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Airline Sales Looking Up American and Southwest Lift Revenue

Posted on: Friday, 20 January 2006, 12:00 CST

By Jeff Bailey

American Airlines and Southwest Airlines posted stronger than expected fourth-quarter revenue growth on higher airfares and fuller planes. But only Southwest was able to report a profit, as fuel and labor costs and a big debt load dragged down American's results.

The results from American, the largest traditional airline, and Southwest, the largest discount airline, came Wednesday, a day of continuing airline bankruptcy developments.

In a U.S. Bankruptcy Court in Chicago, United Airlines won approval of a plan that could award stock with an estimated value of $480 million to 400 managers, over the objections of its labor unions. A spokeswoman, Jean Medina, said United now hoped to emerge from bankruptcy on Feb. 1.

In New York, Northwest Airlines sought to persuade a bankruptcy judge to let it impose sharply lower wages on its pilots and flight attendants. The unions involved said Northwest was trying to push beyond the levels of wage cuts at competing carriers. The judge did not immediately rule on the request.

Big losses at some airlines are expected to continue through 2006 as companies bargain with unions to reduce labor costs and hope for a downturn in fuel prices. For those with lower costs, though, the currently rising fares and relatively full planes can be expected to produce some big profits.

AMR, the parent company of American Airlines, based in Fort Worth, Texas, reported a fourth-quarter loss of $604 million, 56 percent more than the loss it posted a year earlier. The latest loss included one-time charges; the 2004 quarter included a one-time gain.

Revenue rose nearly 14 percent in the quarter, to $5.17 billion from $4.54 billion, as American filled more seats and was able to charge higher fares. The airline said it had reduced its operating expenses except fuel each year since 2000.

American has refused to seek bankruptcy court protection as a way of cutting costs. "We have, unlike many of our competitors, continued to meet our various financial obligations," Gerard Arpey, chief executive, said. Those included contributions of $310 million in 2005 to its pension plans.

In trading Wednesday, AMR rose $1.53, or 8.1 percent, to $20.39

Jamie Baker, an analyst at J.P. Morgan Chase, said in a report that he expected American to post a loss this quarter and then "robust" profits in the seasonally strong second and third quarters.

Southwest reported a fourth-quarter profit of $86 million, nearly 54 percent above the $56 million a year earlier. Its revenue rose 20 percent to $1.99 billion. Its flights operated at 69.6 percent of capacity, up from 65 percent the year before, and its average passenger fare rose 9.2 percent, to $97.83

Shares of Southwest, based in Dallas, rose 89 cents, or 5.6 percent, to $16.76 on Wednesday.

Southwest repeated its goal of 15 percent profit growth this year. It is the only major airline that hedged its fuel costs by purchasing fuel in advance and in large quantities at a set cost, a move that has given it a great advantage. Southwest plans to add 30 planes this year and roughly as many in 2007, allowing it to enter more markets.

Source: International Herald Tribune

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