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Airlines earnings show signs of recovery
DALLAS - Two of the nation's largest airlines gave signs Wednesday that the industry is turning the corner after five years of heavy losses by packing planes and raising fares at the start of the summer travel season.
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Southwest Airlines Co. and the parent of American Airlines, the biggest U.S. carrier, met or beat Wall Street's profit forecasts for the second quarter despite flying into the headwind of higher fuel prices. Southwest shares rose 8.2 percent.
Analysts said the results at Southwest and AMR Corp. indicated that the airline industry is making a comeback, albeit one that is threatened by uncertainty over the economy and fuel prices.
"They proved they can make money at these fuel prices, at least in the busy second quarter," said Ray Neidl, an analyst with Calyon Securities. "We still have to get through the slower winter period and see where fuel prices go."
Southwest, the most consistently profitable U.S. carrier, said Wednesday its profit more than doubled, to $333 million, or 40 cents per share, in the three months ended June 30. That compares with $144 million, or 18 cents per share, a year ago.
Excluding gains from hedging its fuel purchases, the company said, it earned $273 million, or 33 cents per share in the most-recent quarter.
Analysts polled by Thomson Financial had predicted earnings per share of 26 cents.
Southwest, which has been profitable every quarter since the start of 1991, said revenue rose 26 percent to $2.45 billion from $1.94 billion a year ago, topping analysts' forecast of $2.3 billion.
Shares of Southwest gained $1.30, to close at $17.24 on the
New York Stock Exchange. That's near the top of their 52-week range of $13.05 to $18.20.
Southwest jets averaged 78 percent occupancy in the second quarter, up from 72.5 percent a year ago. Analysts said the company benefited from a reduction of flights by other carriers and from consumers who opted for short flights instead of paying $3 a gallon to drive.
Chief Executive Gary C. Kelly suggested that the only threats to his airline's continued prosperity are a recession or rapid expansion by other airlines, which could drive fares down by increasing the supply of seats for sale.
Southwest has bucked the industry by adding planes and flights while still making money. That's largely because several years ago, it started buying options to get fuel at set prices. For this year, the Dallas-based carrier will buy nearly three-fourths of its fuel at roughly half the current price at airport pumps.
However, Southwest has only enough long-term options to cover about one-third of its fuel for 2008 and 2009. The continued surge in oil prices has made hedging more expensive.
Southwest, like other carriers, has also raised fares four times this year. The increases don't seem to be driving passengers away, judging from the full loads on many flights.
But Kelly said unsold seats are increasing on a few routes, which he said suggests "that fares have been pushed about as far as they can be pushed."
Overall, the airline reported that traffic this month has been heavy and bookings for the rest of the July-September quarter are strong.
Fort Worth-based AMR recorded only its second profitable quarter excluding those helped by one-time items in the past five years, and its best April-June period since 1998.
AMR said it earned $291 million, or $1.14 per share, in the three months ended June 30, up from $58 million, or 30 cents a share, a year ago. The latest results matched the forecast of analysts surveyed by Thomson Financial.
Revenue rose 12.5 percent to $5.98 billion from $5.31 billion a year ago and slightly higher than the $5.93 billion that analysts had expected.
That boost in revenue was enough to offset high fuel prices. American and its regional affiliate, American Eagle, spent $1.71 billion on fuel in the second quarter, nearly 30 percent more than a year ago. American has been culling gas-guzzlers from its fleet and adding mileage-stretching winglets to remaining planes.
American's planes averaged 82.6 percent occupancy, up from 79.5 percent a year earlier.
"Our performance indicates very clearly that we are on the right track, but also demonstrates just as clearly that we have more work to do to return our company to financial health," said Chairman and Chief Executive Gerard Arpey.
Analysts expect AMR to remain profitable the rest of the year, but barely.
Philip Baggaley, an analyst with Standard & Poor's, said another jump in oil prices would be a double-whammy raising American's fuel costs and weakening the U.S. economy, which he said would undercut higher fares. He said with planes so full, airlines can't add many more passengers and really need higher fares to continue their turnaround.
"This is somewhat of a landmark breaking solidly into the black for the first time in about five years," Baggaley said. "But the rate of improvement will probably slow from here on out."
AMR shares rose 26 cents to close at $24.62 on the NYSE. They have ranged from $10 to $29.32 in the past 52 weeks.
A baggage tug heads for the terminal as a Southwest Airlines plane is unloaded at a gate at Sea-Tac International Airport in SeaTac, Wash., on Saturday, July 15, 2006. Southwest Airlines Co. on Wednesday said its second-quarter profit more than doubled despite higher fuel costs, driven by higher passenger traffic and capacity. (AP Photo/David Zalubowski)
DALLAS - Two of the nation's largest airlines gave signs Wednesday that the industry is turning the corner after five years of heavy losses by packing planes and raising fares at the start of the summer travel season.
