Cheaper jet fuel, nearly full airplanes help US airlines soar to big 3Q profits

Industrials Associated Press

Saving a nickel or a dime per gallon might not seem like much to the average motorist, but for airlines that burn hundreds of millions of gallons of fuel every month, it adds up quickly.

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Profits are soaring at the biggest U.S. airlines, and a chunk of credit goes to those savings at the pump. Fuel is an airline's biggest expense.

Heading into the busy holiday-travel period, the airlines expect to see even cheaper fuel prices, thanks to the recent slide in crude oil prices.

While getting a break on fuel, airlines are benefiting from continued strong travel demand that allows them to push fares higher. Executives report strong bookings for holiday travel and say they see no signs that Ebola is scaring away travelers.

The four largest U.S. airlines sold at least 83 percent of their seats in the third quarter. A decade ago, more than a quarter of seats went empty.

The results were there to see Thursday, as several leading airlines reported financial results for the third quarter, which includes the end of the heavy summer-vacation travel season:

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— The world's biggest airline operator, American Airlines Group Inc., earned an all-time best $942 million profit in the June-through-September quarter. It was an 87 percent increase over the amount that American and US Airways earned separately last year before their December 2013 merger. CEO Doug Parker predicted more records for fourth-quarter and full-year earnings.

— United Continental Holdings Inc. posted net income of $924 million, up from $379 million a year earlier. Excluding one-time items, adjusted profit was a record $1.1 billion.

— Southwest Airlines Co.'s profit rose 27 percent to $329 million.

All three companies beat Wall Street expectations for earnings.

United cut its fuel bill by $135 million compared with last year, a reduction of 4.1 percent on its largest single expense. Including United Express regional flights, the company paid $3.02 per gallon, a dime less than last summer.

Southwest saved $64 million, or 4.4 percent, on fuel. It paid $2.94 per gallon, a nickel less than last year, and the savings are likely to surge — Southwest predicted that it will pay between $2.70 and $2.75 per gallon in the fourth quarter.

Airlines could share that windfall with passengers in the form of cheaper tickets, but that doesn't look likely, at least not yet.

The big airlines just pushed through a modest fare increase on U.S. routes even though oil prices have fallen by about one-fifth since the last such fare increase back in April. Recent mergers have reduced competition and helped the airlines limit the number of flights, making it easier to push fares higher.

Southwest is one of the few airlines that reports details on fares. Its average one-way price inched higher, to $160.74, an increase of just $1.35 over the same time last year but up nearly $50 in the last five years, a period in which mergers reduced the number of competitors and fuel prices climbed. American doesn't give fare figures, but it said that the amount passengers paid to fly each mile, a figure called yield in the airline business, set a record.

Airline investors were spooked by the appearance of the first U.S. cases of the deadly Ebola virus, especially the news this month that a nurse had flown on two Frontier Airlines flights shortly before testing positive. They worried that people might stop flying, and airline stocks fell. That fear started to subside last week when the CEO of Delta Air Lines Inc. expressed confidence that authorities would prevent a U.S. outbreak; the stocks have rallied.

On Thursday, United officials said that they saw no indication that Ebola was affecting bookings. However, United offered a lackluster fourth-quarter forecast for a key revenue figure, and the company's stock fell.

While not addressing Ebola, Southwest CEO Gary Kelly said his airline's trend toward higher revenue has continued into October, and bookings for November and December looked good.

JetBlue Airways Corp., which is about to change CEOs, reported net income of $79 million. Its earnings and revenue both fell short of Wall Street forecasts. Alaska Air Group Inc.'s earnings topped Wall Street forecasts.

In late-morning trading, shares of American rose 59 cents to $37.63; Southwest gained 75 cents to $34.95; JetBlue climbed 20 cents to $11.38; and Delta Air Lines Inc., which reported last week that third-quarter net income fell due to one-time costs such as accounting losses on fuel hedging, rose $1.10, or 3 percent, to $38.40.

United's shares slipped 43 cents to $48.63 on the flat fourth-quarter revenue-figure outlook. Alaska Air gained $2.36, or 5.1 percent, to $49.13.

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