Originally created 01/21/05

Delta sets annual airline record



ATLANTA - Delta Air Lines Inc., blaming high fuel prices, low fares and hefty charges, capped the worst annual financial performance in the industry's history when it posted a $2.2 billion fourth-quarter loss Thursday. Its shares sank by 8 percent.

The results, which missed Wall Street's reduced expectations, pushed the Atlanta-based carrier's loss to $5.2 billion for all of 2004 and to $8.5 billion since the start of 2001.

Executives at the nation's third-largest airline said Delta's effort to transform its business to reduce costs and attract more fliers is the right approach for the future, even with its immediate losses mounting.

"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 conference with investors.

Also Thursday, Houston-based Continental Airlines Inc., the nation's No. 5 carrier, reported a $206 million loss for the fourth quarter, citing some of the same difficulties as Delta.

Since January 2001, Delta, Continental and the nation's four other big legacy carriers have lost a combined $30 billion - and the red ink is still running. United Airlines parent UAL Corp. of Elk Grove Village, Ill. and US Airways Group Inc. of Arlington, Va., have yet to report their fourth-quarter results, but both are expected to also report losses.

"Losses can't be sustained forever," said Bill Warlick, an airline analyst at Fitch Ratings in Chicago.

Delta's loss for 2004 easily dwarfed the previous annual record loss of $3.5 billion reported by American Airlines' parent AMR Corp. of Fort Worth, Texas, in 2002.

Delta shares fell 48 cents, or 8.1 percent, to $5.47 in afternoon trading on the New York Stock Exchange. Continental shares rose 11 cents to $9.56 on the NYSE.

Delta CEO Grinstein told analysts during the Internet conference 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 aircrafts to make the interior 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 to a loss of $332 million, or $2.69 a share, in the same period a year ago. The latest loss includes $5 million in dividends paid out to preferred shareholders.

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. Analysts had reduced their estimates twice in recent days.

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.

For all of 2004, Delta said it lost $5.22 billion, or $41.07 a share, compared to a loss of $790 million, or $6.40 a share, for the prior year. Twelve-month revenue was $15 billion, compared to $14.1 billion a year ago. The full-year loss includes $19 million in dividends paid out to preferred shareholders.

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 2½ 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. ---

On the Net:

http://www.continental.com

http://www.delta.com



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