Fuel costs hurt airline profit but travel strong, carriers say

US Airways , the dominant airline in Philadelphia, reported its second-quarter profit fell 68 percent as fuel prices jumped 44 percent. Helping airlines' financial results were strong demand and higher airfares.
US Airways , the dominant airline in Philadelphia, reported its second-quarter profit fell 68 percent as fuel prices jumped 44 percent. Helping airlines' financial results were strong demand and higher airfares. (ELISE AMENDOLA / Associated Press)
Posted: October 28, 2011

US Airways Group Inc. and United Continental Holdings said third-quarter profits were hurt by high jet-fuel costs, but passenger travel remained strong.

Philadelphia's dominant airline, US Airways, earned $76 million, down 68 percent from last year's $240 million third-quarter profit.

Revenue rose 8.1 percent to $3.4 billion, up from $3.1 billion in the same period in 2010.

The Tempe, Ariz.-based carrier said fuel costs jumped 44 percent in the quarter, and cost $356 million more.

"Everyone continues to talk about economic weakness and uncertainty. We haven't seen it," said US Airways CEO Doug Parker on a conference call.

Excluding one-time costs, US Airways earned 51 cents a share, which beat analysts' consensus estimate of 48 cents a share.

United and Continental, which merged last year, reported a profit of $653 million, down 23 percent from $852 million a year earlier. Revenues rose 8.7 percent to $10.2 billion.

United Continental, based in Chicago, said it spent $120 million on integration costs and $1 billion more on jet fuel in the quarter, excluding the impact of fuel hedges. Excluding some items, United earned $773 million, or $2 a share, compared with analysts' average estimate of $2.08.

"Despite the concerns we all read about, we are not currently seeing a reduction in business demand," said United chief executive Jeffery Smisek.

"We are really comfortable with our holiday bookings," said United's chief financial officer Zane Rowe. "Demand is looking good over the holidays, particularly the peak days."

Robust passenger traffic, higher airfares, and fees helped airlines' financial results. U.S. airlines collected a total of $1.5 billion from baggage fees and reservation change fees in the second quarter this year, according to the Bureau of Transportation Statistics.

"We don't see any evidence of the revenue environment slowing," US Airways president Scott Kirby said. "We've seen consistently strong demand from both leisure and business customers."

"Our corporate revenues were up 22 percent year-over-year in the third quarter," Kirby said. "The outlook going forward, we haven't seen any change. Demand and pricing remain strong."

With expectations for continued sluggish economic growth in 2012, United said it would keep seat capacity and flights flat for a second year in a row, "effectively keeping United the same size it was in 2010," Smisek told investors.

US Airways ended the September quarter with $2.1 billion in unrestricted cash.

"We view that amount as adequate but not ample," wrote analyst James Higgins, of Ticonderoga Securities, in a client note. A potential risk for US Airways is "labor cost inflation" with several labor contracts still unresolved. "Additionally, US Airways' decision not to hedge fuel makes it more vulnerable than other carriers to price increases," Higgins wrote.


Contact staff writer Linda Loyd at 215-854-2831 or lloyd@phillynews.com.

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