Transcripts

Airline Earnings May Be Ready To Ascend

SUSIE GHARIB: Airline stocks got a nice lift today after Delta and United Airlines reported smaller than expected quarterly losses. The airline industry has been hard hit by the worst global recession in decades. But as Suzanne Pratt reports, some airline experts see clouds parting for the industry later this year.

SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: As one Delta executive put it today, things aren't good, but they're also not getting any worse. Those words could be echoed throughout the U.S. airline industry, coping with serious turbulence and billions of dollars in losses from the recession. Revenue is way down, as passenger traffic is off sharply, particularly international business travel. Airlines are trimming capacity and cutting costs wherever they can. Lower oil prices are the only bright spot for airlines, but it's a big one, because jet fuel is their largest expense. S&P analyst Jim Corridore says, without the huge drop in oil prices, prospects for the group would be grim.

JIM CORRIDORE, EQUITY ANALYST, STANDARD & POOR'S: If we were sitting with oil at $147 a barrel here, I think that it would be only a matter of time before half the industry was back in bankruptcy. It would be a huge drain on their cash balances at a time when passengers are not traveling.

PRATT: Corridore believes those sharply lower fuel costs will help the industry return to profitability later this year. Veteran airline analyst Helane Becker agrees with that forecast. She says the 50 percent decline in jet fuel costs lets airlines drop ticket prices and stimulate demand.

HELANE BECKER, AIRLINE ANALYST, JESUP & LAMONT: I think the industry should have a fairly good summer. We think they'll cut additional capacity for the fourth quarter. And we think things are bottoming. We definitely think we're going along the bottom here and we're expecting revenues will be down in the second quarter, but not as much as they were in the first.

PRATT: Since January airline stocks, as measured by the Amex airline index, have been in a steep descent. Recently however, the index has started to gain altitude. S&P's Corridore has "buy" recommendations on Delta, Southwest and Continental Airlines.

CORRIDORE: Airlines, like many other cyclical industries, the time to buy these stocks are sometimes when things look their worst. And if we are seeing a bottoming out of traffic, that could be a sign that maybe things are going to get better in the future.

PRATT: A sustained economic downturn could significantly cloud the outlook for airlines. Experts say lower fuel costs can only help so much, if passengers can no longer afford to fly. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.