Carriers Post Strong Second-Quarter Earnings
Domestic carriers this week and last detailed an industrywide return to profitability in their second-quarter earnings. American, Continental and US Airways as well as AirTran, JetBlue, Midwest and Southwest all reported in-the-black earnings for the second quarter—typically the strongest for airline performance. Meanwhile, United said preliminary results show a profit for the quarter.
"The second quarter is usually a solid one for the industry, and for the airlines that have thus far released results, this has been true," said Calyon Securities analyst Ray Neidl in a research note.
Airlines aggressively have cut non-fuel costs and improved passenger revenues through fare increases and higher load factors. For the quarter, the industry managed to counter the ever-high price of oil.
American Airlines reported a net profit of $291 million for the second quarter of 2006, an improvement over its $58 million for the same period last year. Continental's increased yields, record load factors, and improved passenger revenue—increasing 23 percent over the same period last year—all helped fuel net income of $198 million. According to preliminary results, United is looking at a net income of $119 million.
US Airways cited last year's merger with America West as a major turnaround for the company, and the carrier followed its first quarter profit with a record quarterly profit of $305 million.
Low-cost carriers also fared well in the quarter. Southwest Airlines reported a second quarter net income of $333 million—more than doubling its profit form the same period last year. The carrier boasts the highest net earnings of those that have released results for the second quarter and recorded record quarterly revenues. AirTran also said record-high revenue passenger miles, capacity, enplaned passengers and load factor helped secure a strong quarter.
Although disappointing to Wall Street, JetBlue returned a net income for the quarter of $14 million. The low-cost carrier helped push through a series of fare increases this year, which returned the airline a yield that was up about 22 percent over the same period last year. Though the carrier has grown available seat miles 23 percent since the same quarter last year, load factor fell nearly 6 points to 82.2 percent.
Midwest Airlines today scored a net income of $8.8 million, compared with an $8.2 million loss for the same period last year. "A strong increase in passengers and improved fare environment contributed to strong revenue performance, while improved non-fuel costs resulted in an operating profit for the quarter," a Midwest spokesperson said.
Even prior to the airlines' release of final results, Neidl noted he was optimistic about carrier performance and even posited the possibility for the industry's first profitable year since 2000.
"For the second quarter of 2006, we expect the U.S. airline industry will return to profitability, with industry net income projected at approximately $1.2 billion," Neidl said in a research note earlier this month. "This positive trend should continue through the third quarter and even possibly into the slow fourth quarter. We are projecting the industry to earn about $747 million for the year."
As fuel costs remain the X-factor for airlines with oil prices hovering above $70 a barrel, strong demand for air travel and tightened capacity will help offset the industry's most nagging expense. The good news for airlines, however, translates into more costs for buyers, as "there is room for additional price increases."