ANALYSIS: US carriers profit in Q2

Washington DC
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US air carriers posted profits - some record - across the board in the second quarter, despite some demand related headwinds.

Alaska Airlines, American Airlines, Delta Air Lines, Hawaiian Airlines, JetBlue Airways, Southwest Airlines, United Airlines and US Airways reported a combined $2.04 billion in net profits after charges on $37.8 billion in operating revenues during the period.

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At least American and Delta reported record results during the quarter. Both reversed from net losses in 2012 with American reporting a $220 million net profit compared to a $241 million loss and Delta a $685 million net profit versus a $168 million net loss.

American executives cite the combination of its restructuring and cost cuts, as well as its fleet renewal, product improvements and network expansion for its improved results during the second quarter.

"The financial trajectory of AMR has improved dramatically and its positive impact can be seen across our business," said Bella Goren, chief financial officer of American parent AMR. "Looking forward, additional initiatives we have underway are expected to further build on our progress."

Operating revenue was flat at $6.85 billion at the Fort Worth-based carrier during the quarter.

Delta chief executive Richard Anderson cited its slightly expanded revenue base on lower fuel costs, in addition to its continuing fleet restructuring and new product roll-outs, including the opening of its new gates in terminal 4 at New York's John F. Kennedy (JFK) airport, during an earnings call in July.

"While these operational and financial results are among the best in our history, we will continue to expand margins and improve cash flows," he said. "We expect 2013 will be one of Delta's most profitable years ever."

The Atlanta-based airline saw flat operating revenues at $9.71 billion during the period.

No airline had an entirely rosy picture during the quarter. US federal government budget cuts - the so-called sequester - hit government demand across the industry while underperforming routes, increased maintenance costs and the weakening Japanese yen impacted individual carriers.

The sequester hit airline revenues worst at the beginning of the quarter after going into effect on 1 March. As a result, Scott Kirby, president of US Airways, said that government-related revenues fell 37% in March and remained down through the second quarter, but business demand rebounded during the period. The carrier operates a large focus city at Washington National airport.

"Stronger consumer confidence, business confidence and macroeconomic performance seem to be combining to drive the improved revenue environment," he said.

Net income fell 6.3% to $287 million on a 2.9% increase to $3.87 billion in operating revenues at Tempe, Arizona-based US Airways versus 2012.

Southwest faced a different problem during the quarter - the drag of its snail-paced integration of AirTran Airways into its network on revenues. Gary Kelly, chief executive of the Dallas-based low-fare carrier, said that the airline must finish combining the two networks in order to optimise it and improve overall revenue performance.

"There are some penalties in our current route system because we are still sub-optimised," he said. "We are underperforming in some markets."

Southwest saw its net profit fall 1.8% to $224 million on a 0.6% increase in operating revenues to $4.64 billion compared to a year earlier.

JetBlue chief executive Dave Barger said that an early Easter holiday and increased maintenance costs associated with the General Electric CF34-10E engines on its Embraer 190s negatively impacted the New York-based carrier's profits. Net income fell by nearly a third to $36 million on a 4.5% increase to $1.34 billion year-on-year.

Delta, despite its record profits, said that the 25% deterioration of the value of the Japanese yen resulted in a $60 million negative impact to profit during the quarter. United reported an about $30 million negative impact from the yen weakness.

Both airlines, which operate hubs at Tokyo's Narita airport, plan adjustments in capacity to Japan in response to the foreign exchange issues.

United improved its net profit by more than 38% to $469 million on a 0.6% increase in operating revenue to $10 billion during the quarter.

Net income at Seattle-based Alaska more than doubled to $104 million on a 3% improvement in operating revenues to $1.26 billion year-on-year. Honolulu-based Hawaiian saw net income increase nearly three-fold to $11.3 million on a 10.2% increase in operating revenues to $534 million.