Cheaper fuel helps 2Q results at Delta, US Airways
Wednesday, July 24, 2013
DALLAS (AP) — Airline passengers are finding less room to stretch out on packed planes, but while their knees are aching at least they’re not paying much more for the ride.
Figures released Wednesday by the Department of Transportation showed fares were virtually unchanged in the first three months of this year from a year earlier.
And numbers from Delta and US Airways showed that average fares hardly budged — and might have even dropped in some cases — in the second quarter.
Travelers and airline investors alike benefited as oil prices moderated — even running lower than last year for part of the spring.
Delta Air Lines Inc. paid 34 cents per gallon less for fuel than it did in the second quarter of 2012, and US Airways Group Inc. saved 25 cents per gallon.
Fuel is an airline’s biggest expense, so even a modest break at the pump helped Delta post net income of $685 million. US Airways’ profit fell 6 percent, but that was due to using up a tax allowance from previous, money-losing years.
Both airlines beat Wall Street expectations and offered upbeat forecasts about travel demand for the rest of the summer and into September.
The reports lifted the stock of both airlines. Delta rose 35 cents to close at $20.80. US Airways shares picked up 45 cents, or 2.5 percent, to close at $18.50.
Despite all the grumbling about the price of travel, especially those unpopular fees for everything from checking a bag to getting a seat with decent legroom, airline revenue isn’t growing much. It was flat at Delta and up just 3 percent at US Airways.
The amount that passengers paid per mile — called yield in the airline business — was flat at Delta and down 3 percent at US Airways and its Express regional airline. Yield is a good proxy for average fares, but airline executives cautioned against reading too much into the numbers.
Airlines raised fares repeatedly in 2008 and again in 2011 as oil prices surged and pushed the cost of jet fuel higher. But for part of the April-to-June quarter, oil prices were lower than they had been a year before. In the uncertain economy, airlines were skittish about raising fares.
“When fuel goes up, airline ticket prices have to go up as well,” Delta President Ed Bastian said, “and as fuel came down, airline ticket prices on the margins did go down a bit.”
But oil prices have been rising lately. So will airline tickets follow? And will that dampen travel demand?
Airline executives refused to discuss future prices — that could be seen as signaling plans to competitors, which is illegal. But they were confident that businesses and consumers now feel a bit better about the economy and will keep flying.
Delta executives said that business travelers — especially those in the banking and finance sector — were coming back. That’s significant because corporate travelers usually pay much higher fares than leisure passengers who book far in advance.
Delta, the world’s second-biggest carrier behind United, said that summer bookings were strong and passengers were paying 3 percent per mile more this month than they did in July 2012. They expect that trend to continue in August.
US Airways President Scott Kirby said business travel was weaker in March, April and May, contributing to the second-quarter decline in revenue per mile, but it recovered in June.
“The demand environment remains quite good for both leisure and business” travel, Kirby said. “Business demand’s strength in particular is continuing into the third quarter.”
US Airways, the nation’s fifth-biggest airline, predicted that passengers would pay 2 to 4 percent more per mile in July, August and September compared with last year.
Airlines have reduced flights and eliminated unprofitable routes, leaving fewer empty seats. Delta and US Airways both averaged 85 percent occupancy on flights in the second quarter. That has allowed them to cut costs while carrying roughly the same number of passengers as before.
“Demand is strong, load factors (average seats filled) are strong, margins are up,” said Hunter Keay, an analyst with Wolfe Trahan. “That’s how airlines are running their businesses now.”
US Airways, which expects to close a merger with American Airlines in the next few weeks, reported net income of $287 million, or $1.40 per share, down from $306 million, or $1.54 per share, in last year’s second quarter. The company blamed an $85 million income tax provision that was triggered as it used up an allowance for operating losses carried over from previous years.
Excluding merger and debt-retirement costs, US Airways said that it would have earned $1.58 per share. That topped the $1.52 per share that analysts expected, according to FactSet. Revenue rose 3 percent to $3.87 billion, beating forecasts.
Delta’s $685 million profit equaled 80 cents per share and reversed a $168 million loss a year earlier, when the company was weighed down by accounting losses tied to fuel-price-hedging bets.
Delta said that excluding special items, it would have earned 98 cents per share, which beat analysts’ forecast of 95 cents per share. Revenue was about flat at $9.71 billion, a bit less than analysts expected.
United Continental Holdings Inc. and Southwest Airlines Co. are scheduled to report quarterly results before the market opens on Thursday.
More like this story
Use the comment form below to begin a discussion about this content.
Please review our Policies and Procedures before registering or commenting