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U.S. airlines seen profitable despite economic woes
By Karen Jacobs and Kyle Peterson
(Reuters) - Most U.S. airlines are poised to report profitable fourth quarters, a trend set to continue in 2012 as cost-cutting and fare hikes help the industry weather rising fuel costs and global economic uncertainty that could hamper travel demand.
Some experts are calling for 2012 margins to improve over last year as airlines focus on lowering non-fuel expenses, continue to retire less-efficient planes and keep a lid on the number of seats they sell.
"We think 2011 finished really well, and 2012 is starting really strongly," said Helane Becker, an analyst with Dahlman Rose & Co. "We're cautiously optimistic," she said. "But I don't think we're pounding the table on the group.
Southwest Airlines Co will kick off the fourth-quarter earnings season for U.S. carriers on Thursday. Other major carriers, United Continental Holdings Inc and Delta Air Lines Inc, are scheduled to report earnings in the next week.
For two years now, airlines have been recovering from a decade-long downturn that saw several airline bankruptcies and mergers. A series of capacity cuts starting in 2008 paved the way for higher fares to help offset spikes in the price of jet fuel. U.S. airlines posted quarterly profits last year as corporate travel demand held up and fare increases aided yields.
Ray Neidl, aerospace analyst with Maxim Group, said the 10 major U.S. airlines were likely in the black for 2011, with the exception of AMR Corp's American Airlines, which filed for Chapter 11 protection in November. AMR will not file a quarterly earnings report alongside its rivals.
Overall, Neidl expects those airlines earned more than $2 billion last year, down from $4.2 billion for 2010.
"I think the airlines can, as an industry excluding American, almost double their profitability up to about over $6 billion" this year, Neidl said. He said price increases that are sticking will help, as will demand for Latin American travel and ancillary revenues such as baggage fees.
Based on data from Thomson Reuters I/B/E/S, Delta is expected to report a rise in fourth-quarter profit while Southwest Airlines and United Continental Holdings are likely to post lower earnings. US Airways Group Inc is projected at breakeven, compared with a 17 cent-a-share profit a year before.
Even so, soaring fuel costs and economic troubles could still disrupt the industry recovery, given their potential ripple effects on business and consumer willingness to travel. Airlines have said European growth, in particular, will be a bit slow as pressures from the euro zone crisis weigh.
"I don't think (air travel demand) will be materially worse this year than last," said Henry Harteveldt, co-founder of Atmosphere Research Group and travel industry analyst. "But a big unknown is the price of jet fuel." He said higher oil prices could stymie demand from leisure travelers, especially.
Harteveldt said a study by his firm late last year indicated that about 55 percent of travelers intend to take the same number of trips as last year and roughly the same number will spend the same as they did last year. Still, he added: "I am concerned, though, because there are slightly more people who say they would consider either traveling less or spending less than say they'd consider traveling more or spending more."
Michael McCormick, executive director of the Global Business Travel Association, said international travel should be stronger than domestic travel this year. But he added that a softer spot would be group and meeting travel, where growth in 2012 is expected to slow from 2011.
"Companies are still keeping a close eye on costs and are showing some hesitancy to increase their budgets in areas like group meetings," McCormick said. "There's still a bit of that wait-and-see mentality."'
Basili Alukos, an analyst with Morningstar, said he'll be looking to gauge international travel demand in light of the European crisis.
Some big carriers such as Delta Air Lines noted weakness in transatlantic routes in 2011, and have outlined plans to cut capacity in Europe this year."That part of the business has been struggling for most of the carriers for the past year and they've been cutting back," Alukos said. "So maybe you'll see some strength."
(Reporting By Karen Jacobs and Kyle Peterson)
Godspeed!
The OYSter
By Karen Jacobs and Kyle Peterson
(Reuters) - Most U.S. airlines are poised to report profitable fourth quarters, a trend set to continue in 2012 as cost-cutting and fare hikes help the industry weather rising fuel costs and global economic uncertainty that could hamper travel demand.
Some experts are calling for 2012 margins to improve over last year as airlines focus on lowering non-fuel expenses, continue to retire less-efficient planes and keep a lid on the number of seats they sell.
"We think 2011 finished really well, and 2012 is starting really strongly," said Helane Becker, an analyst with Dahlman Rose & Co. "We're cautiously optimistic," she said. "But I don't think we're pounding the table on the group.
Southwest Airlines Co will kick off the fourth-quarter earnings season for U.S. carriers on Thursday. Other major carriers, United Continental Holdings Inc and Delta Air Lines Inc, are scheduled to report earnings in the next week.
For two years now, airlines have been recovering from a decade-long downturn that saw several airline bankruptcies and mergers. A series of capacity cuts starting in 2008 paved the way for higher fares to help offset spikes in the price of jet fuel. U.S. airlines posted quarterly profits last year as corporate travel demand held up and fare increases aided yields.
Ray Neidl, aerospace analyst with Maxim Group, said the 10 major U.S. airlines were likely in the black for 2011, with the exception of AMR Corp's American Airlines, which filed for Chapter 11 protection in November. AMR will not file a quarterly earnings report alongside its rivals.
Overall, Neidl expects those airlines earned more than $2 billion last year, down from $4.2 billion for 2010.
"I think the airlines can, as an industry excluding American, almost double their profitability up to about over $6 billion" this year, Neidl said. He said price increases that are sticking will help, as will demand for Latin American travel and ancillary revenues such as baggage fees.
Based on data from Thomson Reuters I/B/E/S, Delta is expected to report a rise in fourth-quarter profit while Southwest Airlines and United Continental Holdings are likely to post lower earnings. US Airways Group Inc is projected at breakeven, compared with a 17 cent-a-share profit a year before.
Even so, soaring fuel costs and economic troubles could still disrupt the industry recovery, given their potential ripple effects on business and consumer willingness to travel. Airlines have said European growth, in particular, will be a bit slow as pressures from the euro zone crisis weigh.
"I don't think (air travel demand) will be materially worse this year than last," said Henry Harteveldt, co-founder of Atmosphere Research Group and travel industry analyst. "But a big unknown is the price of jet fuel." He said higher oil prices could stymie demand from leisure travelers, especially.
Harteveldt said a study by his firm late last year indicated that about 55 percent of travelers intend to take the same number of trips as last year and roughly the same number will spend the same as they did last year. Still, he added: "I am concerned, though, because there are slightly more people who say they would consider either traveling less or spending less than say they'd consider traveling more or spending more."
Michael McCormick, executive director of the Global Business Travel Association, said international travel should be stronger than domestic travel this year. But he added that a softer spot would be group and meeting travel, where growth in 2012 is expected to slow from 2011.
"Companies are still keeping a close eye on costs and are showing some hesitancy to increase their budgets in areas like group meetings," McCormick said. "There's still a bit of that wait-and-see mentality."'
Basili Alukos, an analyst with Morningstar, said he'll be looking to gauge international travel demand in light of the European crisis.
Some big carriers such as Delta Air Lines noted weakness in transatlantic routes in 2011, and have outlined plans to cut capacity in Europe this year."That part of the business has been struggling for most of the carriers for the past year and they've been cutting back," Alukos said. "So maybe you'll see some strength."
(Reporting By Karen Jacobs and Kyle Peterson)
Godspeed!
The OYSter
