The revenues of the airlines are increasing, but so are the costs.
The revenues of the airlines are increasing, but so are the costs.
Airlines have discovered how to extract more money from passengers, and will need it to cover the rising costs of their own fuel, labor and other expenses.
Not long ago, investors demanded that the airlines boost prices, even if that meant reducing flights to create a shortage of seats. Now they are obsessed with controlling expenses.
They punished Southwest Airlines Co. on Thursday after the airline warned of a surprisingly large increase in costs next year. Southwest reported a 16 percent increase in third-quarter earnings due to higher revenues, exceeding expectations, but shares fell more than 8 percent in afternoon operations.
On the other hand, American Airlines Group Inc. reported that its profit plummeted 48 percent from the previous year because it did not pass the $ 750 million in higher fuel prices to consumers. However, American's shares rose 8 percent after company executives established a plan to reduce spending, increase revenue and increase profits next year.
The four largest US airlines UU They recorded higher revenues in the third quarter than a year ago, and revenue per seat, a substitute for average prices, is increasing. Empty seats are hard to find. United Airlines President Scott Kirby called it "one of the best revenue environments we've seen."
However, airlines face strong headwinds due to the increase in fuel prices. According to government data, spot prices rose around 35 percent from this time last year.
United said earlier this month it was recovering all of its increase in passenger fuel costs, and Delta said it was covering about 85 percent. American, however, said on Thursday that it recovered only 40 percent in the third quarter.
"Our revenues increased, but not as much as those two airlines," said American President and CEO Doug Parker. Delta, in particular, is doing a better job of increasing customer sales in premium offers, he said, while promising that Americans would also improve by improving their ticketing technology.
Parker said American can find $ 1 billion in new revenue, largely by selling improved seats for "premium economy" on international flights and low-cost "basic economy" on more US routes. UU And international. To control costs, American will grow more slowly, cancel unprofitable flights like those between Chicago and China, save $ 1.2 billion by delaying the delivery of 22 new Airbus aircraft in the next three years and cut at least 100 management jobs.
Some investors applauded the plan.
"I was very pleased to hear that," said Chris Terry, a portfolio manager at Hodges Funds, based in Dallas, which owns approximately 275,000 shares of American. "They are not just sitting and waiting for things to happen."
American, based in Fort Worth, Texas, reported a profit of $ 341 million in the third quarter, well behind Delta's $ 1.3 billion, United $ 836 million and Southwest $ 615 million. Revenues increased 5 percent to $ 11.56 billion, a company record.
American predicted that a key measure, revenues for each seat flown a mile, will increase between 1.5 percent and 3.5 percent in the fourth quarter. Executives declined to say how much of that momentum came from agreements with credit cards and freight transportation, two areas where Americans' incomes are growing rapidly.
Excluding non-recurring items, American earned $ 1.13 per share in the third quarter, matching the forecast of 16 analysts in a FactSet survey.
Shares rose $ 2.51, or 8.3 percent, to $ 32.85 in afternoon trading.
Southwest's $ 615 million gain from Dallas was equal to $ 1.08 per share, 2 cents per share better than FactSet's forecast. Revenues increased 5.1 percent to $ 5.58 billion.
Southwest estimated that non-fuel seat costs will increase 3 percent next year, faster than this year.
An analyst at Raymond James called the imminent increase in so-called unit costs a "negative surprise". An analyst from Stifel said he was "well above our expectations."
The prospect of higher costs is particularly critical for Southwest, which for a long time has used lower costs to undercut the rates charged by its main rivals. However, that cost advantage is shrinking, and Southwest often does not beat its bigger brothers in prices.
President and CEO Gary Kelly said Southwest has spent money to improve its frequent flyer program and reservation system, which it said has increased revenues and bought new planes. It also faces higher costs because it transports more passengers and more suitcases than ever, he said.
Kelly said some cost increases are acceptable, and promised to focus on controlling others.
"We certainly can not be satisfied with that kind of unit cost increase, and we are not," the CEO said in a call with analysts.
Southwest shares fell $ 4.66, or 8.5 percent, to $ 49.93 shortly before the closing bell.
Meanwhile, Alaska Air Group Inc., parent of Alaska Airlines, reported earnings of $ 217 million, down 16 percent from a year ago with a 39 percent increase in fuel and a 15 percent increase in costs. labor
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David Koenig can be contacted at http://twitter.com/airlinewriter
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