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Higher Fares Help Airlines Improve Earnings

Posted on: Friday, 21 April 2006, 06:00 CDT

By Dan Reed

Fuel prices are surging, but rising fares and improved first-quarter results from four of the USA's major airlines are buoying industry executives' and analysts' expectations that most of those big carriers will report annual profits this year.

Southwest, Continental and Alaska airlines reported improved first-quarter results Thursday.

Those reports followed news Wednesday from the parent company of American that its first-quarter loss this year was much smaller than in 2005.

Crude oil prices have jumped about 25% in just the last two months and are expected to go higher. Yet analysts generally look for those four big carriers, plus three others, to report full-year profits. The three -- UAL, parent of No. 2 United; US Airways; and discounter AirTran -- all have yet to report their first-quarter results.

Such optimism is unusual where airlines are concerned in the post-9/11 world. But the reason for it is that the average fare paid by U.S. air travelers has risen about 13% from last summer, according to the carriers' trade group, the Air Transport Association. Fares are expected to continue rising. Most big airlines have matched American's $10 increase on most domestic round-trip fares, which it put into effect late Tuesday.

How much higher fares will go isn't clear. Southwest, the industry's low-price leader, inched its average ticket price over the psychologically important $100 mark for the first time ever in the first quarter. CEO Gary Kelly told reporters and analysts Thursday in a conference call that his carrier probably will need to raise prices further, though modestly.

"I'm hopeful we won't need dramatic fare increases. I don't think they work anyway," Kelly said.

Others around the industry are more bullish.

Dan Garton, American's executive vice president of marketing, said Wednesday night that his carrier filled a higher percentage of its seats in the first quarter even though its average fare rose 11% over the same period last year. That's a sign demand is strong enough to support more fare increases, he said.

Airlines reporting first-quarter results Thursday were:

*Southwest. The Dallas-based carrier earned 7 cents a share, in line with analysts' expectations.

Southwest also exercised options to buy 79 more Boeing 737-700s for delivery from 2007 to 2012. At list prices, those planes would cost $4.5 billion, though as Boeing's biggest and best customer it gets a sizable discount. It also ordered $1 billion worth of engines to power those planes.

*Continental. Its first-quarter loss narrowed to 76 cents a share, vs. a loss of $2.79 a share a year earlier. Revenue rose 18%, helping the carrier report its first operating profit since 2001's first quarter.

But the airline's fuel bill rose 40.6% in the period.

Jeff Misner, Continental's chief financial officer, summed up the impact with one word: "Ouch!"

*Alaska. It lost $2.36 a share. Excluding one-time charges, Alaska parent Alaska Air Group scratched out a $2.8 million profit, equal to 8 cents a share. In 2005's first quarter, it lost $2.39 a share.

(c) Copyright 2005 USA TODAY, a division of Gannett Co. Inc.

Source: USA TODAY

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