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AMR and SWA report 2Q profits

Old 07-20-2005, 01:50 PM
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Default AMR and SWA report 2Q profits

Associated Press
American and Continental Report 2Q Profits
07.20.2005, 04:44 PM

American Airlines and Continental Airlines turned profits in the second quarter in spite of sky-high fuel prices, benefiting from increased passenger demand, higher fares and reduced labor expenses.

AMR Corp., the parent of American Airlines, earned $58 million in the April-June period, while Continental Airlines Inc. posted a $100 million profit. Both carriers' results exceeded analysts' expectations.

The positive news does not mean the long-suffering sector is on the verge of an upswing, however. Analysts expect domestic airlines to collectively lose some $5 billion in 2005, in large part because the price of jet fuel is double what it was two years ago.

"They may have won the battle this quarter, but it'll be a long war before they get back into good financial shape," said Robert W. Mann, a Port Washington, N.Y.-based airline consultant.

Executives at American and Continental stressed that more cost-cutting will be needed to stay competitive with low-cost rivals such as Southwest Airlines Co., which last week recorded its 57th consecutive quarter of profitability, with earnings of $159 million.

"Despite the return to profitability this quarter, we've got to acknowledge that our challenges remain great," AMR Chief Executive Gerard Arpey said.

Continental Chief Executive Larry Kellner said he expects "at least one, maybe a couple of bankruptcies" among competitors.

The largest airline at risk of a bankruptcy filing these days is Delta Air Lines Inc., which along with Alaska Air Group Inc. is scheduled to report its second-quarter results on Thursday. On Wednesday, Delta abruptly replaced its chief financial officer, citing in a news release a growing urgency to turn its business around.

AMR's profit was equivalent to 30 cents per share, a significant improvement from last year's net income of 3 cents per share, or $6 million. It beat the 15-cent-per-share estimate of analysts surveyed by Thomson Financial and was the company's first net profit that did not include special items since the fourth quarter of 2000.

Second-quarter revenue at the Fort Worth, Texas-based airline rose 10 percent to $5.31 billion.

Passenger traffic grew by 7.4 percent, ahead of seat capacity which increased by 2.3 percent. Its planes were 79.5 percent full for the quarter, compared with 75.7 percent a year ago.

The rising demand and tighter availability of seats allowed AMR and other carriers to raise the price of leisure fares. Combined with the impact of an industrywide move to lower the most expensive business fares and thereby stimulate traffic, AMR said it had a per-passenger revenue premium of 5.5 percent above the rest of the industry in the second quarter - its highest premium since the end of 2001.

"With oil prices at $60 a barrel .... we've got to find a way to pass that along to our customers," Arpey said.

An analysis of average ticket prices in the 100 busiest U.S. markets by Harrell Associates of New York found that leisure fares were 11 percent higher than a year ago in the second quarter, while business fares were 33 percent cheaper.

Arpey credited the hard work of employees, but he said workers will have to become even more efficient in order for the company to achieve full-year profits in the face of sky-high fuel prices. The company's fuel costs climbed 47.2 percent to $1.35 billion in the quarter.

The high cost of fuel is an industrywide problem.

The price of jet fuel is up 58 percent from a year ago at about $1.75 per gallon on the New York spot market, according to government statistics. In 2000, the last full year in which the U.S. airline industry was profitable, jet fuel costs averaged 78.6 cents per gallon, according to the Air Transport Association, an industry trade group.

Continental Airlines' net income equaled $1.26 per share, reversing a year-ago loss of $28 million, or 43 cents per share. Excluding a gain from the contribution of ExpressJet Holdings Inc. shares to its pension plan, Continental said its adjusted income was $53 million, or 69 cents per share, in the latest quarter.

The company's adjusted profit was well ahead of the average estimate of 20 cents per share from analysts surveyed by Thomson Financial.

Quarterly revenue totaled $2.86 billion, a gain of 12 percent from a year earlier.

Continental, the nation's sixth-largest airline, said its traffic grew 7.2 percent and capacity increased 4.2 percent. Its planes were 80.4 percent full for the quarter, compared with 78.1 percent a year ago.

Fuel costs swelled 48.6 percent to $575 million in the quarter.

Continental shares rose 20 cents, or 1.3 percent, to close at $15.90 Wednesday on the New York Stock Exchange. Shares of AMR rose 24 cents, or 1.7 percent, to close at $14.47, while Delta's rose 4 cents or 1 percent, to close at to $3.91.
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