Fuel Hedges Burn Continental, US Airways

Four U.S. airlines became the latest major carriers to report quarterly losses and to post hundreds of millions of dollars in charges from their fuel hedging programs.

The fourth-quarter results Thursday from Continental Airlines, US Airways, JetBlue Airways and Alaska Air follow losses reported by other major airlines that also were battered by volatile fuel prices and a shaky economy.

Even a stunning 75 percent drop in the price of oil in the second half of last year managed to sting the airlines, many of which saw their fuel hedges become liabilities. Carriers remained on the defensive this year as some cut capacity to bolster fares as travel budgets shrank.

"The impact of high oil prices acted as a catalyst for airlines to take unprecedented measures to bring the supply of seats back into balance with passenger demand," US Airways Chief Executive Doug Parker said in a statement.

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"We believe these actions have significantly softened the blow from the economic downturn that we as an industry now face," he said.

Last year, the airline industry slashed capacity -- the number of seats for sale -- and some carriers plan more cuts.

Continental, the No. 4 U.S. airline, said it expected to reduce its mainline capacity by 7.4 percent in the first quarter and by 3.5 percent to 4.5 percent for 2009.

"That's the only thing that's going to save us in the first half," said Calyon Securities airline analyst Ray Neidl. "We're looking for a lot of weakness in the first half of the year."

Neidl said that if airlines can retain their capacity discipline, they can be profitable in the second half of 2009.

Continental Results

Continental said its fourth-quarter net loss widened to $266 million, or $2.33 per share, from $32 million, or 33 cents per share, a year earlier.

The company said it took a $44 million charge for payouts to retiring pilots and a $125 million one-time loss on some fuel hedges. The airline had said last week that it would take the charge on some fuel derivative contracts with a bankrupt counterparty.

Excluding one-time items, Continental reported a loss of 84 cents per share. On that basis, Wall Street forecast a loss of 89 cents, according to Reuters Estimates.

Continental said its revenue fell 1.5 percent in the fourth quarter to $3.5 billion.

The company's shares were up 32 cents, or 2 percent, at $16.55 in morning New York Stock Exchange trade.

US Airways Results

US Airways said its fourth-quarter net loss widened to $541 million, or $4.74 per share, from $79 million, or 87 cents per share, a year earlier.

The carrier made headlines this month when one of its pilots was forced to land a plane on the Hudson River in New York.

Excluding one-time items, the company reported a loss of $1.93 per share. That compares with Wall Street forecasts for a loss of $2.15 per share, according to Reuters Estimates.

Special charges included $234 million of losses resulting from mark-to-market adjustments on fuel hedging instruments.

US Airways' revenue fell 0.6 percent to $2.76 billion.

The company's shares rose 17 cents, or 2.3 percent, to $7.47 on the New York Stock Exchange.

JetBlue, Alaska Losses

JetBlue said its pretax loss widened to $49 million for the quarter from $3 million a year earlier. The airline had not completed evaluating tax deductibility, preventing it from finalizing net results until mid-February.

Excluding a $53 million noncash charge for the valuation of auction rate securities, JetBlue reported pretax income of $4 million.

The company recorded $58 million in losses on fuel hedges that settled during the fourth quarter.

JetBlue shares rose 22 cents, or 3.4 percent, to $6.78 on Nasdaq.

Alaska Air also posted a fourth-quarter net loss Thursday. The loss of $75.2 million, or $2.08 per share,

compared with a year-earlier net profit of $7.4 million or 19 cents per share.

Among the special charges was a realized loss of $50 million from early termination of fuel hedging contracts.

Alaska Air shares rose $2.31, or 8.7 percent, to $28.92 on the New York Stock Exchange.

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