Most of the earnings that have come out so far this season have been positive, for the companies and often the industries. Airlines continue to be an obvious exception.
Continental (CAL) posted a loss of $213 million for the June quarter, an EPS deficit of $1.72. In the same quarter a year ago the airline had red ink of only $5 million. As a result of its struggles, Continental will cut another 1,700 jobs and raise some fares. Revenue dropped almost 23 percent to $3.13 billion.Continental hopes to bring in an extra $100 million over the next year with higher fees, mostly on baggage. Starting August 19, the first checked bag on domestic flights will cost $20, up $5, and the second bag will cost $30, for passengers who fail to use online check-in. Other fees are on the way.
But the fees may backfire. The flying public is already growing more tentative about spending money on air travel, holding off unless it is absolutely necessary. The recession has savaged traffic and cautious consumers are almost certain to shop for the lowest fares that they can find. Travel e-commerce sites may help make it easier for customers to book seats, but they are also nearly perfect ways to find budget tickets.
The Continental news raises the question again: what should airlines with poor balance sheets do if the recession in air travel lasts through the end of the year? Bankruptcies, so long a part of the industry, may be about to make a comeback.
Douglas A. McIntyre is an editor at 24/7 Wall St.