Delta also is improving the in-flight experience for its passengers, including refurbishing its planes to make the interiors brighter, adding leather seats and revamping employee uniforms.

For the three months ending Dec. 31, Delta said its net loss was $2.21 billion, or $16.58 a share, compared with a loss of $332 million, or $2.69 a share, in the same period a year ago.

Excluding one-time items -- $1.4 billion in non-cash charges -- Delta said it lost $780 million, or $5.88 a share. On that basis, analysts surveyed by Thomson First Call were expecting a net loss of $5.51 a share.

Delta ended the quarter with $1.8 billion in unrestricted cash. Revenue in the October-December period was $3.64 billion, an increase of 0.9 percent from $3.61 billion a year ago.

The bulk of the charges Delta reported in the fourth quarter relate to reductions in the fair value estimates of two of its feeder carriers -- Atlantic Southeast Airlines Inc. and Comair Inc. Delta said this resulted from increased fuel prices, low fares and costs associated with its turnaround plan.

On Christmas, Comair had to cancel all 1,100 of its flights because of a computer glitch and chief financial officer Michael Palumbo estimated Thursday that the incident cost the airline $20 million in lost revenue and added operating expenses.

Delta nearly fell into bankruptcy 2 1/2 months ago before winning deep concessions from pilots and fresh financing from creditors.

Analysts say it will take several more months to determine if Delta's transformation plan is working. Wild cards that remain: fuel prices, the economy and the company's recent fare overhaul. Debt and pension obligations also are a worry. Delta, which has more than $20 billion in total debt, said Thursday it has $600 million in debt maturities in 2005 and at least $400 million in pension funding obligations.

Continental, meanwhile, cited continued high fuel costs, fare erosion from competitive pressures, and what it called excessive government taxes and fees for its fourth-quarter loss, which amounted to $3.12 a share. Continental had earned $47 million, or 61 cents a share, in the fourth quarter a year ago.

Continental, excluding special items, reported a quarterly loss of $174 million, or $2.62 per share -- better than the Thomson First Call mean estimate of $3.29 loss per share.

United Airlines parent UAL Corp., US Airways Group Inc., America West Holdings Corp. and Alaska Air Group Inc. have yet to report fourth-quarter results, but all are expected to report losses.

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On the Net:

http://www.continental.com

http://www.delta.com