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Airline Profits Taking Off

 

 

U.S. airlines are flying higher than they have in years. Three big carries Wednesday turned in third-quarter profits, and one of them, Delta Air Lines Inc., predicted it will post its first fourth-quarter profit in a decade.

 

AMR Corp., parent of American Airlines, posted its first profitable quarter in two years. US Airways Group Inc., reported the highest third-quarter profit in its history and reiterated it expects to be in positive territory for the full year.

 

In 4 p.m. composite trading the carrier’s shares surged on the strong results and comments about robust holiday bookings and conservative plans for adding seats. Delta shares jumped 11% to $12.97 on the New York Stock Exchange. Also on the Big Board, US Airways shares gained 7.4% to $10.84, and AMR shares rose 13% to $7.34.

 

The U.S. industry is in full recovery after being bludgeoned by high oil prices in 2008 and a high oil prices in 2008 and a deep recession last year. Carriers responded by paring their capacity, keeping control of expenses, raising fares and increasing ” ancillary” revenue from fees for checked baggage and other services that once were free.

 

Revenue was a big driver of the results. Delta’s revenue jumped 18% to $8.95 billion, while US, Airways booked a 17% increase to $3.18 billion. AMR’s revenue advanced by 14% to $5.84 billion.

 

Much of the strength came from international routes, which are experiencing a resurgence of demand, particularly from high-yielding business travelers.

 

In past industry cycles, airlines scrambled to grab market share from each other, which drove down fares–and profits. But Doug Parker, chief executive of US Airways, said on an investor call that “fundamental restructuring really has taken place. Consolidation has happened. Managements are focusing on returns rather than market share.

 

Nevertheless, Mr. Parker allowed for the possibility that airlines could “succumb to temptation” and re-entered the destructive cycle of the past. “We need to prove this is real and sustainable” and not a two quarter anomaly.

 

Delta CEO Richard Anderson said in a call that recent consolidation had made the industry more attractive to investors and that the merger and acquisition process was three quarters complete in both the U.S. and globally.

 

While US Airways wasn’t able to land a merger partner in the past few years, the 2008 combination of Delta and Northwest Airlines and the just-completed merger of UAL Corp. and Continental Airlines Inc. that formed United Continental Holdings Inc.– the No. 1 U.S. carrier by traffic– have reduced fragmentation and made the industry more rational Mr. Parker said. South-west Airlines Co. recently announced plans to acquire Air-Tran Holdings Inc.

 

Mr. Parker said he doesn’t see any merger for US Airways in the “near future,” but if any of the nation’s three-largest airlines decide to grow through acquisitions, ‘we will be involved,” he said.

 

US Airways, the No. U.S. carrier, said it earned $240 million, or $1.22 a shares, compared with a year-earlier loss of $80 million or $60 cents a share. The product of a 2005 merger with America West Airlines, the Tempe, Ariz,- In past industry cycles, airlines scrambled to grab market share from each other. based US Airways said unit revenue jumped 15% in the quarter.

 

The No. 2 U.S. airline, Atlanta- based Delta, reported earnings of $363 million, or 43 cents a share, compared with a year-earlier loss of $161 million, or 19 cents a share. Excluding items, the carrier earned $1.10 a share.

 

Delta said it expects to produce an operating margin of 6% to 8% in the fourth quarter. The company said strong revenue momentum shown in the first half of the year continues to build. Unit revenue, the amount taken in for each seat flown a mile, is up 11% to 12% so far in October from the year-earlier month, the company said.

 

AMR, the No. 3 U.S. carrier, has been slower to rebound than its industry peers, many of which were profitable in the second quarter, and is expected to report a loss for the full year.

 

For the latest quarter, however, the Fort Worth, Texas, company posted a profit of $143 million, or 39 cents a share, reversing a year-earlier loss of $359 million, or $1.26 a share. Wall Street had expected AMR since 2007’s third quarter. Its American Airlines unit achieved a unit-revenue gain of 11% and traffic increased 3.7%.

 

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American is targeting the global business traveler to counter some of the gaps it faces in competing with Delta and United.

THE WALL STREET JOURNAL, Thursay, October 21, 2010

5:36:53 PM

By Susan Carey

 

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