For the U.S. airline industry, this year's third quarter offered a rare glimpse of success. Setting aside second-quarter gains generated primarily from a federal cash infusion, the third quarter—typically strong for the industry—was the first in more than three years in which most major carriers turned a profit. The news is not all positive. Delta Air Lines remained in the red and United Airlines also is expected to post a net deficit.
Meanwhile, declining business mixes, higher fuel costs and aggressive capacity increases point to fresh losses throughout the industry for the current quarter and a challenging start to 2004.
For now, however, several major and smaller carriers can hang their hats on stronger results driven by healthy summer traffic rebounding after the war in Iraq and, in some cases, lower costs achieved in the wake of employee concessions.
AMR Corp., parent of American Airlines, for example, squeezed out a $1 million net profit, a year after dropping almost $1 billion. Its last net gain came in the fourth quarter of 2000. "We should be doing much better at this time of year than simply breaking even," said AMR president and CEO Gerard Arpey.
The world's largest carrier made strides on both sides of the equation, increasing revenue per available seat mile by more than 8 percent while lowering cost per available seat mile by nearly 9 percent. American's year-over-year increase in passenger yield, 2.5 percent, was the first such increase since early 2001.
"There are signs of revenue improvement, but they largely are traffic-driven," said AMR CFO Jeff Campbell, noting "soft" third-quarter business traffic. "The take-away message for the quarter again is cautious optimism."
AMR ended the quarter with a record $3.3 billion in cash and short-term investments, more than double the $1.6 billion it sat on in April.
At Northwest Airlines, a surprising $42 million net profit followed a $46 million loss a year ago. "These results do not signal an end to our challenges or diminish the need to address our cost structure in light of the changes in the revenue environment," said CEO Richard Anderson.
Northwest in the quarter increased passenger revenue per available seat mile, yield and passenger load factor, but experienced lower total passenger revenues. Overall operating expenses fell 5.7 percent. The carrier finished the quarter with a strong liquidity position of $3 billion in cash and equivalents.
Continental Airlines' quarterly gain of $133 million included $100 million from selling 17 million shares of ExpressJet stock. The carrier increased passenger revenues 7.4 percent, revenue passenger miles 3.2 percent, revenue per available seat mile 4.8 percent and load factor by 4.3 points. Yields were marginally down, however, and unit costs rose 1.2 percent.
"We still have a year-to-date loss with a tough six-month period ahead of us," said CEO Gordon Bethune. Continental ended the third quarter with more than $1.6 billion in cash and short-term investments and expects a "significant" fourth-quarter loss.
Southwest Airlines continued its unmatched performance, netting $106 million and extending its profitable streak to 50 consecutive quarters. Not only did the low-fare leader improve earnings year over year, but it also recorded higher passenger revenues, RASM, passenger yield, traffic and load factor. Southwest officials also pointed to "encouraging signs from a corporate travel standpoint" and a higher percentage of full-fare tickets sold.
The carrier, however, faces higher costs, due primarily to a bigger fuel tab and more expensive labor rates, that, in part, prompted it to finally eliminate travel agency commissions
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Meanwhile, America West Holdings, parent of low-cost carrier America West Airlines, reported another quarter of profitability, posting net earnings of $33 million. Passenger revenues soared 12 percent, while unit costs fell another 2 percent to 7.57 cents.
Alaska Airlines also improved revenues while decreasing costs. Its parent company, Alaska Air Group, posted a net income of $40.7 million, more than triple last year's result.
Several smaller carriers also reported continued profitability in the third quarter, including: AirTran Airways, ATA Airlines, Atlantic Coast Airlines, JetBlue Airways and Canada's WestJet.
On the red side of the ledger, and roughly in line with analyst estimates, Delta Air Lines posted a net loss of $164 million, significantly narrower than the $326 million loss from a year earlier. The carrier reported higher passenger revenues, yield and traffic. Though unit costs decreased 1 percent, Delta said high pilot costs continue to be a challenge.
The carrier finished the quarter with a strong cash position of $2.9 billion. The carrier also said it will sell to a third party 11 new Boeing 737-800 aircraft scheduled for delivery in 2005. Delta said the transaction will reduce expenditures by $500 million.
Delta's East Coast foe US Airways has struggled since emerging from bankruptcy protection earlier this year. The company dropped $90 million in the quarter, significantly less than in last year's third quarter. "We simply cannot be satisfied with losing less money than before when the goal is to be profitable and successful," said US Airways president and CEO David Siegel, citing the challenges of rapid growth at low-cost competitors and "dramatic and fundamental changes in corporate travel practices." US Airways did post a 7 percent improvement in mainline RASM and a five-point jump in load factor while marginally lowering costs. The company's common stock last week resumed trading on the NASDAQ stock market under the symbol UAIR.
Bankrupt UAL Corp., parent of United Airlines, is scheduled to report third-quarter earnings this week. Analysts predict a loss of roughly $2 per share.