Airlines turning corner?
07-19-2006, 10:19 PM
#1
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Airlines turning corner?
Deseret Morning News, Thursday, July 20, 2006
Airlines turning corner?
Southwest, American do well despite fuel costs
By David Koenig
Associated Press
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.
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."
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.
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.
Airlines turning corner?
Southwest, American do well despite fuel costs
By David Koenig
Associated Press
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.
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."
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.
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.
07-20-2006, 09:41 AM
#2
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i think we have a false feeling of security about turning the corner, there are still lots of holes. if, god forbid, another 9/11 type disaster shook the airlines, it would probably impact airlines way worse than the first one.
07-20-2006, 06:42 PM
#3
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Originally Posted by hatetobreakit2u
i think we have a false feeling of security about turning the corner, there are still lots of holes. if, god forbid, another 9/11 type disaster shook the airlines, it would probably impact airlines way worse than the first one.
07-21-2006, 06:32 PM
#4
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You two make a very good point...we shouldn't be lulled into a false sense of security. However, theres no denying that there are positive signs of some welcome changes in the industry such as those mentioned in that article. CO has also posted profits and is the only legacy to both have no pilots on furlough and actively hiring new ones. This was unheard of even last year. Also remember one thing, what you say about another 9/11 happening and the results is true, if it were to happen, but thats only speculation at this point; not necessarily imminent, God willing. On the other hand, the numbers quoted in those articles are fact. I think it's a safe bet to conclude we might see other airlines posting profits soon. Just some food for thought.
07-21-2006, 07:40 PM
#5
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I think you would be hard pressed see another 9/11, in the style of hijacking planes. I think Pax would fight to the death now as opposed to what people typically thought the purpose of a hijacking was before. My parents where on an Air France flight a year ago on there way back from Paris and just after takeoff an Old Indian man (As in India) stood up an started crawl over PAXs to get to the aisle. Everybody screaming and yelling at him to sit down and they almost attacked him. As it turns out he was just old, did not know any better, and had to go the bathroom. Though people were still ready to put him down.
07-24-2006, 09:41 AM
#6
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Posts: 222
Originally Posted by RockBottom
Excluding gains from hedging its fuel purchases, the company said, it earned $273 million, or 33 cents per share, in the most-recent quarter.
07-24-2006, 10:17 AM
#7
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Unfortunately I am too busy.
If you would like to do it for me, tell them to view this thread.
I think I even got a Southwest pilot to admit he was wrong.
Check page 3 (or before on my posts)
http://www.airlinepilotforums.com/showthread.php?t=4958
American made 6X as much as Southwest without fuel hedges.
Continental made 4X as much as Southwest without fuel hedges.
Not wishing them bad. Just saying that once their fuel hedges run out, they will not be invincible like they were the last 5 years. Welcome to the a level playing field Southwest. It's a rough world out there.
P.S. I was searching to buy a ticket on Southwest and other airlines, and I noticed a ticket price on Southwest of $129, while it was slightly higher on America West. Then I realized that was the advertised price WITHOUT all those taxes. America West was infact cheaper. It's funny how every other airlines website shows cost WITH taxes included, except Southwest. Good deception.
If you would like to do it for me, tell them to view this thread.
I think I even got a Southwest pilot to admit he was wrong.
Check page 3 (or before on my posts)
http://www.airlinepilotforums.com/showthread.php?t=4958
American made 6X as much as Southwest without fuel hedges.
Continental made 4X as much as Southwest without fuel hedges.
Not wishing them bad. Just saying that once their fuel hedges run out, they will not be invincible like they were the last 5 years. Welcome to the a level playing field Southwest. It's a rough world out there.
P.S. I was searching to buy a ticket on Southwest and other airlines, and I noticed a ticket price on Southwest of $129, while it was slightly higher on America West. Then I realized that was the advertised price WITHOUT all those taxes. America West was infact cheaper. It's funny how every other airlines website shows cost WITH taxes included, except Southwest. Good deception.
Last edited by ryane946; 07-24-2006 at 10:19 AM.
07-24-2006, 11:21 AM
#8
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Joined APC: Feb 2006
Posts: 292
Originally Posted by ryane946
Not wishing them bad. Just saying that once their fuel hedges run out, they will not be invincible like they were the last 5 years. Welcome to the a level playing field Southwest. It's a rough world out there.
P.S. I was searching to buy a ticket on Southwest and other airlines, and I noticed a ticket price on Southwest of $129, while it was slightly higher on America West. Then I realized that was the advertised price WITHOUT all those taxes. America West was infact cheaper. It's funny how every other airlines website shows cost WITH taxes included, except Southwest. Good deception.
P.S. I was searching to buy a ticket on Southwest and other airlines, and I noticed a ticket price on Southwest of $129, while it was slightly higher on America West. Then I realized that was the advertised price WITHOUT all those taxes. America West was infact cheaper. It's funny how every other airlines website shows cost WITH taxes included, except Southwest. Good deception.
07-24-2006, 11:55 AM
#9
Gets Weekends Off
Joined APC: Oct 2005
Posts: 185
Its pretty obvious that a 9/11 style attack will not happen again unless they (terrorists) are stupid. We all know as pilots the areas that need a lot of work and we will not discuss. These bastard pricks are in it for the long term and we can't forget that. Most analysts believe it is not if but when. It is better that we too feel this way so that we are always ready and on guard. Remember that whether you are aware or not we will be at war for a long time and they will do anything and everything they can to kill us. Not trying to give doom and gloom here, I am just trying to keep everyone in check with REALITY. Hope for the best and plan for the worst (Thats seems to be something the airline management can't follow). Remember that you and I are at war and its not just another traditional soldiers war.
Lets keep this country free - One dead terrorist at a time.
Lets keep this country free - One dead terrorist at a time.
Last edited by flyerNy; 07-24-2006 at 12:05 PM.
07-24-2006, 01:05 PM
#10
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Position: Engines Turn Or People Swim
Posts: 39,261
Originally Posted by Packer Backer
Man, what is your problem with Southwest?? Is it because they were smart enough to purchase fuel hedges?? If fuel prices had gone the other way and Southwest was paying more than others, would you be still complain that the field wasn't level?
It didn't have anything to do with being smart...EVERY organization that uses energy in large quantities will hedge it, including all airlines. Heges are normally just a stability thing, dampen the routine fluctuations out over time to allow for easier business planning...nobody expected oil to triple in price
But post 9/11 SWA was one of the few airlines which had the credit rating to buy hedges...they have reaped a huge windfall by being the only major to have massive hedges in the last few years (cactus had some too).
It had more to do with timing than anything else.
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