Air Traffic Soars To New Heights In Second Quarter
<B>Air Traffic Soars To New Heights In Second Quarter</B>
By David Jonas
Despite high fuel costs, the major U.S. airlines for the second quarter ended June 30 generally posted strong financial figures thanks to record traffic levels: Seven of the 10 majors improved quarterly net income and reported earnings per share higher than average Wall Street estimates. The industry as a whole, however, is expected to decline a bit moving forward, with some carriers tempering growth plans and the world's largest carrier, United, warning of lower profits for the remainder of the year.
Continental earlier this month posted its 21st consecutive quarter of profitability, with a net income of $153 million for the second quarter, excluding extraordinary charges, representing a 16 percent year-over-year increase. Earnings per share came in at $2.46, well ahead of the Wall Street consensus of $2.05.
A 10 percent increase in revenue per available seat mile--the first double-digit increase in four years--was attributed to a jump in business traffic, which in the quarter accounted for 48 percent of all domestic passenger revenues. In a conference call with reporters, Greg Brenneman, Continental's president and COO, said, "We are seeing a dramatic increase in our business mix as more business travelers prefer Continental over our struggling competitors." Chairman and CEO Gordon Bethune said a result of the increasing business mix is the ability to "shut down lower fare buckets on our flights much earlier."
Meanwhile, all regions experienced revenue per available seat mile increases, including a 21 percent jump in Pacific operations and the first increase in the Atlantic market in five quarters. E-commerce also advanced as online booking increased 160 percent year over year and e-ticket sales accounted for 53 percent of all sales, up from 39 percent a year earlier. Bethune said capacity growth for the remainder of 2000 is planned for 5 percent, while planned increases in 2001 have been trimmed to 2 percent or 3 percent.
Continental, however, was not immune to fuel pressures, which pushed the carrier's unit costs up 10 percent, though execs are optimistic about the fuel hedging strategy moving forward.
Continental's partner Northwest Airlines also had a strong quarter, reporting net income of $115 million, for a year-over-year increase of 11.6 percent, excluding one-time items. Earnings per share easily beat Wall Street estimates. The carrier also had the industry's highest quarterly load factor, a 4.2 increase in passenger yields and higher RASMs in all regions, including a 16.5 percent improvement in the Pacific. However, fuel costs jumped more than 60 percent, forcing overall costs higher.
Northwest's partnership with Continental generated $30 million in additional revenue for the quarter; the carriers exchanged roughly 2,400 passengers per day between the two networks.
Southwest also notched a solid quarter, bringing in more than $190 million in net income for a 20 percent gain. Earnings per share were 36 cents, slightly ahead of analyst expectations. The carrier also posted a 4 percent increase in passenger yield as average fares rose 8 percent. Operationally, Southwest reported significant increases in both traffic and capacity, with the former outpacing the latter and resulting in the highest quarterly load factor, 74.3 percent, in the airline's history. Looking ahead, Southwest expects positive unit revenue comparisons for the third quarter. The carrier also said its fuel is hedged for the remainder of the year and should result in lower fuel costs moving forward.
United parent UAL Corp. posted strong 2Q numbers, including $408 million in net profits for a 17 percent year-over-year increase. Earnings per share of $3.47 easily beat analyst estimates. Also, passenger yield jumped 7 percent. However, the carrier continues to be plagued by operational problems related to air traffic control congestion and crew shortages. Nevertheless, systemwide load factor was up 5.5 points, thanks to a 6.8 percent increase in revenue passenger miles and a reduction in capacity of about 1 percent.
Looking ahead, United president Rono Dutta expects another capacity drop of about 1 percent for the third quarter. "International still is growing, but domestically we are taking a big hit," he said. "We always were planning a slow growth environment, especially with the reduction in seats in EconomyPlus." Earnings per share estimates for 3Q were slated between $2.60 and $3.20, significantly below average analyst estimates. Meanwhile, despite a predicted 36 percent increase in fuel costs, United expects to save $100 million in 3Q through its hedging strategy.
Delta Air Lines had a relatively flat quarter. Net income, excluding nonrecurring items, was $376 million, 3 percent higher than last year. Earnings per share, however, were up 19 percent to $2.86, surpassing analyst estimates. Passenger yields were slightly down, while traffic and capacity each were up marginally. Delta also reported its fiscal year 2000 results: Net income was $1 billion, down slightly from a year earlier. Operationally for the year, the carrier enplaned a record 117 million passengers and increased both traffic and capacity. Passenger yields were down slightly.
American Airlines parent AMR Corp. upped its quarterly net income by more than 30 percent, while earnings per share rose well beyond analyst estimates to $1.75. Passenger yields were up 6 percent and systemwide RASM grew 12.5 percent. American's traffic increased while capacity declined, primarily a result of the nearly completed coach legroom expansion project. As a result, systemwide load factor jumped more than 4 points. For FY00, PaineWebber airline analyst Sam Buttrick in a research note to investors raised his earnings per share estimate 30 cents to $4.65.
Though TWA still recorded a net loss of $4.2 million, its performance improved compared with second quarter 1999 when it was more than $6 million in the red. A net loss of 8 cents a share easily beat analyst estimates. Operating revenues were up 10 percent as RPMs grew 4 percent. Passenger yields improved nearly 6 percent. Systemwide load factor was down a few points, while unit costs were up, mainly from a $53 million increase in fuel expenses.
On the negative side, US Airways also suffered from fuel expenses--up more than 60 percent--as well as lingering effects of a threatened strike from flight attendants late in the first quarter. These contributed to significantly lower net income at $80 million, lower operating income, by nearly 40 percent, and slightly lower yields. Earnings per share of $1.17 missed Wall Street estimates by more than 20 cents. The carrier acknowledged heated competition from new entrants on the East Coast, but expects to rebound with an influx of regional jets. However, load factors were up as traffic growth outpaced capacity growth.
America West Holdings, parent company of America West Airlines, reported second quarter net income of $33.5 million, more than 20 percent lower year over year. Earnings per share of 74 cents came in below analyst estimates. The company cited escalating fuel expenses--57 percent higher than in 1999--and continued operational difficulties for the decline. Passenger yields slid 2.3 percent, however traffic, load factor and RASM all were on the rise.
Alaska Air, operationally plagued and under intense government scrutiny, brought in a quarterly net income of only $8.8 million, 79 percent below last year's figure. Operating revenues were up 4.4 percent, but operating expense grew by more than 16 percent. The carrier cited fuel as one factor, but is 25 percent hedged for the remainder of the year.
Despite the few negative performers, the industry as a whole was healthy. "After almost two years of shallow decline, industry operating profits turned up in the second quarter--rising about 13 percent from $2.64 billion to $2.99 billion--about 3 percent ahead of our pre-release forecast," Buttrick noted. "We continue to expect second half profit growth in the 20 percent to 25 percent range.