Big Slick
Well-known member
- Joined
- Oct 18, 2004
- Posts
- 284
SAN FRANCISCO (MarketWatch) -- For U.S. carriers that have long been cash-strapped, 2006 could be the breakout year.
Airlines, after shouldering record jet fuel prices quarter after quarter, are pushing through steeper-than-usual fare hikes this summer in hopes of riding a wave of wanderlust to their first profit in years.
Standing firm on pricing, AMR Corp. (AMR), Continental Airlines (CAL), United Airlines parent UAL Corp. (UAUA) and US Airways Group are among the big carriers expected to swing to profitability this year.
The increases in airfares are incremental, often less than a Sky Cap's tip for handling a couple of bags at the curb. But the small steps can have a big impact over time for companies that have been slicing away billions in costs and carry millions of passengers a month.
On average, leisure fares are up $40 to $45 this summer over last year, according to Terry Trippler, airline expert at CheapSeats.com. Some fares are $100 to $200 higher, and the cheapest tickets are selling out quickly because there are fewer of them available in the first place.
"We're going to see the $300 to $400 fare go up maybe $20, maybe $25, but we're seeing those $39, $49 and $59 fares we got accustomed to -- we're seeing them easily double," Trippler said.
Summer of love?
That means this summer 2006 is an opportunity that can't be missed for the U.S. airline industry as confident consumers are willing to pay more.
The proof is apparent every time passengers shuffle down the jetway. Load factors are at record levels, meaning many flights are often flying without a single empty seat.
"The increase in airfares have not stopped them one bit," Trippler said. Plus, Trippler pointed out, expensive gas also makes driving long distances less appealing. Listen to John Wordock's interview with Trippler.
To put upward pressure on prices, airlines have been cutting back capacity to fine-tune the supply and demand equation to favor a financial turnaround in the face of record fuel spending.
What's been a bonanza for energy traders has airline executives reaching for the Advil as they scramble for ways to hold back the tide of red ink. U.S. carriers are expected to spend $38.4 billion on jet fuel this year, with an average price of $1.95 a gallon, according to the Air Transport Association. Last year, the total was $33.1 billion, or $1.66 a gallon.
"The airlines are not raising fares in proportion to fuel, and they're going to have to catch up [this summer]," said Trippler. Another 10% increase in fares is expected, he said.
In that climate, for the second time this month, Continental Airlines this week raised its domestic fares by $2 each way.
Continental is one of a handful of airlines that Wall Street believes will be profitable this year -- the first time the Texas-based carrier has turned a profit since 2003.
AMR Corp., parent of the world's biggest carrier American Airlines, is forecast to produce its first profit since 2000.
This summer also stands apart because of strong ticket pricing that continues into August, according to Simon Bramley, vice president of flights at Travelocity. Usually tickets are more expensive in June and July than in August, when demand starts to taper off.
"This year, you're actually seeing high fares throughout the summer," Bramley said. In June, prices are about 10% higher than last year, or $30 to $40 more. In July, prices are on average about $40 more and $50 to $60 more than last year in August, he said.
Even with fare hikes, it's going to be a busy summer in the skies and on the ground.
"Planes are going to be fuller than they've ever been. Airports are going to be fuller than they've ever been," said Bramley.
There are still deals to be had to Florida, Bramley said, but flights into Washington, D.C. and New York are going up. And for travelers abroad, Italy and Costa Rica are also more expensive to get to.
Priced in
Just a few more dollars in revenue could make the difference at low-cost operator JetBlue Airways (JBLU), which flourished during the legacy carriers' darkest moments but is now succumbing to high fuel prices during an aggressive expansion of service.
JetBlue needs to sell more tickets at higher prices than it has been doing, no small feat for an airline whose brand has been established by its strong service as much as its cut-rate deals on cross-country flights. Upping the ceiling on a coast-to-coast flight from $349 to $399 helps, as the airline just did, but boosting the average fare is what really matters to the bottom line.
In the money-losing first quarter, JetBlue's average fare was $105 -- no increase from the two previous years, JetBlue Chief Executive Officer David Neeleman told investors during a conference call after the results.
