Airline profits beat Wall Street, but fuel weighs


United Continental Holdings Inc and US Airways Group Inc posted weaker profits hit by skyrocketing fuel costs amid a murky outlook for travel demand.

The results for the two carriers topped Wall Street expectations, but the surprises were not enough to offset weakness perceived among analysts that they attributed to high fuel prices. Airlines shares were mostly weaker in afternoon trading.
“Revenues are going up, but costs are really, really up there. And that’s because of fuel,” said Helane Becker, an airline analyst with Dahlman Rose & Co. She said travel bookings could be weaker in the second half of the year as economic weakness plagues the United States, Reuters reports.

The airline industry has been struggling to recover after a downturn that drained travel demand. Soaring fuel costs have also burdened the embattled companies despite capacity cuts and mergers that have helped stabilize the industry.

Shares of US Airways were off 2.3 percent at US$6.74 in afternoon trading on the New York Stock Exchange, while United Continental’s shares were unchanged at $20.28.

American Airlines parent, AMR Corp, however, led the charge lower, its shares falling 5.7 percent a day after it reported a larger-than-expected loss, in contrast with the profits of its peers.

AMR shares had gained on Wednesday after it announced plans to refresh its fleet with 460 new narrowbody airplanes.

The much-smaller Alaska Air Group Inc posted a profit on Thursday that was in line with Wall Street forecasts, and its shares were off 0.1 percent.


United Continental, formed from the 2010 union of United Airlines and Continental Airlines, said second-quarter net profit fell to $538 million, or $1.39 per share, from US$611 million, or $1.57 per share, a year earlier when the companies were still separate.

Excluding onetime items, the company earned $1.49 per share, compared with Wall Street forecasts for $1.43.

Revenue rose 10.3 percent to $9.8 billion, while fuel costs rose 30.2 percent to US$3.2 billion.

Ray Neidl, senior aerospace specialist at Maxim Group, said fare hikes that balance fuel costs might not be sustainable in the second half of 2011 if travel demand faltered.
“My guess is you won’t see a lot of ticket price rollbacks. But what you will see is discounting,” Neidl said, referring to targeted fare sales that carriers initiate, rather than lower ticket prices altogether.

On a conference call with analysts and reporters, United Continental executives predicted demand for travel in the second half of 2011 would be consistent with that of the first half despite signs of a stalling economic recovery.
“With significant uncertainties here and abroad, we have responded appropriately, raising fares in the face of high fuel cost and reducing our planned capacity to reflect the challenging environment that we face,” Chief Executive Jeff Smisek said.

After the March 11 earthquake and tsunami in Japan, United Continental reduced capacity by 11.8 percent on Japan routes because of weaker travel demand. The cuts eroded second-quarter unit revenue by US$100 million.

US Airways’ second-quarter earnings amounted to US$92 million, or 49 cents per share, compared with US$279 million, or US$1.41 per share, a year earlier.

Excluding special charges, US Airways earned 56 cents per share, beating a Wall Street consensus forecast for 53 cents per share.

Its revenue rose 10.5 percent from a year earlier to US$3.5 billion. Its fuel bill rose 53.8 percent to US$948 million.

US Airways President Scott Kirby said on a conference call with analysts and reporters that while the bookings outlook is uncertain, demand is solid.
“We continue to see an unusually volatile environment for bookings,” Kirby said, noting the negative impact of political upheaval and natural disasters.
“Underlying demand remains strong as we see record industry load factors this summer,” he said.

Alaska Air Group, parent of Alaska Airlines, said its net income was $28.8 million, or 78 cents a share, for the second quarter, compared with $58.6 million, or $1.60 cents a share, a year earlier.