Three big U.S. airlines posted record first-quarter earnings Thursday, underlining the industry’s transformation from perennial financial turmoil to routine profits.
Results were buoyed by strong domestic demand, lower fuel prices, and cost controls, and United Continental Holdings Inc. and Southwest Airlines Co. predicted more profit records will be broken in the current quarter.
Chicago-based United, the No. 2 carrier by traffic, swung to a profit. Southwest, which ranks fourth in traffic, turned in its eighth consecutive quarter of profit increases. Smaller Alaska Airlines parent Alaska Air Group Inc. beat Wall Street estimates. The latest results come after No. 3 carrier Delta Air Lines Inc. last week reported the best first quarter in its history. Top carrier American Airlines Group Inc. reports results on Friday.
Despite the strong showing in what is a seasonally weak quarter, carriers are contending with some stresses, ranging from the effect of the strong U.S. dollar on international bookings to competitive capacity additions and pricing pressure in some of their markets. In all, the three U.S. airlines that reported results on Thursday produced weak gains in unit revenue—a key metric that measures the amount of passenger revenue generated for each seat flown a mile—in the March quarter compared with a year ago.
At Seattle-based Alaska Air, unit revenue declined 5.7% from a year ago. United’s measure was up 0.4% and Southwest’s rose by 0.3%. Some of that weakness is because airlines are flying farther distances, with more seats on their aircraft and in some cases operating fewer flights. While trimming unit revenue, those practices lower costs and help earnings.
United expects its unit revenue to decline 4% to 6% in the second quarter, but said it should pick up after that. Southwest said its April unit revenue will be down 2%, compared with a 9% increase in the prior-year month. Alaska didn’t provide guidance.
As the carriers head toward summer—the industry’s best time of year—they are raising capacity. United said it expects to offer 2.25% to 3.25% more capacity in the second quarter, compared with flat capacity in the just-ended quarter. Alaska said it will boost its capacity by 10.5% in the second quarter from a year earlier, and Southwest said it will increase capacity by 7%.
United’s quarterly profit came to $508 million, or $1.32 a share, compared with a year-earlier loss of $609 million, or $1.66 a share. Excluding items, the company said earnings came to $1.52 a share, beating Wall Street estimates by 10 cents.
Revenue at United slipped 1% to $8.6 billion and its total costs fell 13%, led by a 36% drop in its fuel tab. The company generated more than $1 billion in free cash flow and for the 12 months ended in March, delivered a 17.1% return on invested capital—both important indicators that its plans to get back on track are working. It also announced some tactical changes in its fleet plan designed to help it revamp its network without increasing capacity or its capital expenditures.
Southwest is building on strategic initiatives such as the full integration of its AirTran Airways acquisition, expansion to near international destinations and buildup of flights at its Dallas Love Field base. The nation’s largest low-fare carrier earned $453 million, or 66 cents a share, compared with $152 million or 22 cents a share a year ago. Revenue grew by 6% to $4.4 billion. Its operating margin was 17.4% and its return on invested capital for the trailing 12 months was 25.6%.
Alaska Air Group said it earned $149 million, or $1.12 a share, compared with $94 million, or 68 cents a year ago. Revenue rose 4% to $1.27 billion, and the carrier’s expenses fell by 5%. Its pretax margin was 18.9%, compared with 11.8% a year earlier, and its return on invested capital for the past 12 months was 20.1%.
Although the company is in a market-share battle in its Seattle hub with much larger Delta, it has had a long string of profitable quarters.
Write to Susan Carey at susan.carey@wsj.com
Source: southwest - Google News http://ift.tt/1JldBdk
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