- The Washington Times - Friday, July 21, 2006

Higher fares and packed planes have translated into soaring second-quarter profits for several of America’s major air carriers at a time of record-high jet fuel prices.

American Airlines’ parent company, Southwest Airlines and Continental Airlines announced this week that second-quarter earnings had at least doubled — and in the case of American, quadrupled — in what they say is a sign that they are on the road to recovery.

“There’s no question that this will be, irrefutably, the best second quarter and perhaps best overall quarter probably since 2000 that the industry has had,” said John Heimlich, vice president and chief economist for the Air Transport Association of America Inc., a Washington trade group representing the country’s biggest airlines. “With the exception of fuel prices and perhaps congestion in the air traffic control system, things are moving in the right direction.”

Mr. Heimlich cautioned, however, that several large — and financially troubled — airlines have yet to report earnings. He also noted that the second quarter is generally the best three months of the year.

“It’s great to make money in a quarter but if you only made money in one quarter of the year, then you wouldn’t be doing too well financially,” he said.

Still, he added, “It’s remarkable that carriers are reporting profits with oil over $70 — that says an immense amount about what they’ve accomplished in the last few years.”

AMR Corp., which owns American, the world’s largest carrier, reported only its second profit (excluding the benefit of one-time gains) since 2000. For the three months ended June 30, earnings surged 400 percent to $291 million ($1.14 per diluted share) from $58 million (30 cents) a year ago.

“These results point the way to our continued progress,” AMR Chief Executive Officer Gerard Arpey said. He cautioned, however, that “we have more work to do to return our company to financial health.”

During the quarter, the Fort Worth, Texas, carrier said its load factor, or percentage of total seats filled, set a record at more than 82 percent. Fare prices jumped by 7.6 percent.

But like its competitors, American cited “stubbornly high” jet fuel prices as a major obstacle to long-term financial health. The company paid $374 million more for fuel this year than in last year’s second quarter. It raised its fuel cost estimates to an average full-year cost of $2.18 per gallon, up from its January forecast of $1.95.

“They proved they can make money at these fuel prices, at least in the busy second quarter,” Ray Neidl, an analyst with Calyon Securities, told the Associated Press. “We still have to get through the slower winter period and see where fuel prices go.”

Mr. Heimlich called rising fuel prices “far and above the number-one challenge” to the industry in terms of future profitability.

Last year’s fourth quarter, just after the Gulf Coast hurricanes, was the first time that fuel prices surpassed labor as the industry’s top expense, he pointed out.

Discount carrier Southwest Airlines of Dallas was able to save $225 million on fuel purchases in the quarter by hedging prices at $1.42 per gallon. The airline posted a second-quarter profit of $333 million (40 cents) more than double the $146 million (18 cents) in 2005.

Average ticket prices climbed nearly 10 percent during the quarter to offset fuel-cost increases, company Chief Executive Officer Gary Kelly told investors.

The company had a load factor of 78 percent.

Profits nearly doubled at Continental Airlines, which reported earnings of $198 million ($1.84), compared with $100 million ($1.26) in the second quarter of 2005. The Houston carrier reported a record load factor of 82.7 percent and increased fuel costs of $216 million.

“But, even with all the progress made, we must continue our focus on eliminating unnecessary costs,” said Jeff Misner, executive vice president and chief financial officer.

Mr. Heimlich of the Air Transport Association warned that short-term results, while positive, are not everything.

“We want sustained health,” he said. “Let’s say the industry has a profit of $1 billion this year — does $1 billion this year make up for $35 billion lost in the last five years?”

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