Most US Airlines Had Good First Quarters
Even with the turbulence of severe winter storms and stubbornly high fuel prices, many of the major airlines are cruising and their stock prices are soaring.
Mergers have reduced competition and made it easier for the airlines to limit the supply of seats and raise average fares. Extra fees bring in billions more each year.
On Thursday, American Airlines and Southwest Airlines reported record profits for the first quarter, usually the weakest time of year for the airlines. That followed a rousing report from Delta Air Lines a day earlier.
Still stuck on the tarmac: United Airlines. While rivals were making money, United lost another $609 million during the first three months of the year. Its shares plunged $4.22, or 9.2 percent, to $41.84 in afternoon trading.
The No. 2 airline company behind American, United Continental Holdings Inc. is struggling to make the 2010 merger of United and Continental work. As costs rise, United is taking in less per mile from passengers - it's not charging fares high enough to cover expenses.
"This quarter's financial performance is well below what we can and should achieve," conceded United Chairman and CEO Jeff Smisek. He said that the company still had too many parallel technology systems, "and our customer service historically since the merger has not been as good as it should be."
Analysts weren't mollified by the promise to fix problems. On a conference call, the normally cheerful Helane Becker of Cowen and Co. prefaced a question for United executives with, "One of last year's many excuses ... "
And Jamie Baker of J.P. Morgan wondered whether the steps United is taking - things like setting aside more seats for last-minute fliers who pay higher prices - will matter. He said that United faces too much competition at key hubs in San Francisco and Denver.
"I'm just not convinced that even if properly executed ... United has the same profit potential as your primary competitors," Baker said.
Smisek defended United's strategy and assets, admitting only that hub airports in northern cities such as Chicago and Newark, N.J., were more vulnerable to bad winter weather. United said that $200 million of its first-quarter loss was due to 35,000 weather-related flight cancelations.
Jim Corridore, an analyst with Standard & Poor's, said in an interview that United is still paying the price for network meltdowns that caused widespread flight cancelations over the past couple years.
"They certainly say the right things on the conference calls," he said, "but once you make a mistake like they did with their technology - losing customers, the site being down, the reservations systems not being synched properly - it snowballed and they have been playing catch-up ever since."
Excluding integration expenses and other items, United's loss was $1.33 per share as revenue dipped 0.3 percent to $8.70 billion. Analysts expected a loss of $1.35 per share on $8.71 billion in revenue, according to FactSet.
Revenue for every seat flown one mile, a key measure in the airline business, fell 2 percent, which United blamed mostly on canceled flights.
The same figure rose 3 percent at American Airlines Group Inc., the company formed by December's merger of American and US Airways. That helped American swing to a $480 million profit, a record for American for the usually weak first quarter, as revenue rose 6 percent. A year earlier, American and US Airways together lost $297 million.
Excluding the sale of takeoff and landing slots at Washington's Reagan National Airport and other one-time gains, American would have earned $402 million, or 54 cents per share, topping analysts' forecast of 48 cents per share.
"In the entire history of American Airlines, we have never earned $400 million in the first three months of a year, but in the first three months since the merger, we did," CEO Doug Parker said in a note to employees.
American's shares were up 77 cents, or 2.1 percent, to $37.86 in afternoon trading.
Southwest Airlines Co. also set a first-quarter record with its profit of $152 million, more than doubling the year-ago number despite 7,500 weather-related flight cancelations that the company said reduced profit by $50 million. Excluding special items, Southwest earned 18 cents per share, beating analysts' forecast of 16 cents per share.
"Demand was very strong and very steady and resilient, you might say, considering the extreme weather," Chairman and CEO Gary Kelly said on a conference call. He gave an upbeat outlook for the April-through-June quarter, with strong bookings and revenue trends plus stable prices for jet fuel. The shares gained 21 cents to $24.29.
Flying the other direction was JetBlue Airways Corp., which has big operations in the Northeast that were hit particularly hard by winter storms. But it still had a profit.
JetBlue said weather cancelations cost $50 million in revenue and $35 million in operating profit, and added to higher labor costs, helped send net income down about 71 percent to $4 million, or a penny per share. Analysts were forecasting 7 cents per share.
Its shares were down 22.5 cents, or 2.6 percent, to $8.365.
On Thursday, Delta said that it canceled more than 17,000 flights in January and February and still beat expectations with a $213 million profit, up from $7 million a year ago.