- The Washington Times - Tuesday, April 21, 2009

ATLANTA (AP) - Fee-weary travelers will get another dose of what they don’t need, just in time for the peak summer season. Delta Air Lines Inc. said Tuesday most passengers will have to pay $50 to check a second bag on international flights, as the carrier and the parent of United Airlines posted nearly $1.2 billion in combined first-quarter losses.

United, AMR Corp.’s American Airlines and US Airways Group Inc. said they were studying Delta’s decision, but didn’t immediately announce plans to match it. Continental Airlines Inc. declined to comment. Among foreign carriers, British Airways has a fee for a second checked bag for some passengers for travel to some international destinations.

Delta’s president, Ed Bastian, said the continued “unbundling of our pricing” is the right course for the airline.

Atlanta-based Delta, the world’s biggest airline operator, said its fee was effective Tuesday for travel beginning July 1. The company expects to generate more than $100 million annually from the new fee. Delta already charges fees for the first and second checked bags on domestic flights.

Elite frequent fliers and active military are exempt from paying Delta’s new fee for a second checked bag on international flights. The first checked bag on international flights remains free.

Delta also said that it will ground 40 to 50 mainline aircraft, including its entire fleet of 14 B747-200 freighters in its cargo unit. Other aircraft to be taken out of its mainline system include some Boeing 757s and MD88s, executives said. In addition, Delta will remove 30 regional jets from service.

United, too, has been working to get costs in line with reduced flying, and it cut $1.1 billion in overall expenses compared with the same quarter last year. It raised nearly $500 million by maneuvers such as borrowing against planes and engines, moving a cargo facility in Chicago and issuing equity.

United, a unit of Chicago-based UAL Corp., expects to collect $1.1 billion this year from fees for items such as checked bags, better seats, and changed tickets, Chief Operating Officer John Tague told analysts on a conference call. That would be more than $200 million more than it collected last year, when United also had more passengers.

Shares of both airlines soared by double-digit percentages Tuesday amid a growing sense that the pace of revenue declines in the industry is easing.

“In short, things aren’t good, but they are not getting worse,” Bastian said on a conference call with analysts and reporters. The carrier expects to be profitable for the year.

Challenges remain.

Summer is typically a busy time for airlines. However, the weak economy has pressured advance bookings.

Bastian said Delta’s domestic occupancy rate based on advance bookings for May and June is down 2 to 4 percentage points year-over-year. Corporate travel trends remain soft.

United reduced flying by 11.3 percent during the quarter that ended March 31. But traffic fell 13.2 percent. The percentage of seats filled fell by 1.7 percentage points.

United said demand fell across all types of travel, but it was especially hurt by a 30 percent drop in first- and business-class travel.

Airlines have been cutting jobs and capacity to weather the global economic downturn.

Delta previously said it will reduce international capacity by 10 percent beginning in September. As a result, in the December 2009 quarter, Delta expects system capacity to be down 6 percent to 8 percent and international capacity to be down 9 percent to 11 percent, year-over-year.

United said it would reduce mainline flying 9 percent to 10 percent for all of 2009.

Chief Financial Officer Kathryn Mikells said the company has “both the willingness and ability to do more if needed.”

Delta lost $794 million in the first three months of the year, or 96 cents a share, compared to a loss of $6.39 billion, or $16.15 a share, for the same period a year ago.

Revenue increased 40 percent to $6.68 billion, but that was skewed by Delta’s acquisition of Northwest Airlines in October. In the year-ago quarter, before the acquisition, Delta posted revenue of $4.77 billion.

Excluding special items, Delta’s first-quarter loss was 84 cents a share. Analysts polled by Thomson Reuters, who generally exclude one-time items from their estimates, expected Delta to post a loss of $1.01 per share for the first quarter on sales of $6.7 billion.

United’s parent lost $382 million in the quarter, or $2.64 a share, compared with a loss of $549 million, or $4.55 per share during the same period last year. United said it lost $579 million, or $4 per share, not counting non-cash hedging gains and some accounting charges.

Revenue fell 21.7 percent to $3.69 billion, from $4.71 billion a year ago.

Analysts surveyed by Thomson Reuters expected a loss of $4.45 per share on revenue of $3.8 billion.

Delta posted $684 million in realized fuel hedge losses in the quarter. As oil prices soared to $147 a barrel last July, many airlines hedged a portion of their future fuel needs. When market prices came tumbling down in the months that followed, some airlines were stuck with those hedges and had to pay higher prices for a portion of their fuel.

Delta ended the quarter with $5 billion in unrestricted liquidity. United ended the quarter with $2.46 billion in unrestricted cash.

In Tuesday trading, Delta shares rose $1.30, or 19.1 percent, to close at $8.11, while UAL shares rose 76 cents, or 13 percent, to close at $6.63.

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AP Airlines Writer Joshua Freed contributed to this report from Minneapolis.

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On the Net:

Delta Air Lines Inc.: https://www.delta.com

United Airlines: https://www.united.com

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