United, Southwest Aid ‘Shock and Awe’ Airline Profits

United, Southwest Push Airlines Biggest Profits Since 2007
The United and Continental Airlines results reported today were their last as separate companies. Photographer: Matthew Staver/Bloomberg

United Airlines, Continental Airlines and Southwest Airlines Co. posted third-quarter profits from rising fares to help push earnings at the largest U.S. carriers to their highest in three years.

Profit at the eight biggest airlines was $2.44 billion, based on results from today and yesterday. That beat estimates of $2.4 billion from CRT Capital Group LLC’s Michael Derchin and $2.3 billion from Deutsche Bank AG’s Michael Linenberg.

U.S. airlines have maintained most of the cuts in seating capacity they enacted in 2008, giving them more ticket-pricing power as business travel rebounds following the recession. The collective profit at the major carriers marked their best three-month period since 2007’s second quarter.

“I do expect another good quarter for the airlines, though the shock and awe certainly happened this quarter,” said Vicki Bryan, an analyst for New York-based Gimme Credit LLC. “It’s unusual for the airline industry to consistently make money, much less when most other industries are struggling.”

The Bloomberg U.S. Airlines Index rose 1.8 percent at 4:15 p.m. in New York. That extended yesterday’s 7.2 percent gain after Delta Air Lines Inc., American Airlines parent AMR Corp. and US Airways Group Inc. beat analysts’ estimates and posted profits after year-earlier losses.

Strong Fundamentals

“Structurally, the fundamentals are strong,” said Robert Mann of aviation consultant R.W. Mann & Co. in Port Washington, New York. “This period of profitability could last, barring the ever-present potential for external shocks.”

Southwest’s net income was $205 million, or 27 cents a share, after a year-earlier loss of $16 million, or 2 cents. United’s net income totaled $387 million, while Continental’s total was $354 million, according to United Continental Holdings Inc., the parent company created after the two carriers closed their merger on Oct. 1.

The United and Continental results reported today were their last as separate companies. They will fly as different airlines until they receive a single operating certificate from U.S. regulators, probably in late 2011. Chicago-based United Continental Holdings is now the world’s largest airline.

JetBlue, Alaska

JetBlue Airways Corp. said today that third-quarter profit rose almost fourfold to $59 million, or 18 cents a share. Seattle-based Alaska Air Group Inc., parent of Alaska Airlines and commuter carrier Horizon Air, said net income jumped 40 percent to $122.4 million, or $3.32 a share.

Southwest plans to boost capacity 8 percent in 2011’s first quarter and 5 percent in the second, Chief Financial Officer Laura Wright said. The Dallas-based airline doesn’t intend to increase its fleet next year and will achieve the gains by flying its Boeing Co. jets more, she said. Southwest is adding capacity to offset deep cuts in 2010’s first half, and hasn’t decided on a full-year change, Wright said.

Delta’s earnings were the largest among the eight big carriers, at $929 million, or $1.10 a share, excluding some costs. Linenberg projected Delta would earn 95 cents a share, and Derchin estimated $1.01.

The industry’s strength in pricing is showing up in measures such as unit revenue, the amount collected for each seat flown a mile, and average fares. United said unit revenue rose 19 percent on its main jet operations, and average fares at Southwest jumped 16 percent to $132.53.

“We’ll continue to show revenue gains year-over-year in the fourth quarter,” Southwest Chief Executive Officer Gary Kelly said in an interview. “We’ve got momentum built up for year-over-year improvement into the first quarter.”

AirTran Holdings Inc., the discount carrier being acquired by Southwest, probably will report a profit tomorrow of 17 cents a share, the average of 12 estimates compiled by Bloomberg.

Deferred Deliveries

JetBlue, based in New York, said it deferred 10 deliveries of Airbus SAS A320s to cut capital spending and opted out of orders for two Embraer E-190s. That trimmed deliveries to seven A320s in each of 2012 and 2013, with the delayed jets arriving in 2016.

“These actions reduce our aircraft-purchase obligations by over $500 million through 2013,” CEO Dave Barger said on a conference call.


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