Fuel costs reduce Americans' profits
Fuel costs reduce Americans' profits
It is struggling to recover rising fuel costs, which distinguishes the world's largest airline from competitors that have increased ticket prices and rates to increase profits.
An additional $ 750 million in fuel costs caused US profits to fall by 48% in the third quarter, the Fort Worth, Texas-based airline said on Thursday. The hurricanes that hit the southern United States also damaged US businesses.
Other airlines, on the other hand, have remained ahead of the increase in fuel costs. Some earn more from business travelers who pay well, while most carriers have increased exchange or baggage fees. These increases occur as US consumers pay more for a range of goods and services.
Delta Airlines
Inc.
DAL 4.27%
said earlier this month that third quarter earnings It rose 13% to $ 1.3 billion compared to the previous year.
United Continental Holdings
Inc.
UAL 4.15%
said benefit increased 30% to $ 836 million in the quarter, and
LUV -8.57%
On Thursday, he said his profit rose 17% to $ 615 million in the period.
"Of course, we do not like to see our profits fall more than others," US Chief Executive Doug Parker said during a call Thursday with analysts and reporters.
Battle against fuel costs
American's profits have plummeted as the carrier struggles with rising fuel costs.
Net income of the airline, in billions quarterly.
Parker said American was updating the back-end technology that has hampered sales of premium seats and complementary services, simplifying its aircraft fleet and cutting out unprofitable international flights. "We know what we have to do," he said.
Shares in the United States rose 6.7% on Thursday amid forecasts by the airline that unit revenues will rise to 3.5% in the fourth quarter. Shares in Southwest fell 8.6% after the airline said its non-fuel costs will rise by at least 3% next year.
"We're not looking at the efficiency rates here when we started to cut back on the schedule I had, so we'll have to work much harder to do that," said Southwest CEO Gary Kelly.
Southwest's fuel coverages helped isolate it from higher prices. Southwest and
Spirit Airlines
Inc.
They also said that they have reduced the flight out of peak.
Other airlines have found ways to offset an increase of about 40% in the prices of jet fuels over the past year. Delta said it was able to recover 85% of its fuel bill increase, while United said it made up about 100% of its higher costs. American said it recovered 40% of the fuel price increase through higher tariffs and rates in the third quarter.
Investors and analysts have analyzed the burden of US debt, profit margins and slow revenue growth. They also point to increased competition as states expand, and the strong exposure of the United States to regions with economic problems such as Latin America. "They have more exposure to weaker markets and less exposure to stronger markets," said Stifel analyst Joe DeNardi.
Parker has said that American should earn an average of $ 5 billion in pretax income each year. Until September 30, the airline had earned around $ 1.5 billion before taxes in 2018.
A high season of difficult travel did not help. In a record summer for air travel in the United States, exit rates on time Slip and cancellation rates increased as of July, according to government data.
American's mistakes complicate his ability to win corporate clients who value reliability and are willing to pay a little more for it, said JPMorgan Chase & Co. analyst Jamie Baker. Delta and United reported revenue growth partly because of business travelers who pay more.
American has not lost market share with corporate clients, said airline president Robert Isom.
"We know we should do better and we will do it," he said on Thursday's call.
In recent years, American has requested a loan to pay for a review of its aircraft fleet. American's total debt as of June 30 was $ 24 billion, more than 3.5 times its 2017 earnings before interest, taxes, depreciation and amortization. In contrast, Delta's total debt of $ 9.3 billion as of September 30 was approximately 1.1 times greater than that of earnings.
While the US debt has postponed many investors, those large expenditures on new aircraft are almost finished, while other operators are still replacing their fleets, said Cowen & Co. analyst Helane Becker.
Some investors say that the sharp fall in US stocks has been an overreaction.
"We see it as a fantastic opportunity," said Patrick Kaser, portfolio manager at Brandywine Global, which recently bought US stocks. "We are big starters and have added to the position."
The Americans reported earnings of $ 341 million, or 74 cents per share, below $ 661 million, or $ 1.36 per share, in the same period last year. Excluding special items, earnings per share were $ 1.13, in line with analysts' estimates, according to FactSet. Revenues increased 5% to a record $ 11.6 billion.
Alaska Air Group
Inc.
On Thursday, the third quarter results were also reported, saying that its profits fell 19% to $ 217 million despite the increase in commission income.
"We are not satisfied with our current financial returns," said Alaska CEO Brad Tilden during a call with analysts. "Fuel prices continue to rise and we have to do more to recover these higher costs."
Write to Andrew Tangel in Andrew.Tangel@wsj.com and Alison Sider in alison.sider@wsj.com
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