Airlines losing $50 million per day

Dave Carpenter

Wednesday, Oct. 17, 2001 | 10 a.m.

CHICAGO -- United Airlines' chief executive James Goodwin says the carrier "will perish" sometime next year if it cannot soon stem huge losses that have worsened dramatically since Sept. 11.

His comments came in a letter to employees, obtained Tuesday as United continues to slash its schedule and work force to cope with the drastic decline in air travel caused by last month's terrorist attacks.

"Before September 11 we were not in a comfortable financial state, with costs exceeding our revenue on a daily basis," Goodwin wrote. "Today, the situation is exacerbated with costs exceeding revenues at four times the pre-September 11 rate. Today, we are literally hemorrhaging money.

"Clearly this bleeding has to be stopped -- and soon -- or United will perish sometime next year."

Even with a $15 billion industry bailout, airline officials have speculated that bankruptcy was imminent for weaker carriers, although they did not name them.

"We're so far away from break-even that it's not even worth calculating," David Swierenga, chief economist at the Air Transport Association, said last month after the bailout had been approved.

Even before the attacks, the nation's second-largest airline was projected to lose $1 billion this year because of the economic slump, a falloff in business travel and lingering labor and service woes. United is more dependent on business travel than other major airlines, and subsequently has suffered greater losses both before and after the attacks.

Last week, United said financial losses stemming from the attacks and subsequent grounding of its fleet probably will exceed the company's share of aid coming from a federal bailout package -- so far, $390 million of an expected $800 million.

Glenn Engel, an analyst for Goldman Sachs, said the airline industry is losing a combined $50 million a day even with a recent recovery in air travel. A lot of airlines could run out of cash before the end of 2002 without more improvements, he said, although they could still operate from bankruptcy while awaiting a turnaround.

"I'd be shocked if United perishes a year from now," he added.

Another analyst, Helane Becker of the Buckingham Research Group, said Goodwin's scenario rings true and probably applies to every major U.S. airline.

"The numbers they're going to report in this quarter are going to be ridiculously horrible," she said, estimating a $35-a-share loss for United parent UAL Corp. which would triple the amount of the second quarter, when losses totaled $605 million.

"They've lost billions of dollars and will lose billions more."

United has already announced plans to lay off about 20,000 of its 100,000 employees. On Monday, it said it is trimming its daily schedule to 1,664 flights -- down about 30 percent since the attacks -- as of Oct. 31. In Las Vegas, the airline is cutting nine more flights on top of three already cut after the terrorism.