ADVERTISEMENT
Southwest Airlines Co. and the parent of American Airlines, the biggest U.S. carrier, met or beat Wall Street's profit forecasts for the second quarter despite flying into the headwind of higher fuel prices. Southwest shares rose 8.2 percent.
Analysts said the results at Southwest and AMR Corp. indicated that the airline industry is making a comeback, albeit one that is threatened by uncertainty over the economy and fuel prices.
"They proved they can make money at these fuel prices, at least in the busy second quarter," said Ray Neidl, an analyst with Calyon Securities. "We still have to get through the slower winter period and see where fuel prices go."
Southwest, the most consistently profitable U.S. carrier, said Wednesday its profit more than doubled, to $333 million, or 40 cents per share, in the three months ended June 30. That compares with $144 million, or 18 cents per share, a year ago.
Excluding gains from hedging its fuel purchases, the company said, it earned $273 million, or 33 cents per share in the most-recent quarter.
Analysts polled by Thomson Financial had predicted earnings per share of 26 cents.
Southwest, which has been profitable every quarter since the start of 1991, said revenue rose 26 percent to $2.45 billion from $1.94 billion a year ago, topping analysts' forecast of $2.3 billion.
Shares of Southwest gained $1.30, to close at $17.24 on the
New York Stock Exchange. That's near the top of their 52-week range of $13.05 to $18.20.
Southwest jets averaged 78 percent occupancy in the second quarter, up from 72.5 percent a year ago. Analysts said the company benefited from a reduction of flights by other carriers and from consumers who opted for short flights instead of paying $3 a gallon to drive.
Chief Executive Gary C. Kelly suggested that the only threats to his airline's continued prosperity are a recession or rapid expansion by other airlines, which could drive fares down by increasing the supply of seats for sale.
Southwest has bucked the industry by adding planes and flights while still making money. That's largely because several years ago, it started buying options to get fuel at set prices. For this year, the Dallas-based carrier will buy nearly three-fourths of its fuel at roughly half the current price at airport pumps.
However, Southwest has only enough long-term options to cover about one-third of its fuel for 2008 and 2009. The continued surge in oil prices has made hedging more expensive.
Southwest, like other carriers, has also raised fares four times this year. The increases don't seem to be driving passengers away, judging from the full loads on many flights.
But Kelly said unsold seats are increasing on a few routes, which he said suggests "that fares have been pushed about as far as they can be pushed."
Overall, the airline reported that traffic this month has been heavy and bookings for the rest of the July-September quarter are strong.
Fort Worth-based AMR recorded only its second profitable quarter excluding those helped by one-time items in the past five years, and its best April-June period since 1998.
AMR said it earned $291 million, or $1.14 per share, in the three months ended June 30, up from $58 million, or 30 cents a share, a year ago. The latest results matched the forecast of analysts surveyed by Thomson Financial.
Revenue rose 12.5 percent to $5.98 billion from $5.31 billion a year ago and slightly higher than the $5.93 billion that analysts had expected.
That boost in revenue was enough to offset high fuel prices. American and its regional affiliate, American Eagle, spent $1.71 billion on fuel in the second quarter, nearly 30 percent more than a year ago. American has been culling gas-guzzlers from its fleet and adding mileage-stretching winglets to remaining planes.
American's planes averaged 82.6 percent occupancy, up from 79.5 percent a year earlier.
"Our performance indicates very clearly that we are on the right track, but also demonstrates just as clearly that we have more work to do to return our company to financial health," said Chairman and Chief Executive Gerard Arpey.
Analysts expect AMR to remain profitable the rest of the year, but barely.
Philip Baggaley, an analyst with Standard & Poor's, said another jump in oil prices would be a double-whammy raising American's fuel costs and weakening the U.S. economy, which he said would undercut higher fares. He said with planes so full, airlines can't add many more passengers and really need higher fares to continue their turnaround.
"This is somewhat of a landmark breaking solidly into the black for the first time in about five years," Baggaley said. "But the rate of improvement will probably slow from here on out."
AMR shares rose 26 cents to close at $24.62 on the NYSE. They have ranged from $10 to $29.32 in the past 52 weeks.
A baggage tug heads for the terminal as a Southwest Airlines plane is unloaded at a gate at Sea-Tac International Airport in SeaTac, Wash., on Saturday, July 15, 2006. Southwest Airlines Co. on Wednesday said its second-quarter profit more than doubled despite higher fuel costs, driven by higher passenger traffic and capacity. (AP Photo/David Zalubowski)