"Because certainly, if we would have had an average fare of $110 or $115, we would have been reporting much different results here for this first quarter," said Neeleman.
Since the beginning of the year, the New York-based airline has raised fares six times on select routes this year, but also had seven sales on fares as well. Still, JetBlue is not expected by Wall Street to make money in 2006. For every 10 cents more the company pays for a gallon of jet fuel, costs rise by $40 million, according to the company, which will burn about 400 million gallons this year.
Capacity counts
Month by month, airlines have been changing the supply and demand equation by cutting the number of seats they offer.
Capacity is coming down at the legacy airlines that have the most seats.
AMR Corp. Chairman Gerard Arpey told shareholders this week at their annual meeting that the company's revenue is on the rise, up 10.8% at American Airlines in the first quarter on a per-seat basis.
"Demand has been strong," said Arpey. "And by keeping capacity growth in check, we have achieved record load factors and are finally starting to recoup some of the cost of higher fuel prices." American's capacity is expected to come down by about 1% this year.
The rest of the industry, stung by fuel, is also holding back or cutting down the number of seats, particularly in the U.S.
That started late last year and carried into 2006, with surprising uniformity across industry. "There hasn't been anyone who has broken ranks," said Travelocity's Bramley.
Wall Street's view
For investors, the prospect of profits has bid up shares of Continental, AMR Corp. and other components of the Amex Airline Index ($XAL).
Year to date, AMR Corp. stock is up about 15% and Continental shares are up 24%, according to Thomson Financial.
"Airline travelers have been getting a free ride since 9/11 and it has reached the point that this can no longer continue," wrote Ray Neidl, airline analyst at Calyon Securities, in a research note this week.
Pricing simply has to rise, he noted, even if it means giving up some customers. "This is being forced upon them with $70 per barrel oil that is expected to remain at high levels," he wrote. "It's a question of raising prices or perishing."
Neidl still expects the industry to lose $300 million this year, but that includes losses from bankrupt twins Northwest Airlines (NWACQ) and Delta Air Lines (DALRQ). Next year, the industry should see profits of $3.6 billion, excluding the results of Delta and Northwest.
Airlines, after shouldering record jet fuel prices quarter after quarter, are pushing through steeper-than-usual fare hikes this summer in hopes of riding a wave of wanderlust to their first profit in years.
Standing firm on pricing, AMR Corp. (AMR), Continental Airlines (CAL), United Airlines parent UAL Corp. (UAUA) and US Airways Group are among the big carriers expected to swing to profitability this year.
The increases in airfares are incremental, often less than a Sky Cap's tip for handling a couple of bags at the curb. But the small steps can have a big impact over time for companies that have been slicing away billions in costs and carry millions of passengers a month.
On average, leisure fares are up $40 to $45 this summer over last year, according to Terry Trippler, airline expert at CheapSeats.com. Some fares are $100 to $200 higher, and the cheapest tickets are selling out quickly because there are fewer of them available in the first place.
"We're going to see the $300 to $400 fare go up maybe $20, maybe $25, but we're seeing those $39, $49 and $59 fares we got accustomed to -- we're seeing them easily double," Trippler said.
Summer of love?
That means this summer 2006 is an opportunity that can't be missed for the U.S. airline industry as confident consumers are willing to pay more.
The proof is apparent every time passengers shuffle down the jetway. Load factors are at record levels, meaning many flights are often flying without a single empty seat.
"The increase in airfares have not stopped them one bit," Trippler said. Plus, Trippler pointed out, expensive gas also makes driving long distances less appealing. Listen to John Wordock's interview with Trippler.
To put upward pressure on prices, airlines have been cutting back capacity to fine-tune the supply and demand equation to favor a financial turnaround in the face of record fuel spending.
What's been a bonanza for energy traders has airline executives reaching for the Advil as they scramble for ways to hold back the tide of red ink. U.S. carriers are expected to spend $38.4 billion on jet fuel this year, with an average price of $1.95 a gallon, according to the Air Transport Association. Last year, the total was $33.1 billion, or $1.66 a gallon.
