Fuel prices cutting into airline profits

Airlines are poised to report second-quarter earnings soon, and most are expected to show a profit. But higher fuel prices could mean a 40 percent drop from a year ago in bottom-line results, an analyst for Deutsche Bank said.

"We are in the midst of a 'soft patch,' " airline analyst Michael Linenberg wrote in a client note.

In recent days, United Airlines, Delta Air Lines, American Airlines, and US Airways Group Inc. have cut their April-June profit outlook because of more expensive jet fuel and weaker revenue.

US Airways said June passenger revenue had risen about 6 percent, below the 8 percent to 9 percent that analysts expected, although planes were 87.1 percent full, a record load factor for the company.

"We believe travelers are pushing back on high ticket prices," said airline analyst Helane Becker, with Dahlman Rose & Co.

"Bookings are very volatile, and they have been since March," Becker said in an interview. "People were glued to their TVs and concerned about the economy after the disaster in Japan."

US Airways' June revenue disappointed investors. That was partly due to an uncertain economy, but also because of strong competition from Southwest Airlines Co. and Delta at two of US Airways' key hubs, Charlotte, N.C., and Phoenix, Rodman & Renshaw analyst Daniel McKenzie said in a report.

Southwest and Delta have been growing and adding flights in Greenville-Spartanburg, S.C.; Atlanta; and Phoenix, which directly affects US Airways, McKenzie wrote.

Southwest's route network "overlaps more with US Airways" than any other airline, said analyst James Higgins of Ticonderoga Securities L.L.C. in a client update.

"We have believed Southwest was growing too aggressively, and see the softer-than-expected" fare pricing as the "clear culprit" for US Airways' lower revenue, Higgins said.

US Airways downward second-quarter earnings estimates sent Wall Street analysts back to the drawing table. "Management's guidance suggested second-quarter earnings per share of 50 cents to 55 cents a share vs. the current consensus of 92 cents and our estimate of 85 cents per share," said Morgan Stanley analyst William Greene.

Still, US Airways management said that compared with 2008, passenger-demand trends remained intact.

Major U.S. airlines, with the exception of American, expect to be profitable in the latest quarter and the full year.