Airlines' Q2 Performance Improves Despite Fuel Burden

JetBlue Thursday and American and Continental airlines Wednesday posted second-quarter profits, amid surging fuel costs and fierce pricing competition. Delta Air Lines Thursday reported a $382 million loss for the quarter, which nearly matched what the airline said was a $385 million, or 57.5 percent, increase in fuel costs compared with the same period last year.

Continental's revenue jumped 11.8 percent to $2.6 billion, leaving a net income of $100 million. American posted a $58 million profit for the second quarter. JetBlue's net income for the quarter was $12.2 million, compared with second-quarter 2004 net income of $21.5 million.

Continental chairman and CEO Larry Kellner said reductions in pay and benefits implemented in April enabled the carrier to turn a modest profit for the quarter. AA executives cited teamwork and record load factors for each month of the second quarter, which benefited from robust business travel generated by lower fares and progress in corporate agreements.

"When we came in to this year and talked about the Delta pricing initiative," AMR Chairman and CEO Gerard Arpey said, "we cautioned folks that it wouldn't have as negative an impact as some thought possible. With this new fare structure, we are stimulating business traffic in particular. Fare restructure has stimulated both business and leisure, but we're seeing double-digit increases in business travel.

"Despite the unwelcome addition of $434 million in fuel prices, we earned a net second-quarter profit, which represents our first quarterly profit without the benefit of special items since the fourth quarter of 2000," Arpey said. "Demand for the product is elastic, but where oil is today we need to get to the point where we are making reasonable levels of profit."

"Despite the return to profitability for the quarter," Arpey said, "our challenges remain great. While I am pleased by our performance, I recognize that second-quarter profitability needs to be much higher if we are to return our company to a position of financial strength. Oil prices look like they will be higher in the second half of the year and fares continue to be low by historical standards."

Similarly, JetBlue chairman and CEO David Neeleman cited strong demand and said, "our crewmembers pulled through to deliver a solid performance in a tough quarter characterized by a 55 percent increase year-over-year in the cost of airline fuel."

Even though Continental expects the pay and benefit reductions it has put in place for various work groups to achieve about $418 million in annual savings, "we still expect to have a substantial loss for this year," executive vice president and CFO Jeff Misner told analysts and investors during a conference call Thursday morning. Kellner added that he expects this year to bring further bankruptcy cases to the airline industry. "I don't believe we're out of the bankruptcy cycle," Kellner said. "We'll see one or two more bankruptcies."

Delta CEO Gerald Grinstein, who remains committed to resolving financial issues outside of bankruptcy, said that while disappointing, "results from the June quarter demonstrate that the transformation plan is progressing," citing a 14.3 percent drop in mainline CASM, excluding fuel and special items for the quarter. While Delta executives acknowledged they must step up the pace of their transformation, Grinstein pointed to recent fuel-conservation measures, efforts last week to reset SimpliFare caps $100 higher to reflect rapidly escalating fuel prices, and this week's senior management appointments, including promoting Jim Whitehurst to chief operating officer and bringing back Delta veteran Ed Bastion as CFO.