Higher fuel prices erase airline profits

A Southwest Airlines jet taxis at Philadelphia International Airport. While Southwest managed a small first-quarter profit, United and American Airlines posted losses.
A Southwest Airlines jet taxis at Philadelphia International Airport. While Southwest managed a small first-quarter profit, United and American Airlines posted losses.
Posted: April 22, 2011

Soaring jet fuel prices are wiping out profits at the nation's biggest airlines.

The world's biggest airline company, United Continental Holdings Inc., said Thursday that it had lost $213 million, or 65 cents a share, in the first three months of this year, when it paid nearly $600 million more for fuel than a year earlier.

American Airlines on Wednesday posted a $436 million loss. Like other airlines, American uses complex financial transactions to hedge against rising fuel prices, but these only do so much. Hedging saved American $100 million in the first quarter, but its fuel bill still rose $351 million.

Even a profit machine like Southwest Airlines Co. and rival low-cost carrier JetBlue Airways Corp. barely rose above break-even after paying to fuel their planes.

Southwest said Thursday that it had earned $5 million, or a penny per share. Not counting one-time costs, Southwest met Wall Street's expectations. Its spending on fuel jumped 26 percent from a year earlier, to more than $1 billion, surpassing labor as the airline's biggest cost. In last year's first quarter, it earned $11 million.

Southwest has the second-largest share of the travel market at Philadelphia International Airport, behind US Airways.

The rising fuel costs offset quarterly revenue gains that ranged from 9 percent at American to 18 percent at Southwest.

Southwest is doing a better job than competitors at overcoming high fuel prices with a combination of more passengers - traffic on the discount airline has been growing faster than at bigger rivals - and fare increases. Just this week, Southwest joined other airlines in raising most U.S. prices by $10 per round trip, the seventh broad increase this year.

The rise in fuel prices is reminiscent of 2008, when oil also surged above $100 a barrel. The big difference now is fares, which are at least 25 percent higher than in 2008, independent airline analyst Bob Herbst said.

United, formed by the October combination of UAL Corp. and Continental Airlines Inc., said its adjusted loss of $136 million excluded $77 million in one-time costs, chiefly for merger integration. Revenue increased 11 percent to $8.2 billion on higher fares, the company said.

JetBlue reported Thursday a quarterly profit of $3 million. Delta Air Lines and US Airways are scheduled to report next week.

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