"The airlines are not raising fares in proportion to fuel, and they're going to have to catch up [this summer]," said Trippler. Another 10% increase in fares is expected, he said.
In that climate, for the second time this month, Continental Airlines this week raised its domestic fares by $2 each way.
Continental is one of a handful of airlines that Wall Street believes will be profitable this year -- the first time the Texas-based carrier has turned a profit since 2003.
AMR Corp., parent of the world's biggest carrier American Airlines, is forecast to produce its first profit since 2000.
This summer also stands apart because of strong ticket pricing that continues into August, according to Simon Bramley, vice president of flights at Travelocity. Usually tickets are more expensive in June and July than in August, when demand starts to taper off.
"This year, you're actually seeing high fares throughout the summer," Bramley said. In June, prices are about 10% higher than last year, or $30 to $40 more. In July, prices are on average about $40 more and $50 to $60 more than last year in August, he said.
Even with fare hikes, it's going to be a busy summer in the skies and on the ground.
"Planes are going to be fuller than they've ever been. Airports are going to be fuller than they've ever been," said Bramley.
There are still deals to be had to Florida, Bramley said, but flights into Washington, D.C. and New York are going up. And for travelers abroad, Italy and Costa Rica are also more expensive to get to.
Priced in
Just a few more dollars in revenue could make the difference at low-cost operator JetBlue Airways (JBLU), which flourished during the legacy carriers' darkest moments but is now succumbing to high fuel prices during an aggressive expansion of service.
JetBlue needs to sell more tickets at higher prices than it has been doing, no small feat for an airline whose brand has been established by its strong service as much as its cut-rate deals on cross-country flights. Upping the ceiling on a coast-to-coast flight from $349 to $399 helps, as the airline just did, but boosting the average fare is what really matters to the bottom line.
In the money-losing first quarter, JetBlue's average fare was $105 -- no increase from the two previous years, JetBlue Chief Executive Officer David Neeleman told investors during a conference call after the results.
"Because certainly, if we would have had an average fare of $110 or $115, we would have been reporting much different results here for this first quarter," said Neeleman.
Since the beginning of the year, the New York-based airline has raised fares six times on select routes this year, but also had seven sales on fares as well. Still, JetBlue is not expected by Wall Street to make money in 2006. For every 10 cents more the company pays for a gallon of jet fuel, costs rise by $40 million, according to the company, which will burn about 400 million gallons this year.
Capacity counts
Month by month, airlines have been changing the supply and demand equation by cutting the number of seats they offer.
Capacity is coming down at the legacy airlines that have the most seats.
AMR Corp. Chairman Gerard Arpey told shareholders this week at their annual meeting that the company's revenue is on the rise, up 10.8% at American Airlines in the first quarter on a per-seat basis.
"Demand has been strong," said Arpey. "And by keeping capacity growth in check, we have achieved record load factors and are finally starting to recoup some of the cost of higher fuel prices." American's capacity is expected to come down by about 1% this year.
The rest of the industry, stung by fuel, is also holding back or cutting down the number of seats, particularly in the U.S.
That started late last year and carried into 2006, with surprising uniformity across industry. "There hasn't been anyone who has broken ranks," said Travelocity's Bramley.
Wall Street's view
For investors, the prospect of profits has bid up shares of Continental, AMR Corp. and other components of the Amex Airline Index ($XAL).
Year to date, AMR Corp. stock is up about 15% and Continental shares are up 24%, according to Thomson Financial.
"Airline travelers have been getting a free ride since 9/11 and it has reached the point that this can no longer continue," wrote Ray Neidl, airline analyst at Calyon Securities, in a research note this week.
Pricing simply has to rise, he noted, even if it means giving up some customers. "This is being forced upon them with $70 per barrel oil that is expected to remain at high levels," he wrote. "It's a question of raising prices or perishing."
Neidl still expects the industry to lose $300 million this year, but that includes losses from bankrupt twins Northwest Airlines (NWACQ) and Delta Air Lines (DALRQ). Next year, the industry should see profits of $3.6 billion, excluding the results of Delta and Northwest.
