U.S. airlines over all beat Wall Street expectations. (AP Photo/Elise Amendola)Elise Amendola/The Associated Press
United Continental Holdings Inc. and US Airways Group Inc. posted weaker profits Thursday, hit by skyrocketing fuel costs amid a murky outlook for travel demand.
The results for the two carriers topped Wall Street expectations, but the surprises were not enough to offset weakness perceived among analysts that they attributed to high fuel prices. Airlines shares were mostly weaker in afternoon trading.
"Revenues are going up, but costs are really, really up there. And that's because of fuel," said Helane Becker, an airline analyst with Dahlman Rose & Co.
She said travel bookings could be weaker in the second half of the year as economic weakness plagues the United States.
The airline industry has been struggling to recover after a downturn that drained travel demand. Soaring fuel costs have also burdened the embattled companies despite capacity cuts and mergers that have helped stabilize the industry.
Shares of US Airways were off 2.3 per cent at $6.74 (U.S.) in afternoon trading on the New York Stock Exchange, while United Continental's shares were unchanged at $20.28.
American Airlines parent, AMR Corp., however, led the charge lower, its shares falling 5.7 per cent a day after it reported a larger-than-expected loss, in contrast with the profits of its peers.
AMR shares had gained on Wednesday after it announced plans to refresh its fleet with 460 new narrow-body airplanes.
The much-smaller Alaska Air Group Inc. posted a profit Thursday that was in line with Wall Street forecasts, and its shares were off 0.1 per cent.
United Continental, formed from the 2010 union of United Airlines and Continental Airlines, said second-quarter net profit fell to $538-million, or $1.39 per share, from $611-million, or $1.57 per share, a year earlier when the companies were still separate.
Excluding onetime items, the company earned $1.49 per share, compared with Wall Street forecasts for $1.43.
Revenue rose 10.3 per cent to $9.8-billion, while fuel costs rose 30.2 per cent to $3.2-billion.
Ray Neidl, senior aerospace specialist at Maxim Group, said fare hikes that balance fuel costs might not be sustainable in the second half of 2011 if travel demand faltered.
"My guess is you won't see a lot of ticket price rollbacks. But what you will see is discounting," Neidl said, referring to targeted fare sales that carriers initiate, rather than lower ticket prices altogether.
On a conference call with analysts and reporters, United Continental executives predicted demand for travel in the second half of 2011 would be consistent with that of the first half despite signs of a stalling economic recovery.
"With significant uncertainties here and abroad, we have responded appropriately, raising fares in the face of high fuel cost and reducing our planned capacity to reflect the challenging environment that we face," chief executive officer Jeff Smisek said.
After the March 11 earthquake and tsunami in Japan, United Continental reduced capacity by 11.8 per cent on Japan routes because of weaker travel demand. The cuts eroded second-quarter unit revenue by $100-million.
US Airways' second-quarter earnings amounted to $92-million, or 49 cents per share, compared with $279-million, or $1.41 per share, a year earlier.
Excluding special charges, US Airways earned 56 cents per share, beating a Wall Street consensus forecast for 53 cents per share.
Its revenue rose 10.5 per cent from a year earlier to $3.5-billion. Its fuel bill rose 53.8 per cent to $948-million.
US Airways president Scott Kirby said on a conference call with analysts and reporters that while the bookings outlook is uncertain, demand is solid.
"We continue to see an unusually volatile environment for bookings," Mr. Kirby said, noting the negative impact of political upheaval and natural disasters.
"Underlying demand remains strong as we see record industry load factors this summer," he said.
Alaska Air Group, parent of Alaska Airlines, said its net income was $28.8-million, or 78 cents a share, for the second quarter, compared with $58.6-million, or $1.60 cents a share, a year earlier.